GROWTH STOCK OUTLOOK
P.O. Box 15381, Chevy Chase, MD 20825.
1 year, 24 issues, $235.
Helmerich & Payne:
Posts boom year
Charles Allmon: "Helmerich & Payne (NYSE: HP; $39.33) is an international drilling contractor with land and offshore operations in the U.S., South America, and Africa. Holdings also include commercial real estate properties in the Tulsa, Oklahoma area, and securities valued at $458 million.
On November 28, Hans Helmerich, president, reported to shareholders with its optimistic comment: "Throughout this past year, we achieved an unprecedented pace of adding four rigs per month to our fleet. Perhaps 2007's most significant accomplishment is found less in the financials and more in the on-time, on-cost execution of that aggressive program. It's a credit to our people to daily deliver on the entire value chain involved: design, manufacturing, commissioning, training, and field performance."
"While this is not an exhaustive list, it should be familiar to our regular readers. Perhaps most notable is what the list excludes. Namely, that we are not managing the dilemma of carrying a large percentage of old, less capable rigs, while the customer increasingly votes in favor of high efficiency rig offerings.
"Too many old legacy assets, often no longer suitable for reinvestment, force our peers into a tradeoff between market share and price discipline. That sounds like the classic prisoner's dilemma with the logical best choice being price discipline. Since, after all, the market drives demand, contractors have to fight against being reduced in a soft environment and engaging in the downward spiral of rig-on-rig price destruction. This is happening now in the U.S. land drilling market.
"Some industry observers have asked why drilling contractors are not exerting more pricing discipline in a market with historically high rig counts. One reason is that truly differentiated performance has driven a segmented marketplace. What we see from our end is existing FlexRigs that were working on the spot market in the last quarter of 2007 still commanding over $25,000 in rig revenue per day on average at 100 percent utilization, while competing rigs were aggressively cutting prices and in the end were still pushed to the sidelines.
"Take a look at this last year in terms of margins and activity by comparing the fourth quarter of fiscal 2007 to that of fiscal 2006:
• Our average rig margin per day in the U.S. land market has only declined by eight percent to $12,221. This daily margin is now 40 percent greater than that of our four largest peers.
• Moreover, our quarterly average number of active rigs increased by 38 percent year-over-year, while that of our four largest peers combined experienced a net reduction of 14 percent.
"We have passed the point where competitors can credibly position idle, old equipment as future operating leverage. Back to the prisoner's dilemma, the next logical exercise in discipline is to permanently remove from the market old industry rigs that are increasingly obsolete, ill-suited, and potentially unsafe in a drilling environment that is becoming more technically demanding. All of this reinforces our confidence in a retooling theme that continues to provide us attractive opportunities going forward. The new order for six FlexRigs that we announced this month provides further confirmation that even in a softer market, the customer is supporting the Company's value proposition."
On 9-30-07 total assets were $2,885,369,000, current assets $498,964,000, current liabilities $226,612,000, cash and equivalents $89,215,000, long term debt $445,000,000, deferred income taxes $363,534,000, shares outstanding 103,485,000, shareholder equity $1,815,516,000 ($17.54 per share), return on shareholder equity 24.7%, negative cash flow. [Address: 1437 South Boulder Ave., Tulsa, OK 74119. (918) 742-5531.]
Allmon's Comments: The U.S. oil dilemma promises to be around for at least the next 15-20 years, and perhaps much longer. Investors seeking entry into energy should own HP. In my opinion, HP is the best of the smaller drilling contractors for several reasons: strong balance sheet, strong management, reputation for quality products, rapid growth, and decent share price.
HP has been on a roll for several years with new technology which finds wide demand. No doubt this trend will continue for several years until we see the next generation of drilling rig technology. Few, if any, rig producers own a better balance sheet than HP, which should serve them well in the years ahead.
In 2008 (September), I would look for earnings above $5.00 per share, on revenue of $1.8 billion or higher. Of course, if demand for rigs suddenly softens, these estimates could be reduced.
What concerns me most is the upcoming political scene in the U.S. Our country may be hit with a financial calamity, as promised tax increases always hurt the economy. Consider this on top of a faltering economic picture, and a real estate market unlikely to recover for at least another five years. Our next president may propose wild new laws almost certain to injure the delicate U.S. economy."
Among world bankers there remains the question of whether the dollar should be only one of a basket of currencies to serve as a world reserve currency. It seems unlikely that the U.S. will swallow the bitter medicine required for a seemingly incurable disease of forever living beyond our means. The U.S. dollar will not remain a reserve currency forever!
While we pooh-pooh those who plunged into real estate far beyond their ability to pay, our own dilemma as a nation looks dangerously similar. The jig will be up when China, and every country holding U.S. government paper, refuses to buy our rapidly depreciating currency. But we do have a big ace in the hole. The U.S. owns by far the biggest hoard of gold of any nation, or perhaps any group of leading nations.
Several investors asked how high might gold go? As I have stated before, under the right conditions, we might see the gold price again cross the Dow. A DJIA under 4,000 most likely would see gold well above $4,000. That's only about four times the present gold price. Years ago, I watched gold leap from $35 to $860. I seriously doubt that anything similar might be in the cards. Nevertheless, a presidential election is roaring down on all of us in 2008. Some truly radical ideas already float about. Some may become law, ensuring that the next five years promise hair-raising times. Question? Could the U.S. be heading for a colossal train wreck?
In January 2008, I had an interesting chat with a friend in South Dakota who controls a string of small banks in the Midwest. Much to my surprise, he brought up my comment to him two years earlier, that U.S. residential real estate could go into the tank big time as cheap and easy money triggered a collapse in real estate prices. Needless, to say, I could not offer much cheer when he asked when I thought the big flop in real estate might end. My reply? 2010 at the earliest. But that could be small potatoes when our federal government taps your bank account with higher taxes. Stay tuned!"
THE SPEAR REPORT
45 Wintonbury Ave., Ste. 301, Bloomfield, CT 06002.
1 year, 50 issues, $297.
It's not too late to buy coal
stocks and the steelmakers
Gregory Spear: "We profiled the coal boom in an early December issue of Spear's Security Industry Analyst, which covers homeland security, traditional defense and strategic resource stocks. While everyone is worried about a U.S. recession, crude oil is trading at record highs, around $100/bbl. Natural gas is trading around $9/MMBtu even though winters are getting milder. The conclusion: commodities are in a secular bull market. It's bad news if you are an energy consumer, but this situation is particularly good for the coal companies. Coal prices have soared over 80% in the last six months and about 30% since the first of the year. Shares of some coal producers have done likewise, but we don't think it is too late to get in.
The Consensus coal companies, Arch Coal, Alliance Resource Partners and James River, should send thank you cards to China's Premier Wen Jaibao. Just as China's industrial juggernaut has been responsible for much of the surge in demand for crude oil in the last five years, China's appetite for coal, which accounts for 25% of global demand, was responsible for the near doubling of prices in 2007. To address brownouts and power shortages throughout the country, last year alone China added almost 100,000 megawatts of coal-fired power, equivalent to about 30% of the entire U.S. coal-powered generating capacity.
The current "coal crisis" is the result of a confluence of production and shipping problems in China, Australia, Russia and South Africa along with increasing demand in China, India, Japan and Europe. Additionally, over the last year, China has closed more than 10,000 coal mines due to safety concerns.
Meanwhile, the US is the Saudi Arabia of coal. We have more than 25% of the world's coal reserves, surpassing all other countries (compared to just 3% of the world's oil.) Moreover, coal is the only major domestic energy commodity whose production levels can be increased even slightly. Coal already powers 50% of our electric needs but at current consumption rates, the US has over 200 years of coal reserves, mostly in the Western areas of the country. Coal, of course, is one of the worst sources of pollution. New scrubbing and CO2 sequestering technology is being deployed over the next few years, however, and we expect a new wave of R&D to follow this price spike. President Bush recently killed a planned clean coal power plant, but we can expect the current environment to result in strong pressure to put it back online.
Consensus has three coal companies you may wish to consider as investment ideas. One, Arch Coal, is primarily a supplier of Western coal, while the other two produce coal in the East and Midwest. Few of the coal companies in Consensus made much money last year, which is why their P/E ratios are high, but that's going to change in 2008-2010 and beyond. If the same thing happens to coal as happened to crude oil, and we think it will, the days of cheap coal are gone forever.
Our favorite is Arch Coal (ACI), which accounts for about 11% of U.S. production. The question you want to ask about Arch Coal or any coal miner for that matter, is "How much will your legacy contracts impact future earnings?" Arch averaged about $17 a ton for its 127 million tons of coal sold in 2007. (Western coal is cheaper than Eastern, by about half.)
Arch was not asleep at the wheel in the winter quarter, however, and was able to generate contracts for 2008 delivery at substantial premiums. Nevertheless, our best guess is that it has less than 15 million tons for sale in 2008 that are currently unpriced. So, 2008 will be good but not great. The company estimates earnings of $2.00-$2.50 a share for the year but that story gets positively great in 2009 and beyond. Arch has unpriced volumes of 85-95 million tons for 2009 delivery and between 95-105 million tons for 2010 delivery. That's going to be the gravy train.
Alliance Resource Partners (ARLP) is an Eastern, high sulfur coal operation based in Illinois and Appalachia that is a fraction of the size of Arch, but its P/E ratio is still reasonable at 10. Moreover, the company has a 5.9% dividend yield. ARLP sells about 24 million tons of coal a year and generated $39/ton in the most recent quarter, but that was only a 5% increase over 2006 prices. ARLP plans to increase production 8-10% in 2008 to meet growing demand. According to the company, about one third of its production in 2009-2011 will be available for market pricing. That's good, but not great.
