Archive

Posts Tagged ‘brazil’

Invest Like George Soros With This Commodity Stock

October 17th, 2012

Jared Cummans: George Soros is one of the biggest names in commodities, as he is largely known for his success running the Quantum Fund with Jim Rogers. In recent years, Soros has been something of a gold bug, making huge allocations to the SPDR Gold Trust (NYSEARCA:GLD). Read more…

Agriculture, Commodities, ETF

Your Best Real Estate Investment is a Moat

June 15th, 2011

Reporting from International Living’s “International Real Estate Investment Forum”

During recent flooding in the Midwest, an enterprising Arkansas man built a moat around his home and property to protect it from the floodwaters.

It worked. His house, possessions, and family remained safe.

Like that guy in Arkansas, says Ronan McMahon, Director of Pathfinder Real Estate, when it comes to our personal financial well-being, we need to think about safety – especially in today’s stormy economic environment.

Ronan – who borrowed the term from Warren Buffett – applies this concept of “moat economics” to every investment he makes. He told us all about it here at the Investment Forum in Toronto. When you’re buying real estate for investment, he says, look for moats – barriers to entry that keep the competition low and boost your potential for profit.

Ronan, an international real estate investment advisor, spends most of his time traveling around the world looking for the best real estate investment deals out there. One of his strategies is to follow the emerging middle class. That’s why, despite falling home prices, he’s not investing in the US these days. The US middle class is struggling. And there are other, bigger problems, too – with no solutions in sight.

But there are many other markets – far more attractive markets, both economically and physically – where we should be investing. Markets with moats. Fortunately, Ronan and his team have done the hard work. He and his top lieutenant, Margaret Summerfield, find projects with huge profit potential at an early stage…when capital is critical and developers are willing to extend massive discounts to investors.

The developer knows that Pathfinder can bring in a number of investors. And this gives Pathfinder a big negotiating advantage. The strength of their group buying power allows them to negotiate price reductions and terms that usually aren’t available to the general public.

But Pathfinder won’t work with just any real estate developer. They only pick those with a solid track record and who are on a solid path to profit. Projects with economic moats… in markets or situations where it is difficult for competitors to gain entry…and sales and margins are protected.

As Margaret explained, “We have great leverage – we don’t work with every project out there, maybe only one in ten – in some projects we’ve sold 80% of their inventory so we have great leverage when it comes to pricing.”

By my count, today at the International Real Estate Investment Forum we learned of a dozen opportunities with big ROI potential…some through capital appreciation, others through rental income, many with both.

Talk about building an economic moat – there’s one around the entire country of Brazil. As Margaret explains:

We like the big picture in Brazil. Just look at these facts:

Brazil is energy-independent. Petrobras just announced another 350 million barrel find of high-quality crude, in a field that contains as much as 80 billion barrels of oil. Brazil is #12 in the world for oil production. Brazil is also one of the top ethanol producers, including sugarcane ethanol to fuel cars. Around 90% of new cars made in Brazil in 2010 were flex-fuel, able to run on any mix of gasoline or ethanol. Meanwhile, 80% of the country’s electricity comes from renewable sources (mainly hydropower).

It’s rich in mineral reserves…including iron ore, bauxite, tin and copper. It has huge reserves of fresh water…12% of the world’s reserves, in fact. It has vast tracts of agricultural land…and 25% more untapped agricultural land than the entire crop acreage of the US. It produces 80% of the world’s orange juice, and is the top soybean exporter.

Brazil’s strong manufacturing sector produces cars, cement, electronics, steel, and petrochemicals, and commercial aircraft. Brazil even has a satellite-launching center.

Brazil’s economy grew 7.5% in 2010. And that growing economy is growing the country’s middle classes. An estimated 35 million people joined the middle class between 2003 and 2009. More than half the country’s 190 million population now falls into the middle class bracket. By 2014, 20 million more Brazilians will become middle class.