James River Coal (JRCC), with operations in Eastern Kentucky and Southern Indiana is about one fifth the size of ARLP. The company produces roughly 12 million tons of coal annually. As of November 2007, JRCC had about 15% of its 2008 production unpriced. JRCC has no current P/E, as it lost money in 2007.
In sum, we think Arch Coal (ACI) is the best Consensus play on the industry at this time, with ARLP a decent choice, as well, due to its dividend. Most of the coal stocks are trading near their highs. We think they have a very bright future but sharp corrections can be expected due to recession fears in the next few to several months. A strategy of dollar-cost averaging should pay off well. That means if you plan to spend $10,000 on coal stocks, you'd buy maybe $1,000 worth every two weeks so you automatically buy more shares when prices are lowest and fewest shares when prices are highest."
The same forces that are boosting
coal stocks are benefiting the steelmakers
Given all the doom and gloom about the U.S. financial system and our economy, it might seem that there would be no way to make a buck owning a major U.S. industrial company. Think again.
The same forces that are boosting shares of the coal stocks we have touted in these pages, are also benefiting the steelmakers right here at home. Like coal, steel prices have risen sharply over the last six months. Of course, steel prices are famous for their tendency to fluctuate wildly with cyclical supply demand imbalances. When they are low, steel companies lose money and hope to make it back in the next up-cycle. A new up-cycle appears to be starting and it might last longer this time around given the convergence of supply constraints, surging demand and the secular decline in the dollar.
Commodity prices in general are heading skyward due to the weak greenback, but in cases where stubbornly limited supply meets irresistible demand one has the potential for parabolic price increases. In addition to coal, we have seen this phenomenon in the fertilizer industry, which has been creating windfall profits for companies such as Potash (POT), CF Industries (CF) and Mosaic (MOS). Now steel producers may be set to reap some hot rewards. Inventory is low on a global basis and supplies cannot be increased all that much.
Nucor (NUE) is a diversified producer manufacturing both carbon and alloy steel in just about any form you can think of: bars, beams, sheet, plate, joists, decking, rebar, fasteners, metal building components, steel framing, grating and even wire and wire mesh. Nucor is also the nation's largest recycler and just recently completed the acquisition of an established scrap metal broker with a fleet of 2000 railcars that processed over 7 billion pounds of ferrous metal scrap last year.
As are result of global demand, inventories are at two-year lows. No wonder companies like North Carolina-based Nucor saw prices for their products double in 2007, to more than $700/ton even as the auto industry lagged and the forecast of a general U.S. slowdown kept investors on the sidelines. Earlier in 2007, investors had also been worried that China would dump steel on the global market, but the Asian leader is growing so fast that export surge is not happening. Quite the reverse. Moreover, rising shipping rates are also helping protect regional and national suppliers like Nucor.
Steel producers have pricing power and are likely to have it for a number of years. Analysts just raised Nucor's earnings estimates for 2009 by 13%. In other words, there is "visibility" in the industry. That's rare and investors will pay a premium for it. They already are. After languishing in a sideways consolidation pattern for over a year, NUE is finally starting to move.
We profiled Russian steel producer Mechel (MTL) on August 31, 2007 when shares were trading at $43. They are now changing hands at $138. In another of our publications, Spear's ETF Analyst, we bought a steel fund in November and its' up 6.5% with the S&P down 11.8%. Don't miss out on the possibility of a hometown winner in the same industry."
Ian Wyatt's RISING STAR STOCKS
1015 18th St., NW, #508, Washington, DC 20036.
Monthly, 1 year, $249.99.
Richmont's stock could shine as
brilliantly as the metal it mines
Ian Wyatt: "We think we've discovered a particularly rich vein in Richmont Mines (AMEX: RIC), a Quebec based concern whose bailiwick is exploring, developing and operating gold-mining properties. Specifically, Richmont develops advanced exploration projects and operates narrow-vein underground mines. The company is currently applying its exploration and operating acumen at the Beaufor Mine in Quebec, the Island Gold project in Ontario, and the Valentine Lake property in Newfoundland and Labrador.
For most of 2007, Richmont - like most miners - benefited from higher gold prices, but it also benefited from improved efficiency. In the full year 2007, the company sold 46,193 ounces of gold at an average price of $699 per ounce, compared with 44,866 ounces at an average of $600 per ounce in 2006. Cost of production dipped 7%, to $499 per ounce, from 2006's $538 per ounce.
Marginally less gold sold at higher prices and mined at a lower cost would imply superior year-over-year financial performance, which is exactly what happened. For the year ended Dec. 31, 2007, revenue was $38.1 million, compared with $32.9 million in 2006, producing EPS of $0.28 compared with EPS of $0.14 in 2006.
More recent performance has been promising. Revenue for the fourth quarter was $10.3 million, compared with $7.4 million in 2006, which resulted in a net loss of $1 million, or $0.03 per share, compared with a net gain of $2.5 million, or $0.11 per share, in the fourth quarter of 2006. Sales from the Island Gold Mine, which commenced production during the fourth quarter of this year, more than offset the loss of gold sales from the East Amphi Mine, which was closed in mid 2007.
A closer vetting of the data reveals another rational explanation for the shortfall: the Beaufor Mine was shuttered for five weeks to replace its headframe structure. Once work was completed, production commenced with 46% improvement in the recovered grade.
Richmont's East Amphi Mine in Quebec was an additional albatross: one that's recently been jettisoned. Resources at the mine failed to convert to reserves as expected, which forced the company to suspend operations at the end of second-quarter 2008. The company subsequently sold East Amphi for $7.5 million.
Recent events suggest Richmont is back to hitting pay dirt. In January, the company completed its initial evaluation of the Golden Wonder Mine in Quebec and exercised its option to acquire a 50% joint venture interest in the project. Martin Rivard, Richmont's CEO, commented that the "property has the potential to advance us toward our strategic objective of increasing the number of our producing properties in order to grow production."
With its spate of problems seemingly in the past, Richmont is positioned to prosper in what could be a rough 2008 for the U.S. economy. Though gold has historically performed well when the dollar is in decline, 2007's subprime-fueled credit crash may have created economic woes on a scale unseen since the late 1970s, which could drive prices even higher.
Another positive is greater investor participation. Today, investors have the option of buying the shares of any of the dozens of publicly traded mining companies or buying one of many gold-oriented exchange-traded funds. Easier access enables more investors to diversify their portfolios with gold stocks - a good thing, as gold stocks have historically been negatively correlated with other asset classes. More important, they tend to hold their negative correlation when most needed - during tumultuous times. In addition, more investors mean more efficient, orderly markets, something the sector has often lacked.
Should a worst-case economic scenario unfold, and the probability of that occurring is certainly rising. Richmont stands to prosper as much, if not more, than its competitors. The company is undervalued compared not only to its larger brethren but to its immediate peer group. Analysts' 2008 EPS estimate of $0.16 results in a forward P/E of 23.5 times earnings, which is on the low end of non-exploration-stage gold miners. In other popular value metrics, Richmont scores equally high: its P/S of 2.4 is 76% cheaper than the industry P/S of 12.4, and its price to P/B of 1.4 is less than half the industry P/B of 3.2.
And unlike many of its competitors, Richmont has a solid reputation. The company is a 20-year operator with a disciplined history of living within its means while consistently generating earnings and cash flow and protecting shareholder value with periodic share repurchases.
Speaking of the latter, Richmont announced in December that it intends to purchase up to 1.2 million common shares, 5% of shares outstanding, by year's end. In management's opinion, the purchases are justified because "the common shares might be undervalued on the market from time to time with regard to the company's financial position and future prospects, and the purchase thereof by the company is an appropriate use of its funds."
We agree, which is why we believe that Richmont is deserving of a forward industry P/E of 28 based on an established operating history, favorable (at least for the industry) economical outlook and proven reserves. We think Richmont's stock could shine as brilliantly as the metal it mines, which is why we rate its shares a "buy" with a 12-month price target of $4.50 - a 23% premium to current levels."
Roger Conrad's UTLITY FORECASTER
7600A Leesburg Pike, West Building, Ste. 300, Falls Church, VA 22043.
Monthly, 1 year, $129.
ARC Energy Trust: Strong growth forecast
Roger Conrad: "No one should mistake distributions from oil and gas production with utility-safe dividends. But ARC Energy Trust's (TSX: AET-U) are a close match.
Reserve Life - based on the proven category of 90 percent-plus likelihood of development - has consistently been around 10 years, nearly twice the average Canadian income trust. ARC replaced 101 percent of production with new reserves in 2007, and discoveries in British Columbia will extend that in 2008. Operating costs are steady, and new additions of debt (up 1.8 percent in 2007) and shares (up 2.9 percent) were modest. Finding, development and acquisition costs were slashed 15 percent.
In 2007, oil and gas trusts faced a series of stress tests, from a new tax law to weak natural gas prices and the slowing US economy. The result is two dozen sector dividend cuts and huge capital losses. ARC, however, nearly doubled its fourth quarter net income and posted cash flow and revenue per share that were 6.5 percent and 12 percent higher than 2006, respectively.
As for oil and gas prices, 2008 is a big winner thus far. ARC sold oil in the fourth quarter at just $77.53 a barrel, providing massive upside even if black gold does back off.
Meanwhile, natural gas prices (49 percent of output) are rising as US power utilities ramp up for carbon regulation. That means strong growth for this trust, which weathered last year's challenges in great form. Buy ARC Energy Trust up to 25."
S.A. ADVISORY
Free E-mail Alerts, www.saadvisory.com.
Bullish toward international oils
William Velmer: "We remain bullish toward international oils and believe that our selection or common stock investments belong in most diverse investment portfolio's looking for huge upside potential taking advantage of ever increasing prices and also an inflation hedge & protection from a weaker USD. Our selections are all outside of the United States because political factions refuse to allow major drilling in areas of known hydrocarbons.TOP PROS' TOP PICKS, published weekly by InterShow, 1258 N. Palm Ave., Sarasota, FL 34236. www.MoneyShow.com.