Today, Brazil is the world’s #5 market for computers, books and music…#4 for cars and refrigerators…#3 for cell phones, TVs, soft drinks and cosmetics…

In short, Brazil’s new middle classes buy the same things we all buy when we have more money in our pockets. And that includes property…upgrading where we live to a better home in a nicer neighborhood, or buying a second home at the beach. Brazil’s middle classes are driving Brazil’s real estate market…

So invest in the right projects in the right markets in Brazil and you could be sitting pretty indeed. Here is one to consider:

In a sweet little beach town with miles of white-sand beaches – just 30 minutes from Brazil’s #1 domestic tourism destination – you can buy a beach lot in a residential community next to a new super-luxurious five-star resort. It’s expected that lot prices will double in the next three years. Listen in to the conference recordings and learn how you can get a big discount (and a low price not available anywhere else) and become an owner here. And the terms Ronan and Margaret have negotiated: No money down and interest-free payments for just two years…

There were other deals in Brazil. I sat through two workshops this afternoon given by Brazilian real estate experts. They both brought four extraordinary deals with top-dollar profit potential.

Closer to home in Costa Rica, Margaret showcased three areas of the country that are overlooked and under-priced. One on the Pacific side, one on the Caribbean side and one in a lush, green tropical mountain lake area (think Lake Tahoe without the people). Lake- and jungle-view lots start at just $19,000 and can be financed over three years, interest-free.

Regards,

Susan Haskins,
for The Daily Reckoning

Your Best Real Estate Investment is a Moat originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Your Best Real Estate Investment is a Moat




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

Sugar Outlook Sweetens

June 10th, 2011

Rudy MartinThe drop in sugar prices is over. In fact, prices have risen to an eight-week high after news broke that Brazilian production may fall short of expectations.

My indicators are telling me that sweet prices could get even sweeter.

Here are a few significant factors that could move this market:

India’s export threat has disappeared. For months, sugar prices have been held hostage to the idea that India would regain its position as a global sugar exporter; as India is the second-largest producer. Fearing a rise in domestic prices from a domestic crop shortfall, the country is unlikely to set a new quota until fall. The current gap is being filled by Thailand.

China needs sugar. Sugar imports by China, the second-biggest consumer after India, may advance to 2.3 million metric tons in the year ending September 30. With the export price from Brazil or Thailand about 25 cents a pound, that makes it more attractive to China, even with an import tariff of 50 percent. The higher import volume is 28 percent more than the U.S. government forecast!

The United States is short on sugar. The U.S. Department of Agriculture has projected decreased U.S. sugar supply for 2012 with lower imports offsetting higher beginning stocks and production. A potential drop in home-grown sugar coupled with government caps on imports could drive up prices, just before the peak Christmas season.

A harsh winter has caused headaches for U.S. sugar-cane and sugar-beet farmers. Record cold temperatures in December damaged sugar cane in Florida, taking about 260,000 short tons of raw sugar out of production, according to the USDA.

Currently, soil soaked by snow melt and ongoing cool and wet weather in the Midwest is delaying the planting of sugar beets, the source of more than half of U.S. sugar production. The delays could reduce yields because the sugar content of the root increases the longer it is in the ground

The European Union wants sugar too. A European Union (EU) committee recently voted to open a quota for 200,000 metric tons of duty-free sugar imports into the bloc. EU sugar prices surged to more than 1,000 euros a ton in some places earlier this year as the domestic market suffered a supply crisis that left refiners in Portugal, Greece and Poland struggling to access supplies.

Even Mexico increased import allowances, adding to signs that demand is strengthening.

Sugar’s Brazilian Factor: This pretty much puts control on sugar in the hands of the Brazilians, the primary exporters. But Brazil is not overflowing with sugar either. Conditions have been building up against the sugar crop.

The low sugar prices of 2008 and 2009, the financial crisis impact on capital, and recent unstable weather have all contributed to a financial squeeze on farmers. In turn, the investment in crops is less than it could have been.