Stock Picks and Insights from
America's most respected advisors
Howard R. Gold, Editor of Top Pros' Top Picks, offers a glimpse into the best advice from leading advisors around the globe. For FREE registration to The Las Vegas Money Show, May 12-15th, see the editor's note.
Coal Notes Should Set Off Sparks
Bryan Perry, Editor, The 25% Cash Machine and ChangeWave Tactical Trader, 9420 Key West Ave., Rockville, MD 20850, www.changewave.com, says special notes tied to the stock of a major coal producer should help investors mine double-digit returns.
Arch Coal (NYSE: ACI) mines, processes, and markets bituminous and sub-bituminous coal with low sulfur content in West Virginia, Kentucky, Virginia, Wyoming, Colorado, and Utah. The company sells to electric power plants, steel producers, and industrial facilities.
On February 11th, Arch reported its second-best year on record, posting fourth-quarter 2007 net income of $81.3 million, or 56 cents per fully diluted share, beating Wall Street consensus estimates by nine cents a share, or 19% to the upside.
With severe supply constraints in traditional coal export nations, including flooding in Australia, power outages in South Africa, and coal shortages in China and India, Arch believes that US coal increasingly will be valued for supply diversification.
Arch estimates that US coal exports grew by close to ten million tons in 2007 and conservatively expects another 20-million-ton increase in 2008. The US is the king of global coal exports and pricing has never been better.
Furthermore, Arch believes that 14 gigawatts of new coal-fueled capacity are now under construction in the United States, representing an additional 50 million tons of new annual coal demand as these plants are brought online in the next five years.
Meanwhile, the 12% Arch Coal SPARQS (Amex: AHB), due September 20th, are just the ticket to riding out the current market volatility.
SPARQS (Stock Participation Accreting Redemption Quarterly-Pay Securities) are structured notes where a sophisticated option strategy of selling out-of-the-money puts and calls are applied to bring in the 12% income stream during the life of the investment.
These SPARQS were issued at $7.615 per share on August 31, 2007, as a one-year note. There are [less than six] months left before this note matures -and that will provide us with a very predictable 12% yield on our money with an almost 100% chance of being called out of the notes before they mature on September 20th.
Why? SPARQS are structured to either pay back your principal plus a premium and interest before they mature (if the underlying stock is trading at a higher price than when the notes were issued) or they will pay you in shares of the underlying stock if, upon maturity, the share price is below the price of the notes when they were issued.
Shares of ACI were trading at $30.46 when this note was issued back in late September 2007, and carry an exchange rate of 0.25 shares (one-fourth of a share).
They're now trading at $43. Multiply $43 by the conversion rate of 0.25 and you come up with $10.75 per SPARQ note. I fully expect the issuer, Morgan Stanley, to redeem this issue before it matures because of the appreciation in shares of ACI common stock.
Assuming Morgan Stanley doesn't call the issue until the final call date in September, we stand to collect [dividends and capital appreciation] of 12.5% over the next six months. Nice!
Two Energy Trusts That Still Look Good
Jack Adamo, editor of Jack Adamo's Insiders Plus, www.jackadamo.com, says two Canadian energy trusts will continue to pay high dividends for years even after the tax laws change.
Penn West Energy Trust (NYSE: PWE) and Harvest Energy Trust (NYSE: HTE) both reported profits for the full year down significantly from 2006. However, most of this was an illusion.
Because of a change in Canadian tax law, the companies took a charge for future taxes that they are not ever likely to pay. They have plenty of tax deductions that they can apply to those future liabilities, and they will accumulate more before the 2011 enactment of the laws.
The stocks also suffered last year because of increased royalty rates from Alberta, where the companies have a large portion of their operations. What the market didn't realize is that both of these companies get most of their output from low-production wells that will see almost no royalty increase under the new rules. They are sheltered under the statutes, which seek to promote exploitation of underutilized resources.
The bottom line is the distributions on these units are likely to remain high for at least another four or five years, and probably longer. Penn West is currently yielding about 13%, and Harvest about 15%. Penn West has a payout ratio of only 71%. Its dividend is probably safe for at least the rest of the year, and far beyond that, in my opinion.
Harvest's payout ratio is high, however, more than 90%. It will be less than that in coming quarters; nonetheless, the distribution could be cut by a few cents, but would still be very good. On the other hand, if oil prices stay above $90 per barrel, we could also see an increase.
Another thing: even after the new tax laws go into effect and the tax credits are all used, the distributions are estimated to decrease only about 24%. That would reduce the Penn West yield to 10%, assuming they don't rise from here due to higher energy prices. The Harvest yield would be reduced to about 11.25%. Not too tough to take.
The one legitimate rap on these companies is that they don't grow production very much, and sometimes they don't replace 100% of their reserves in house; hence, they tend to make acquisitions frequently. But with energy prices very firm, the companies are getting capital cheaply, despite disruptions in the financial markets.
As long as they keep making returns above their cost of capital and production expenses, we can live with the acquisitions. With the distributions so high in these companies, you have to expect that they won't replace reserves as fast as regular exploration & production companies, which invest a lot more of their earnings in exploration.
Penn West is a buy up to $33.50, and Harvest is a buy up to $29.
Jump Off the Commodities Bandwagon
James Stack, President, InvesTech Research and Stack Financial Management, 2472 Birch Glen Dr., Whitefish, MT 59937, www.investech.com, says there's too much bullishness about commodities, and investors should be cautious.
Let's call this "my problem" - because I get nervous when any bandwagon that I'm on starts to get overcrowded.
More than three years ago (by December 2004, when oil was still near $40 a barrel), we dramatically increased our portfolio allocation in energy stocks from 7% up to 17% - over twice the energy stock weighting in the Standard & Poor's 500 index then. We had no crystal ball that oil prices were headed to $100 a barrel. We simply had historical precedent on our side.
And that's my problem with staying on the bullish commodity bandwagon today: I know that a great deal of this run-up has been fueled by the synchronous global expansion following the 2000-2001 recession.
Today, the emotional arguments are very compelling. "Oil is a limited resource, and they aren't making any more of it!" "Gold can only move higher, as long as the dollar continues to fall." "Growth in China, Asia, and India has changed the long-term outlook for commodities."
The US dollar has tumbled 35.7% since its previous high in 2002, and over 11% since early last year. However, if the latest research news from ECRI (Economic Cycle Research Institute) proves correct, then we feel the tumbling dollar may soon hit bottom: if Europe drops into a recession, that will ultimately lead to rate cuts and a narrowing of the US-Euro interest rate spread. That is when the dollar could start to surprise everyone to the up side.
Bottom line: the arguments for rising oil prices, $1,000 gold, and commodity shortages seem perfectly logical. But that's always the case. And it is when things appear "too perfect" that it becomes easy to expect the recent past to continue ad infinitum. Both commodity prices and the dollar are cyclical. And it is when a cycle has run to an apparent extreme - like today - that it becomes most important to adhere to prudent portfolio allocation practices.
The historical lesson remains that all commodity prices are cyclical. They go through up cycles and down cycles. And it gets dangerous whenever one starts to say, "but this time is different!" The fact that long-term futures contracts are now pricing oil at $97+ all the way out through 2015 means the bullish bandwagon couldn't be more overcrowded.
We don't know when it will start, or what fundamental news will trigger it, but we expect both crude oil and gold prices to peak in the not-too-distant future. And when they do, the resulting correction will likely be swift - and even more sudden Our advice, if you have not done so already: reduce holdings in oil, gold, and commodity-related stocks to core positions that you intend to hold for the next five or ten years, regardless of a sizable correction.
A Little Inflation Isn't Bad
Sam Stovall, Chief Investment Strategist, Standard & Poor's, 55 Water St., 44th Flr, New York, NY 10041, www.outlook.standardandpoors.com, says the Fed's interest rate cuts may boost inflation a bit, but not enough to hurt equity markets in the long run.
The equity markets dodged a bullet when the Standard & Poor's 500 recovered on March 18th from the Bear Stearns-induced sell-off of March 17th.
Following an early plunge in the market, the S&P 500 rallied by the end of March 17th to remain above the 1270 level, what we believe to be critical support. Investors likely looked upon the pending sale of Bear Stearns to JPMorgan Chase as one issue they can stop worrying about.
It probably didn't hurt that the Federal Reserve backed the deal with $30 billion (subsequently reduced to $29 billion when JP Morgan raised the price to $10 a share), and then lowered the federal funds rate by 75 basis points at the March 18th Federal Open Market Committee (FOMC) meeting.
The committee indicated that further rate cuts could be seen, since "downside risks to growth remain." S&P Senior Economist Beth Ann Bovino said a cut to 2% is likely. "Most Fed members feel that the Fed has to fight recession now, and worry about inflation later," Bovino noted.
S&P Economics expects headline and core consumer prices to decelerate over the next two quarters. This implies a drop in oil prices from the record high of $111.80 a barrel reached on March 17th to an average of $91.33 by year-end. If oil continues to rise, the value of the dollar depreciates more than expected and productivity slows sharply, inflation would rise rather than moderate, she says.
While their forecast is for the consumer price index (CPI) to rise to 3.5% in 2008, up from the average 2.9% in 2007, S&P economists expect it to decline to an average of 2.1% in 2009. They also see the core CPI averaging around 2.6% through 2011.
Historically, the S&P 500 posted its strongest monthly advances during periods of modest increases in inflation (2.0%-3.9%), yet stocks came under pressure when the headline CPI's rate of annual change rose above 4.0%. We believe, therefore, that the market may welcome a touch of inflation - but not too much - since slightly rising inflation implies that the economy is growing and producers are able to boost earnings through price increases.
During periods of accelerating inflation, investors traditionally gravitated toward the "real asset" areas of energy and materials, as well as the more defensive sectors of health care and utilities. S&P equity analysts have five-STARS recommendations on 90 stocks; 29 of these issues come from the energy, health care, materials, and utilities sectors.
Editor's Note: If you find this information valuable, then consider attending The Las Vegas Money Show, May 12-15th, 2008, at the Mandalay Bay Resort For FREE registration call 1-800-970-4355 and mention Bull & Bear priority code 010475 or visit the web site at www.LasVegasMoneyShow.com.
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BMB Munai Inc. (AMEX: KAZ; $4.99, www.bmbmunai.com). The oil and gas producer is located in the country of Kazakhstan. Revenue for the 9 months $42 million and net income/sh of .34. Based upon 44.6 million shares outstanding. At present KAZ has around .75./sh in cash and a stated BK of $3.38. Production increased 20% from 2nd quarter to 2800 barrels/day - 80% production was exported to the International market.
Arawak Energy (TSX: ABG; $2.35, www.arawakenergy.com). The company has production in Azerbaijan, Kazakhstan & the Republic of Russia. The company produced around 3.66 million barrel of oil for 2007. Management projects around 20k barrels/day by the end of 2008 and 28k barrels/day by the end of 2009. At present there are around 187 million shares outstanding.
Other Russian Oils that we currently like and own - Imperial Energy (London: IEC.L; 1363 pence, Pink Sheets: IEGYF.pk; USD $27.20, www.imperialenergy.com). Heavy exposure in Western Siberia and northern Kazakhstan-10k+/day end of 2007 - projected to exceed 35k by the end of 2009!!! Looks like around 50 million shares outstanding. Urals Energy (London: UEN.L; 173 pence, Pink Sheets UREYF.pk; USD $3.46, www.uralsenergy.com) Sibir Energy (London: SBE.L; 545 pence, Pink Sheets: SIBYF.pk; USD $10.90, www.sibirenergy.com).
Finally, one other international that has been hugely successful for www.saadvisory.com investors is ADDAX Petroleum (TSX: AXC; $43.91, www.addaxpetroleum.com). One of the largest independent Oil and Gas producers in Western Africa - average production for 2007 - 126,000 barrels/day. Monster test wells in Iraq are indicating Elephant in size! We own all these investments and understand that since they are outside of the USA that political risk exists! We can't look for major Oil anywhere in our country - let us tax the hand that feeds us - cannot build Nuclear power plants, but let us all revert back to horseback and bikes - how about a wind mill farm - The foolish liberals would rather save a worm than feed a human!
The other area of interest that diverse hydrocarbon investors should consider is direct participation in development properties that are "cherry" picked and can offer investors great diversification, attractive tax incentive and monthly distribution from successful revenue streams from newly drilled opportunities within politically stable United States and Canada.
When you consider the chaotic Middle East, unrest in Yemen & Nigeria, daily saber rattling from Venezuela's Chavez & Iran's Ahmadinejad, the endless appetite from developing nations such as China and India, depletion of reserves in developed nations and expanding regulation reducing the ability to drill in areas of interest such as anwr and coastal water off the US - The smart investor must realize that supply long term is suspect and benefit from such chaos can yield attractive monitary rewards. With oil at $106.00/barrel and gas at $9.95/1000 cubic feet investors must look to diversify and in our opinion, should consider drilling programs that offer direct participation in proven areas of reserve.
Editor's Note: William Velmer has not been paid by any of the listed investments in this brief. He may buy, sell and/or hold positions at his discretion. www.saadvisory.com has been published since 1984. Visit the website and sign up for "Free" E-mail Alerts. Mr. Velmer offers a personalized phone service - where he will call you before the herd is informed - $850/yr, call 801-272-4761 for information.
DOW THEORY FORECASTS
7412 Calumet Ave., Hammond, IN 46324.
1 year, 52 issues, $279.
Airgas' growth story more than hot air
Richard Moroney: "Out of many a boring business springs an exciting investment opportunity. While refilling containers of gas doesn't have the cache of creating software or drilling for oil, Airgas (NYSE: ARG; $46) is profiting from the industry's steady demand and strong growth potential.
This gas distributor occupies a unique position in a fragmented industry. Airgas operates the largest specialty-gas network in the U.S. and is the nation's biggest supplier of welding-related rental and safety products. As the nation's No. 1 distributor of packaged gas, Airgas controls 25% of the market. About 800 retail stores and 300 other locations nationwide give Airgas a larger sales network than any rival, a huge advantage in an industry in which customers typically travel less than 75 miles for heavy gas cylinders.
With about 900 local and regional distributors controlling a combined 50% of the market, Airgas has no shortage of acquisition targets. Over the last 25 years, Airgas has purchased more than 350 companies, with five new planned purchases announced so far this year. An increasingly dominant market position gives Airgas strong cost advantages. With a Quadrix(r) Overall score of 86, Airgas is a Buy.
Sales and rental of gas and gas-related equipment provide 57% of Airgas' revenue. Industrial and medical customers rely on the company's core packaged gases, while Airgas sells a variety of specialty gases with uses ranging from laboratory research to refrigeration. Airgas own more than 7 million cylinders, each of which generates roughly $60 a year in rent - not including revenue from gas refills. The company operates about 300 refill plants.
Welding products and other equipment and tools account for 29% of revenue. Airgas sells and rents a range of welding equipment, including its own Radnor brand. Safety merchandise such as eyeglasses and environmental-protection products comprise the remaining 14% of revenue.
None of Airgas's 1.2 million customers makes up more than 0.5% of total sales. Industrial manufacturing (29%) and repair and maintenance (26%) are the two largest end markets among the company's broad customer base. Airgas also sells to the construction, energy, medical, food, and chemical industries.
In the nine months ended December, per-share earnings rose 29% on 25% sales growth. Fiscal 2008 ending March should be Airgas' eighth consecutive year of double-digit growth in earnings per share. Consensus estimate project per-share-profit growth of 17% in fiscal 2009. Despite strong recent operating performance, Airgas remains attractively valued at 15.6 times projected year-ahead earnings of $2.94 per share, slightly below its five-year average forward P/E ratio of 16 and well below the average of 19 for its two largest competitors.
No international operations shield Airgas from an economic slowdown in the U.S. But the company believes its broad product portfolio - and continued demand from energy and commercial-construction customers - will allow for solid growth even during a slump.
An annual report for Airgas Inc. is available at 259 N. Radnor-Chester Rd., Ste. 100, Radnor, PA 19087; (610) 687-5253; www.airgas.com.
ECONOMIC ADVICE
3910 N.E. 26th Ave., Lighthouse Point, FL 33064.
Monthly, 1 year, $149. www.economicadviceinc.com.
Balance your portfolio
towards North America
James Rapholz: "Income investing Canadian Oil & Gas Trusts - Most of the ones that I have listed pay 12% and they pay out on a monthly basis: Advantage Energy Income Fund (TSX: AVN), Baytex Energy Trust (TSX: BTE), Enterplus Resources Fund (NYSE: ERF), and Paramount Energy Trust (TSX: PMT). If you trade online as I do and you want to buy something on a Canadian exchange, just call your online trader.
Exploration Companies - these are the bottom of the heap and are often priced in pennies. They are not producers and are still looking for the next mother load. However, they may end up being the biggest winners in a real strong precious metals bull market:
Almaden (AMM.T) Northern Lion (NL.V), Orezone (AMEX.OZN), Golden Arrow (CDNX.GRV.V) US Gold (AMEX.UXG), Rubicon (AMEX.RBY), Madison (CDNX.MMR.V), Candente (DNT.TO), Buenaventura (NYSE.BVN), Virginia Gold (VGO.TO), and Nevsun (AMEX.NSU). *editor's note: My favorite of this group of juniors is US Gold because of its founder who started Goldcorp from scratch and turned into a real winner and because of the Nevada mining property he has put together. It's in one of the worlds best gold producing areas but, as usual do your own thinking and things will probably work out for you. My wife owns one hundred shares of this one.
Pure Silver Plays - These may very well turn out to be the best performers of all:
Hecla (NYSE.HL), Pan American Silver (Nasdaq.PAAS), Silver Wheaton Corp. (SLW.TO), Silver Standard Resources, Inc. (Nasdaq.SSRI), Coeur D'Alene Mines (NYSE:CDE), ECU Silver (CDNX.ECU.V), Sterling (CDNX.SLG.V), Gammon Lake (AMEX.GRS), Silver Metals (SVM.TO), Endeavour Silver (CDNX.EDR.V), and Apex (AMEX.SIL). *editor's note: My favorite pure silver play is Silver Wheaton Corp. I like this one because they probably take less risk than any of the others. They do not mine silver or anything else. They buy silver from several large producers at a predetermined price, hold it and then sell it when the price goes up enough to suit them.
Uranium Producing Companies: Cameco (CCJ.TO), Energy Resources Australia (OTC.EGRAF.PK), Cogema unit of Areva (OTC.ARVCKF.PK) and Denison Mines (DNN.TO).
Junior Uranium Developers: Strathmore Minerals (CDNX.STM.V), Standard Uranium (CDNX.URN.V), Energy Metals (CDNX.EMC.V), Western Prospector (WNP.TSX.V), Crosshai Exploration (CDNX.CXX.V), and CanAlaska Ventures (CDNX.CVV.V). *editor's note: My pick of this bunch is CanAlaska Ventures because they appear to be closer to getting into actual production than any of the rest.
Uranium Exploration Companies: Wealth Minerals (CDNX.WML.V) and Dejour (CDNX.DJE.V).
Copper Mining: Ivanhoe Mines (NYSE.IVN), and Freeport McMoran (NYSE.FCX), *editor's note: I have to go with Freeport McMoran because of its size, track record and its ability to hold costs down at a time when they're going into orbit for all the players!
Combination Plays: Northern Dynasty (AMEX.NAK) - copper and gold, Nova Gold (AMEX.NG) copper, gold, silver and zinc. •editor's note: My choice here is Northern Dynasty because their property is so large and rich that they'll probably be mining the monstrosity for the next two hundred years! By the way - my wife owns five hundred shares of this one.
Investing for Capital Gains in a Bear Market: Rydex Ursa (Nasdaq Sc: RYURX). This mutual fund is counter cyclical to the S&P 500, and is great for investing in a bear market or for hedging a portfolio. It will do poorly during bear market rallies.
Gold Mining Mutual Funds: ASA Ltd. (NYSE: ASA). A closed-end fund, owning South African mining shares only. The South African mines are currently shot down because of a coal (for electrical generation) shortage. I'd stay out of this one for the present time.
Central fund of Canada Ltd. (AMEX.CEF). Listed on the American Stock Exchange. It is a pure bullion fund and maintains a ratio of 50 ounces of silver to one ounce of gold. It is a near proxy for bullion. Which cannot usually be held in an IRA or other tax-protected plan, unlike CEF.
American Century Global Gold (Nasdaq: BGEIX) an open-end, no-load mutual fund, which probably has the lowest expense ratios.
Tocqueville Gold (Nasdaq: TGLDX). An open end, no-load mutual fund.
US Global Investors (Nasdaq: USERX): An open-end, no-load mutual fund.
Fidelity Select Gold (Nasdaq: FSAGX). An open-end fund.
*Editor's Note: My favorite gold mining mutual fund is Central Fund of Canada Ltd. And I'm currently debating whether or not to put it into my I.R.A. At the present time I believe that the price of gold appreciation has several more years of upside!
ETFs (Exchange-Traded Funds):
The silver ETF is iShare Silver Trust, (AMEX: SLV). The gold ETF is Streettracks Gold Trust (NYSE: GLD). Your shares are backed by gold bullion at the current price.
These new gold and silver ETFs may make CEF obsolete, as now you can buy shares of each metal in whatever ratio you prefer. The gold/silver ratio may narrow to as little as 20 to 1 (from today's 56 to 1) and if this happens it will probably make silver investing more profitable than investing in gold!
Market Vectors-Gold Miners stock ETF, (Amex: GDX) is an Exchange-Traded Fund that holds more than 20 gold-mining stocks. They are all major mining stocks with broad public markets. It is a proxy for 20 of these gold and silver mining companies. It is the lazy-man's way to hold a broad portfolio of mining shares. *Editor's note: This fund is an excellent way for the novice (or new player) in the precious metals market to get started and I strongly recommend that you look this fund over closely if you are a new player! If you believe as I do that the precious metals market has several more years of upward price appreciation, this fund might make a good one for your I.R.A. account or a college saving investment account.
I favor mining companies with more than 50% of their production and/or properties in North America because it will reduce the political risk of expropriation. That exists in many corners of this world!
Please do not ignore the other companies entirely; just make certain that your portfolio is balanced towards North America."
BI RESEARCH
P.O. Box 133, Redding, CT 06875.
Published every 6 weeks, $120. www.biresearch.com.
Taseko: "All growed up"
and turning some heads
Thomas Bishop: "Taseko (ASE: TGB; $5.50, +406% Avg.), now up 252%, operates the Gibraltar open-pit copper mine in British Columbia, which it has significantly expanded and upgraded. It also has in development one of the largest open-pit gold/copper deposits in North America, Prosperity, which has 4.5 million recoverable ounces of gold and 2 billion recoverable pounds of copper, and a 22% IRR at $650 gold and $2.00 copper... Today those are at $972 and $3.87. One of the big advantages of investing in Taseko is that its operations are all located in North America which removes risk.
In my February 8th Update Line I issued a Screaming Buy on Taseko with the shares at $3.60. A few weeks later the shares were steaming towards $5.50 prompting one subscriber to write- "Next time you issue a Screaming Buy on something, would you please hit me over the head with a 2x4?!!" I have issued Screamers only episodically heretofore. That one worked out pretty well, perhaps starting a bounce off the bottom that was then fueled by rebounding copper prices even as reports of recession persist. Also Raymond James issued an Update/Buy estimating Taseko's Net Asset Value at $9.26 (including Prosperity), declaring TGB the most inexpensive stock relative to its NAV in its universe of copper producers. The report went on to project calendar 2008 EPS out in the ozones at $1.36(!) Meanwhile, I am still comfortable in the $.65+/- range, though that is for FY9/30/08. Nonetheless, it can't make that much difference. Loose canons need to be reigned in, or Taseko will pay the price when it misses Street estimates.
Also Taseko announced December results, which were above the norm at $.12. Note that over the past three years the Company earned $.21, $.26 and $.36 and that, simplistically, 4 X Q1's $.12 = $.48 going forward... but since the recent quarter ended, the new expanded mill (nearly doubling capacity) is starting to kick in. But what made the $.12 in fiscal Q1 even better in investors' minds is that Taseko hit that level while leaving 7.3 million pounds of copper on the dock, worth about $27 million at today's prices because it believed it was more prudent to wait to ship the concentrate until some seasonal factors washed by related to high shipping costs as well as some short-term Cu price softness... Indeed both have improved and the entire improvement will now flow to the bottom line and... life is good. Fiscal Q1 benefited from mill improvements, higher grades, better recoveries and higher metal prices. Mill capacity has been all but doubled, on schedule and on budget ($74 million), with shakedown ongoing and Phase 2 expansion now gearing up. I note that Taseko is getting increasing favorable press. Something we almost never saw in the past years. Our little baby is "all growed up"... and turning some heads. BI Rank 11.3- Buy."
THE CHARTIST
P.O. Box 758, Seal Beach, CA 90740.
1 year, 17 issues, $175.
Updates on Barrick, Goldcorp
and NRG Energy
Dan Sullivan: "Barrick Gold (ABX) - The world's No. 1 gold producer announced that its fourth-quarter profit rose 28 percent. During the quarter, the company earned $537 million, or $0.62 per share, up from $418 million in the year-ago period. Operating cash flow rose 104% to $676 million, or $0.78 per share, on gold production of 2.14 million ounces at total cash costs of $375 per ounce. Full year production for the company was 8.06 million ounces of gold at total cash costs of $350 per ounce and 402 million pounds of copper. This is the fifth consecutive year that the company has met its original operating guidance.
For 2007, the company's net income was $1.12 billion, or $1.29 per share, compared to prior year net income of $1.51 billion ($1.79 per share). Gold reserves increased to 124.6 million ounces, more than replacing a depletion of 9.5 million ounces, and still the highest in the industry. The company also announced that it expects to produce between 7.6 million and 8.1 million ounces of gold in 2008.
Goldcorp. Inc. (GG) - Canada's No. 2 gold producer announced that its fourth quarter profit nearly quadrupled, thanks to higher gold prices and increased production. The company announced that its earnings rose to $256.5 million, or $0.36 per share, up from $66 million, or $0.11 per share, in the year-ago period. Revenues increased 42% to $679.8 million. Adjusted earnings rose to $178.5 million, or $0.25 per share, up from $113.5 million, or $0.19 per share.
For the year, the company strengthened its position as Canada's top producer by acquiring 100% ownership of Musselwhite and Porcupine mines in Ontario. The company also approved a Penasquito expansion to 130,000 tonnes per day. Over the year, the company increased its gold reserves by 9% and its silver reserves by 37%.
The company also announced that its 2007 production increased 35% to 2,292,600 gold ounces at a total cash cost of 163 per ounce. 2008 guidance remains at approximately 2.6 million gold ounces at a total cash cost of $250 per ounce.
NRG Energy (NRG) - The power producer posted a profitable fourth quarter, with net income of $104 million, or $0.35 per share, up from a loss of $30 million, or $0.17 per share, during the year-ago period. Revenue grew to $1.38 billion, up from $1.14 billion. For the full year, net income fell to $586 million, or $2.01 per share, down from $621 million, or $2.04 per share, in 2006. Revenue increased to $5.99 billion, up from $5.59 billion.
The company's most recent quarter also included a $24 million reimbursement of development costs on a South Texas project, and a $7 million after-tax impairment charge for commercial paper investments."
THE FORECASTER
19623 Ventura Blvd., Tarzana, CA 91356.
1 year, 40 issues, $180.
That which glitters
can make you money
John Kamin: "Gold and silver holdings can help protect you against inflation risks and make you money, as the dollar devalues, devaluation over which you have no control. Among the easiest holdings are gold bullion coins. You can hold $20,000 worth in your hand, not much bigger than a pack of cigarettes. Right now, we are recommending the 2008 American Gold Eagles (AGEs), 1/4 oz ($10) and 1/2 oz ($25) coins. These 2 sizes are usually the lowest mintage. For now, you can avoid the 1 oz ($50) and the 1/10 oz ($5) Gold Eagles, mintages too high year-by-year.
You might also buy a 500-coin box of 2008 Silver Eagles, which sell at a modest premium over their silver meltdown value.
The Forecaster Moneyletter will also help with the recommendations of gold and silver bullion coins selling close to their meltdown values. Hopefully, over the years they will become scarcer, many will be lost or damaged or melted, and the pristine examples you have will rise in value."
Kenneth Coleman's INVESTMENT TRACKER
4805 Courageous Ln., Carlsbad, CA 92008.
Monthly, 1 year, $139.
How long will it take interest rate
cuts to reignite a dwindling economy?
Three percent was the point where interest rates began to exert significant upward pressure on the economy. A consensus of analysts say 6 to 12 months is usually enough time for low interest rates to start applying upward pressure, meaning the economy should begin to show signs of improvement as early as August 2008 or as late as January 2009. In the interim, the prospect of recession continues to teeter on the possibility that the subprime fallout will pull the economy down quicker than interest rate cuts can pull it out. If, however, a recession were to occur, the interest rate cuts should help soften the blow.
Finally, those of you who took my advice and bought gold and silver or gold and silver stocks on a pull back have done quite well. One reason silver has outperformed gold in the last year is because central banks are constantly selling off gold in an effort to keep its price lower than the rate of price inflation. Gold would be priced at twice what it is currently if it were allowed to follow prices upward. Not only have central banks sold off gold in order to control its price, the Federal Reserve (the U.S. central bank) has kept the publicized real rate of inflation lower than it has actually been.
One factor that has helped keep the prospect of inflation low is the massive increase in productivity over the past seven years. Consensus had it that corporate America simply learned to work smarter, thus faster. One reason for increased productivity can be attributed to the 12 million or more illegal aliens currently working in the U.S. Many who work "under the table" are left uncounted in the work force.
Thus you have more workers producing goods and services, however, fewer official workers. Therefore, productivity is skewed to the upside, meaning a lower expectation for rising prices than should be the case.
David Ranson, head of research at H.C. Wainwright & Co. Economics, in a Wall Street Journal article titled, "inflation May Be Worse Than we Think," (February 27, 2008), stated that "when the Fed assesses the 'underlying' rate of inflation, this is a big mistake. Markets look forward, while government surveys of the cost of living are a rearview mirror. A little 'indicator analysis' shows that commodity prices, far from reverting quickly back to the mean, are an early warning indicator of the future CPI. Last year's increase in energy and food imply that consumer price inflation is going to be much closer to today's 'headline' rate of 4.3 percent than the 'core' rate of 2.5 percent."
Ranson explains, "Historically, CPI inflation is more closely related to prior changes in the price of gold than most people realize." The relationship is so that gold's price is "notoriously volatile, while the CPI is slow moving. It is therefore necessary to take account of gold-price changes over a multi-year time frame." An equation that has been used as a rule of thumb is to divide the percentage the price of gold has risen in the past eight years by 80 and add three. In the last eight years, gold has risen 2.25 percent. Entered into the equation, coming inflation looks closer to 6 percent than 4 percent.
This represents one reason why the price of gold, as well as most other prices, will climb this year. Ranson's rule of thumb also portends the dollar will continue to dramatically decline throughout the rest of this year. This means investments that profit from a long-term slide in dollar value will do well with a minimum risk. This would include gold, silver, oil and gas, and various Swiss annuity products."
INVESTOR'S DIGEST of Canada
133 Richmond St., W., Toronto, ON M5H 3M8.
1 year, 24 issues, $137.
Analysts continue to take
a shine to Cdn. Gold miners
Michael Popovich: "Gold. From time immemorial, it's been the preferred investment for nail-biters seeking a safe haven in uncertain times. And times are uncertain. Not a day goes by that Americans, as well as Canadians, wonder if the economy isn't about to tip over into a recession.
True, their fears may have been calmed by recent cuts in interest rates by the U.S. Federal Reserve.
But consumers can't help but wonder if the hits taken by U.S. banks in sub-prime lending aren't a ticking time bomb.
Meanwhile, the possibility of a Mideast meltdown - and, with it, sky-high energy prices - looms ever-larger, given Iran's continued sabre-rattling and Pakistan's stumble to democracy.
That gold is now hot is hardly a subject for debate. Indeed, gold is now the highest it has been in 37 years.
But political and economic uncertainty aren't the only things pushing the metal up. Simple vanity is another.
Indeed, Blair Carey, an analysts with Toronto's Abacus Private Equity Group, sees gold demand being fuelled by Asia's rising appetite for jewelry - a trend, he suggests, that's not about to slowdown.
With more and more Asians entering the middle class, but with most luxury goods in Asia still out of reach, a gold necklace is a cheap way for a person to proclaim he's made it, Mr. Carey says.
Meanwhile, global gold supply remains tight and will probably remain so for some time. For one thing, no major supplies are coming onstream anywhere over the next two years. Mr. Carey notes.
Moreover, it usually takes four years between the time a gold deposit is discovered and a mine actually goes into production.
Given gold's flight into the stratosphere, it's not surprising that gold plays once again caught the eye of our market watchers.
In first place in our top list of top-10 buys this month, our experts placed Yamana Gold Inc. (TSX: YRI; $15.19), a Toronto-based mid-tier producer. Of the 10 analysts we polled, seven rated Yamana a buy, and only three, a hold.
Our analysts' vote of confidence is easy to understand. For one thing, Yamana is making money.
For the three months ended Sept. 30, for example, the company swung to net earnings of US$30 million, or $0.08 a share, from a net loss of $12.1 million, or $0.04 a share, for the similar period in 2006.
Operating cash flow was also higher, climbing more than sevenfold to $105 million, or $0.30 a share, while total revenue nearly quadrupled to $199.7 million.
Yamana shares are healthier as well, having zigzagged back to the $15-$17 range after dipping below $10 last August.
A much smaller player when it started out in 2003, Yamana today has a market cap of US$11 billion - thanks largely to its merger last fall with Meridian Gold and Northern Orion Resources.
The merger was the brainchild of Peter Marrone, Yamana's chairman and CEO, who logged close to a quarter of a million air miles in 2007 to put the deal together.
Besides gold mines in Brazil, Argentina, Chile, Honduras and the U.S., Yamana has several development stage projects on the go. The company has pegged 2009 production at 1.6 million gold-equivalent ounces.
Our analysts may have dug up a buy on a Toronto-based gold play like Yamana. But they also gave the nod to a Vancouver-based outfit, Goldcorp Inc. (TSX: G; $36.51).
Of the nine folks we surveyed, four-rated Goldcorp a buy, four a buy/hold and just one, a hold, lofting the company into fifth spot in our list of top-10 buys.
And Goldcorp makes a lot of sense. For one thing, its costs still trail those of many senior gold miners, says Anita Soni, a metals analyst with Credit Suisse in Toronto.
In fact, she sees Goldcorp's by-products expenses falling to below US$200 an ounce from $261 an ounce over the next five years.
Then, too the great bulk of the company's production is in regions that are politically stable. So Goldcorp is particularly attractive to folks who are risk-averse, Ms. Soni believes.
Meanwhile, the company continues to rake in the cash, having posted third quarter net earnings of US$75.8 million, or $0.11 a share - a rise of 27.4 per cent year over year.
Revenue was also higher climbing 29.6 per cent to $524 million, while earnings from operations rose 6.4 per cent to $155.4 million.
For the nine months ended Sept. 30, Goldcorp posted net earnings of $203.6 million - a drop of 40.5 per cent over the similar period in 2006."
THE PERSONAL CAPITALIST
6911 S 66TH East Ave., Ste. 301, Tulsa, OK 74133.
1 year, 24 issues, $195.
Believes in the supercycle for metals
Sean Christian: "We continue to believe in the supercycle theory for metals. Worldwide demand remains, high particularly in China and India. Gold is soaring (hitting over $1,000 per ounce) primarily due to the battered dollar. With speculative demand at an all time high. There is the possibility of a short-term correction as the price seems overextended. Copper looks good and FCX with good reserves is the best positioned among non-ferrous metals to move up. We feel we are positioned for profits by holding PCU, FCX, ZFEXF, ABX, and NEM.
The cleanest fuel on earth (uranium) is ramping up fast. China alone is adding 30 new nuclear plants. In 36 countries, 440 power plants now depend on uranium to run steel plants, auto assembly lines, mass transportation, thousands of factories and provide 16% of the global energy. Fifty-six countries operate 284 research reactors as well. Also, another 220 active power ship and submarine reactors in operation. In addition to the boom in China, 30 new nuclear reactors are under construction worldwide and 74 more are "firmly planned," according to the World Nuclear Organization. All of this points to increasing demand. Cameco (CCJ) is the world's largest provider of uranium. We feel this is a great investment for the future, every investor should own shares.
We hold XTO, WMB, and CRT. Oil shares draw investors as inflation hedges as high oil prices ride a supply imbalance. In their outlook, Exxon-Mobil said that non-OPEC supply will plateau over the next three years. They project demand to grow at 1% to 1.5%, assuming some significant efficiency gains in the global economy, mostly in the developed world. In order to balance the market, you're going to need to see OPEC supplies go from 33 million barrels a day to 47 million barrels a day. Looking at the supply base, there is just no way OPEC can grow supplies that significantly. Goldman Sachs (in a March 7th report) proposed the possibility of oil at $200 per barrel, if U.S. economic growth rebounds or oil supplies are suddenly disrupted. We remain positive on our positions in this sector. Our fuel cell stocks PLUG and HYGS remain long-term plays awaiting the coming hydrogen economy."
Louis Paquette's EMERGING GROWTH STOCKS
102 - 2020 Comox St., Vancouver, BC V6G 1R9.
1 year 8 - 10 issues, $159.
Louis Paquette: "Focusing on just Gold now, the COT (Commitment of Traders) data has been decidedly bearish for months now. This tends to kick in early, but eventually large numbers of commercial shorts always get it right. Some say Crude oil deserves to be trading closer to $70 per barrel than where it is today over $100 and we are entering a shoulder season. Any moves in that direction would definitely hurt gold. I see Cramer is touting Gold stocks now. Talk about being late to the party. Gold is a "Page 1 story" now. Don Coxe does tell us that just because a sector reaches "page 1" from page 16, doesn't mean the game is over. So this could go on for a while yet. But sooner or later it will run out of steam and the reversion to the mean is usually proportional to the incline, which has been sharp indeed.
Some believe the commodity rally will continue until the mining stocks fully participate into May. Who knows. I think a reversal of the trend could occur at any time. All that's needed is a catalyst, an excuse for traders to begin changing directions, and that this will come at any time without notice.
Or are the super bulls right - Is
Gold poised for a melt up?
Against this growing list of bearish indicators, we have a crashing US Dollar, and a rapidly deteriorating situation south of the border. The financial dominos are falling more often now, like the "run" on, and subsequent bailout of Bear Stearns this past week. I hate to say this, but maybe it could be different this time. Given the enormity of the problems facing the US financial system, it seems anything is possible; including a triple waterfall crash in the Dollar. If Bear Sterns was a "one-off" and things clam down, then gold will likely find a seasonal high as I expect soon enough. But in the meantime, if Bear Sterns was not a one off, if the dominos just keep falling, a loss of confidence will spread and possibly lead to some sort of panic. And with the terrific momentum the Gold market is enjoying, who knows if this isn't one of those rare times in history where there is a panic and melt up in the price of gold. I wouldn't be so bold as to predict such an event, but I don't know if you can rule it out either.
It's only a guess, but maybe, not long after the euphoria of breaking $1,000 runs it course, the price could peak, like it did when the price broke the big round number of $700 in May of 2006 and went a bit higher and then made a major high. The HUI tends to double every second cycle which gives us a revised target of 600 this year, although I might discount it a bit due to the rising costs of mining which in part cancels out the rising price of gold."
Russ Kaplan's HEARTLAND ADVISER
5002 Dodge St., Ste. 302, Omaha, NE 68132.
Monthly, 1 year, $150.
Halliburton: Good
potential for capital gains
Russ Kaplan's latest buy recommendation is Halliburton (HAL).
"While the stock isn't the most politically popular stock at the moment, we believe it has a good potential for capital gains.
Halliburton has two main divisions: Completion/Production and Drilling/Evaluation. The Completion/Production division mainly focuses on managing oil projects that are under way; while the Drilling/Evaluation division works to find and evaluate newer projects. There are many services provided by this company that competitor's are unable to do.
Halliburton's stock price has suffered somewhat over concerns about a slowing U.S. economy. We believe these concerns are over done and we don't expect a collapse in the price of oil (a moderate decline, however, is certainly conceivable). Either way, we don't see the demand for Halliburton's services to shrink anytime soon.
The stock has a P/E ratio of less than 10 and pays a dividend of roughly 1%."
THE ELLIOTT WAVE FINANCIAL FORECAST
P.O. Box 1618, Gainesville, GA 30503.
Monthly, 1 year, $228. Includes special reports and Interim Bulletins. www.elliottwave.com
Gold & Silver to fall
as quickly as they rose
Steve Hochberg: "We have said it before, but given the popularity of gold and silver it bears repeating: when almost all investors hold a bullish opinion about a given market, there are scant few left to carry an asset much higher. The 10-day Daily Sentiment Index percentage of bulls maxed out at a record high of 93.8% for gold and 95.1% for silver. Metals fever is so strong now that an early 1980s' tradition of bringing a Geiger counter to the beach is back in vogue. Last month, EWFF cited the historic optimism and contended that the uptrend in both markets was near exhaustion. Gold's breakneck $129.00 collapse in just 3 1/2 days (13%) indicates that the forecasted multi-month decline is underway. The minimum target area is the price range of the previous fourth wave, which is $560.50-$728.00 (basis the weekly continuation contract).
With respect to silver, we also said last month that the "downward reversal should be as violent as the upward spike." The 22% rout in about 36 hours of pit trading last week qualifies. One trading day before silver's peak, The Elliott Wave Theorist (March 14 issue) identified silver's wave structures as "nearly terminal" and said, "Ideally it should end after one more new high," which would give it "the same profile as that of 2006." Top tick came one push higher at $21.40 (basis spot prices) on March 17. Near term, a countertrend bounce is underway in both gold and silver. When it is exhausted, selling pressure should draw prices significantly lower. Silver's initial support is around the $12.00 level, with greater bearish potential."
THE GRANVILLE MARKET LETTER
P.O. Drawer 413006, Kansas City, MO 64141.
1 year, 46 issues, $250.
How the decline in gold was called
Joseph Granville: "Some have wondered why gold turned down and how its top was so accurately called. First of all, I had retained a bullish outlook but I was getting increasingly nervous watching its acute angle of rise, what we call a parabolic curve. What happened on march 4th tightened my grip. On that day gold took a big hit and so I raised stop losses on all gold and silver stock. On March 13th I guessed that gold would peak at 1010. I raised stop loss levels again. On March 17th the price of gold soared to almost 1034.00 and then collapsed to 1002.60. That was the end of the line. The next three days saw April gold collapse to 920.00 May subscribers asked why we got out. The answer is simple. We were stopped out. Where do we go from here? My guess is that gold could fall to at least 850.00 on this move. In the meantime, its latest rally is carving out a series of declining tops."
THE COMPLETE INVESTOR
P.O. Box 248, Williamsport, PA 17703.
Monthly, 1 year, $129. www.completeinvestor.com.
A silver company that
knows how to produce
Glen Rainsley: "All that glisters is not gold, often have you heard that told." Managers at the Royce Low-Priced Stock Service have given their own reading to this bit of Shakespearean wisdom (Merchant of Venice, Act II, Scene 7), and in the midst of gold's dizzying climb in value they have been accumulating another glittering commodity: silver.
Not that they scorn gold. Gold miner Agnico-Eagle Mines (AEM) (which was added to Growth Portfolio in 2007) is the fund's No. 2 holding. What's clear is that long-time lead manager W. Whitney George (who also heads FundFolio's Royce Value Fund RYVFX), and co-manager James Skinner III understand metals, with 10 of the Royce Low-Priced Stock Service's top 25 holding belonging to that sector.
And given the fund's stellar record, its picks are worth looking at. Royce Low-Priced Stock Service shines within its category. It has averaged annual returns of 16.78 percent over the past five years and has gone up in value in 13 of the past 14 years. Management's style tends to be fairly aggressive and somewhat contrarian. But there is a tempering conservative bent as well. The fund is well diversified with more than 200 stocks, turnover is modest at 27 percent, and the focus is on stocks with strong balance sheets.
Recently the managers have upped their bet on silver by adding to their position in a small-cap silver mining company, Pan American Silver (PAAS), which now is the fund's fifth-biggest holding and its top silver pick. The company has a lot going for it. With a $2.75 billion cap, it has minimal debt and $172 million in cash. Production has increased every year since 1995 and in 2007 hit 17.1 million ounces, slightly ahead of company projections. Returns on investment have been excellent; $10,000 invested in the shares five years ago would be worth $40,000 today. And some significant investors are counting on the glittering returns to continue: the top three stockholders are the Royce funds, Bill Gates, and Pan American Silver chairman Ross Beaty.
While any precious metal investment is inherently volatile because of price fluctuations, extraction costs, and shifting price levels of base metal by-products such as zinc, lead, copper, etc., Pan American Silver seems to be on a stable growth course. It has been vigilant about keeping costs in check, and unlike some competitors whose focus has been on accumulating reserves, the company has been effective in translating site acquisition into production. With ongoing and newly developing operations at mines in Peru, Argentina, Mexico, and Bolivia, the company should be able to meet its goal of producing 25 million ounces of silver a year by 2009. Meanwhile, demand for the metal should remain strong, as aboveground stockpiles of silver are being depleted to historically low levels while growing industrial use is making more of the metal non-recoverable.
In at least 14 languages, the words for "silver" and "money" are the same. We think Pan American Silver has the potential to contribute more than pocket money to your portfolio, and we're adding it to our FundFinds Portfolio, where it joins our other metal holding, Anglo Platinum (AGPPY)."
Disclaimer: Glen Rainsley has personal positions in stocks discussed above.
Steven Halpern's TheStockAdvisors.com
Editor Steven Halpern has developed the first interactive forum for newsletter advisors and individual investors. Halpern's goal is to educate investors about the value of the newsletter community, and helping them find the "best of the best" within the advisory world. He "separates the wheat from the chaff" and helps guide investors toward those advisors who represent the best of original, unbiased, thought-provoking, and quality investment research available. Here is an excerpt by a leading investment advisor posted on www.The StockAdvisors.com.
Real Wealth goes for US Global
"Natural resources is the right place to ride out the swell of inflation racing toward us," says Larry Edelson, editor of Real Wealth, www.larryedelson.com. Here, he looks at two favorite funds from US Global.
"U.S. Global Investors Global Resources (PSPFX) is a diversified natural resources fund. Its primary objective is achieving long-term growth of capital, while providing protection against inflation and monetary instability.
"The fund invests in companies involved in the exploration, production and processing of petroleum, natural gas, industrial commodities, metals, minerals, paper and forest products and can invest in any part of the world.
"And since gold is the ultimate inflation hedge and a safe-haven play in times of crisis, this is the perfect environment for higher gold prices.
"Here's the deal on gold. It has been trending higher since 2001, and the multi-year bull market really started to rev up in August when the Federal Reserve began easing monetary policy in response to the sub-prime lending meltdown. My long-term target for gold is more than $2,200 an ounce.
"U.S. Global Investors World Precious Minerals Fund (UNWPX) is an open-ended fund that invests in some of the major gold, silver, platinum and diamond mining companies. It's not too late to get in at a good price."
MONEYCHANGER
P.O. Box 178, Westpoint, TN 38486.
Monthly, 1 year, $149. www.the-moneychanger.com.
The next two months for
gold and silver will be wild
Franklin Sanders: "Gold corrected sharply after its 18 March high close at $1,003.20 ($1,033 intraday). It dropped to a low close of 918.30. Figuring that the entire advance began on 14 June 2006 at 562.90, it advanced $440.80 to the 18 March high. It fell $84.90, or 19.3% of that rise - enough for a completed correction.
Or if you take the 16 August 2007 low as the start of this rally at 648.30, then to the 1,003 top gold rose 354.70. The 84.90 drop would be 23.9% of that rise, also enough for a correction.
What has shocked me is the strength of the comeback. We have seen a voracious public appetite for gold.
Can it drop again? Yes, it's possible we might see one more sharp down leg that could reach 840, but that possibility is fading quickly. Any close over $1,000 will close it out forever.
But it isn't the threat of another down spike in this correction that concerns me. Rather, it is the huge rally I see coming, far, far bigger than anything we've seen before, and it could carry gold up to $1,300 very quickly.
The Gold/Silver Ratio is the indicator that shows when price peaks have been reached for silver and gold. It tops along with or slightly before the top in prices. The gold/silver ratio stands a long way from topping. Looking at the past performance of the moving averages, the ratio is nowhere near a top. Further, if one argued that $1,003 was the top of the rally, then someone has to explain why the ratio only dropped to 47.67, and not lower than the April 2006 low at 43.66. That harder to explain since the Gold/Silver Ratio is locked in a primary downtrend, and should be making lower lows.
But it hasn't - yet. That argues that the rally in silver and gold has not yet peaked, and in fact, lies a far piece from a peak.
The next two months will be wild for gold and silver - wild.
In the physical market coins are still plentiful and premiums do not indicate any shortages. Krugerrands remain your best buy in an exactly-one-ounce coin, but occasionally the fractional American Eagles come close to it. Premiums are more volatile than we have been used to in the past ten years, so ask what coin offers the most gold for the money when you go to buy.
This may surprise some of y'all, but you can't believe everything you read on the Internet. In fact, I'd keep a salt shaker handy whenever I surfed the Net, if I were you.
Lately people keep asking me about Internet rumors that the market is "running out of silver." That's just a tad naïve. Whenever prices run up, down & back up in a wild market, that causes supply bottlenecks. However, the discount on the buy side of US 90% silver coin has risen from -70¢ to -35 cents in three days. That's very, very strong and usually only occurs when a big upmove is coiling up to jump.
Figuring that this silver upmove began on 21 August 2007 at 1184.9¢ and peaked at 2068.8¢ on 5 March 2008, silver rose 919.9¢. It fell to a low close of 1680.50, or 388.3¢ from the high, a 42.2% drop - enough to complete a correction.
The crazy numbers for silver's price peak I kept coming up with when I was trying to target the top in the gold/silver ratio last month now make a little more sense. $1,300 gold at a 38.6:1 gold/silver ratio works out to 3368¢ silver. Right, sounds crazy as a cockroach, but there it is, and by no means will that be the bull market top.
My first target for silver, 2100¢ has turned out to be only the first stopping point along the way.
As long as silver does not break 1600¢ on any sudden downdraft, then it will storm straight for 2100¢ and break through quickly.
Buy it.
In physical silver, the best buy remains the US 90% silver coin. Deliveries on 100 oz. bars and other bullion have stretched out there or four weeks. The US Mint has stopped striking silver American Eagles again, so they have become a worse buy that ever - not only the most expensive form of silver, but very slow delivery as well."
Ian McAvity's DELIBERATIONS on World Markets
P.O. Box 40097, Tucson, AZ 85717.
1 year, 18 issues, US$225. Introductory Trial, 4 issues, US$49.
Ian McAvity: "The 60% run from $645 to $1034 was less than the 75% run ($418 to $732) that topped in May '06. I'd label the high a possible intermediate top and nothing more. It was preceded by a price/momentum divergence on both the metal and the miners charts, and will likely come back to test the various upside acceleration breakout levels. I don't know if it may get as far back as the $800/$750 range under a wipeout-type decline in the S&P 500 that impacts all markets, but if it does, I would get very bullish sub-$800. But traders - don't take that as a "Call" for a sub-$800 target and short it. That would be a very stupid trade in my book. For that to occur, I suspect the triggering agent would come from financial stocks choking on another round of "surprises."
THE CONTRARY INVESTOR
309 S. Willard St., Burlington, VT 05401.
Monthly, 1 year, $125.
Alex Seagle: "Can a skyscraper produce more energy than it consumes? That's what we'll find out when the Pearl River Tower in Guangzhou, China is completed. It is designed to be one of the most environmentally friendly buildings in the world. Among its features are turbines that turn wind into energy for the HVAC system, solar collector for more power generation, a rain-water collection system, part of which is heated by the sun to provide hot water. The building is cooled, in part, through heat sinks and vertical vents. The turbines do more than generate electricity, though. The openings through which the wind flows help reduce the overall wind load on the skyscraper.
When it comes to the green movement these days, it's a big world out there. The bulk of investment activity surrounds energy - alternative sources and conservation measures - but green's reach is far and wide, from water purification to sustainable hotels and resorts to earth-friendly materials.
Green is a rapidly growing element of many companies' business models, as both a profit center and a cost reduction tool.. As more companies become green users (in saving energy and money), others become producers (in developing profitable products and services).
People often go to transportation as the first thing because cars and planes are the most visible symptom of the problem, but 70 percent of the energy used in the U.S. is consumed in buildings. And a lot of it is discretionary, like turning on or off a light. Buildings are designed and constructed for optimum conditions, factoring in sunlight and wind, thus reducing the amount of energy it takes to operate as well as the amount of carbon they emit. The materials used are often from recycled sources and designed to be energy efficient. There's now a universal, calibrated green standard known as "LEED" (Leadership in Energy and Environmental Design).
In 2005, the green construction business was a $2 billion a year business. By the end of 2009, it is expected to top $60 billion. While most investors have been scrambling to buy companies that focus on solar, wind-power, hydrogen, and other alternative energy sources, there is a very large market opportunity in a much more mundane, "picks and shovels" approach to green investing that might be a better, less risky way to participate.
Both new construction and retrofitting of existing buildings will require very specific materials and design components. The materials side includes windows that are double paned, filled with an insulating gas and treated with a special glazing that lets light but not heat pass through. Many of the buildings use special filters to clean more pollutants from the air than those in standard buildings, and lightweight composite recycled steel frames, which use less masonry.
A big positive for green construction materials is the recent infusion of millions of dollars of venture capital to privately-held companies that promise more environmentally friendly building materials. Just recently a company called Serious Materials received an infusion of $50 million to concoct a new type of drywall which takes 90 percent less energy to produce and creates less greenhouse gas.
Vinod Khosla, the billionaire venture capitalist who is the leader in green investments, has given millions to several companies planning to transform residential construction. For instance Khosla Ventures is an investor in Calera, a company run by a former Stanford University professor, which claims rather incredibly that its new cement will not only create little carbon dioxide in manufacture but it will also "sequester" the gas from the atmosphere, having a net effect of reducing greenhouse gas emissions. Among his other investments are Soladigm, which makes electrochromic glass which can either reflect light and heat or can absorb them depending on the time of year and the needs of the building.
On the design side of the issue, software giant Autodesk, Inc. (Nasdaq: ADSK) is one company focused on green construction in a big way. In 2007, 46 percent of the company's $1.6 billion in job contracts involved green construction. Autodesk provides CAD and Revit platforms that are the construction industry's standard for designing energy-efficient, green buildings (including the Pearl River Tower).
Finally, a basic tenet of successful investing is knowing that stocks go up when there are more buyers than there are sellers. The Contrary Investor believes that an excellent source of investment dollars for green construction lies within state and local pension funds, growing socially responsible investors, construction union pension funds and union-based insurance companies who will allocate a meaningful portion of their assets to green construction in coming years, State and local pension funds have some $2.7 trillion in assets; socially responsible funds total about $2.3 trillion; construction union pension funds and union-based insurance companies control billions more. Devoting even a portion of these assets to green construction and real estate projects would constitute a huge infusion of capital.
If green issues are to be addressed in the investment community, there are clearly many ways to participate. Green construction, in both materials and design, might be an excellent alternative to direct investments in energy sources such as solar, wind and hydrogen, and is worth closer study."
Editor's Note: The Contrary Investor is published by Fraser Management Associates an employee-owned, fee based investment advisor, actively managing stock and bond portfolios for individuals, institutions, trusts, non-profit organizations, and employee benefit plans utilizing independent, contrarian thinking since 1969.
WATER INVESTMENT NEWSLETTER
230 Main St., Halstead, KS 67056.
Monthly, 1 year, $140.
Market wonders, where in the world
Is the residential point-of-use market?
Stephen J. Hoffmann: "The success of many technology products today is heavily dependent on the ability to plug into the broad-based appeal of a consumer culture.
Purpose, functionality and value (cost) all must come together at the right time and in the right proportions. In reality, more so than in theory, the residential point-of-use (POU) and point-of-entry (POE) water markets should be no different.
On the surface, the logic is simple; (a) consumers want to drink water at home or work that is healthful and tasty, and (b) there are many residences and workplaces, so (c) there is a huge market for additional water treatment at the point that it is consumed.
So why has a subsector with such seemingly compelling fundamentals failed to live up to expectations? The answer is elusive but several observations can be made to add clarity to the current state of the residential POU market.
Two conditions are implicit in the logic. First, even though tap water is considered safe, there must be a perception that POU treatment is 'better' yet, whether aesthetically or healthfully. And second, POU treatment must be more cost-effective or efficient than bottled water in the quantities consumed.
To be clear, the focus here is strictly single, residential-type POU/POE; not small community, commercial, or industrial. There is clearly enormous potential in these other applications; a reality that the water quality treatment business should embrace, both technically and professionally. For example, POU (activated alumina and reverse osmosis technologies) is recognized as an acceptable treatment for arsenic removal in small systems.
Now back to the residential market. Why does this conceptually sound, clean tech-driven, health-conscious motivated segment of the water business continue to languish, morphing from one misdirected strategy to another? Several current observations from within the residential POU business will be presented as anecdotal evidence of a continuation of the lack of identity. Then some opinions will be expressed to provide investors in this market with an actionable plan.
Part of the long-standing problem with residential consumer water treatment products is a monumental lack |