Brazilian cane crops are older and less efficient than they should be. Sugar cane is now aged 4.2 years, on average, whereas the ideal would be 2 years of age. Ideally 20 percent to 25 percent of the new crop should be replanted. That’s not happening, so yields are lower.

Once the crop is ready, the main issues are crushing and processing. Today, with the higher use of sugar to meet Brazil’s rising need for ethanol, a larger part of the Brazilian sugarcane is being diverted into ethanol fuel production than in the past. This further diminishes sugar for food availability.

The state of S

Commodities, ETF, Mutual Fund, Uncategorized

Five International Bond ETFs to Look at Now

June 9th, 2011

Ron RowlandWhen you get a chance at two birds with one stone, it’s usually a good idea to take it. Three birds with one stone is even better!

Right now we have a shot at combining three of my favorite investing categories: International, ETFs, and bonds. So today we’ll take a closer look at five international bond ETFs. I think they’re all poised to outperform this summer.

I’ve found over the years that bonds are something of a mystery to most investors. People usually understand stocks, but bonds? Not so much. Nor are they very interested in learning.

The reason for this, I suspect, is that the very word “bond” just seems boring. You invest your money, you get interest payments every so often, and that’s it. Ho hum.

If all you ever do is sit back and wait for your monthly check, then yes, bonds are not much fun. Fortunately (or not, for some people) bond investing is rarely so simple. You can make and lose money just as fast in bonds as you can in stocks. It all depends what kind you buy.

Some types of bonds, like short-term U.S. Treasury bills, are so safe and steady that professionals call them “cash equivalents.” Others are much riskier but have the potential for big gains in the right circumstances.

Foreign bonds used to be pretty exotic for U.S. investors — even more than foreign stocks. Now, thanks to the Internet and new instruments like ETFs, it’s easy to add a slice of international fixed income to your portfolio.

Here are five ways you can do it …

#1: SPDR DB International
Inflation Protected Bond (WIP)

With gold and oil prices shooting higher, “Inflation Protected” sounds like a pretty nice feature. The U.S. has a popular category of Treasury bond with a built-in adjustment factor to compensate for lost value caused by inflation. Many other countries offer similar securities. WIP gives you a diversified portfolio of international inflation-protected bonds.

WIP has another advantage, too. If, like many people, you think the U.S. Consumer Price Index doesn’t measure inflation very accurately, WIP gives you exposure to various other methods. Every country has its own particular benchmark.

Short-term foreign government bond ETFs are essentially currency plays.

Short-term foreign government bond ETFs are essentially currency plays.

#2: SPDR Barclays Short-Term
International Treasury ETF (BWZ)

This ETF holds a portfolio of short-term (1-3 years) Treasury bonds from about 20 different countries. Because the average maturity is so short, BWZ is often more sensitive to currency fluctuations than interest rate changes. You can think of it as a foreign currency fund with extra yield.

#3: iShares JPMorgan USD
Emerging Markets Bond (EMB)

Yes, emerging markets have bonds as well as the more familiar stocks. And some may actually be safer than the bonds of debt-ridden “developed” nations.

EMB is the key to unlocking this neglected market. Because it focuses on bonds denominated in U.S. dollars, this ETF is not subject to currency-related swings.

Advertisement

However, if you want currency risk, take a look at …

#4: Market Vectors Emerging Markets
Local Currency Bond (EMLC)

EMLC is similar to EMB in some respects, but starkly different in one big way. It holds government bonds issued in the local currencies of selected emerging markets. Top holdings include debt from Brazil, Poland, Malaysia, and Mexico.

This ETF kicks out a higher dividend than most other bond funds, currently yielding 5.8 percent, and it is also a bet that the U.S. dollar will fall in value compared to emerging market currencies. Long-term, I think that’s a pretty good bet, but EMLC can have big swings in the meantime.

With ETFs, investors now have easy access to bonds issued by foreign companies.

With ETFs, investors now have easy access to bonds issued by foreign companies.

#5: SPDR Barclays International
Corporate Bond (IBND)

Corporate bonds come in all flavors, and they’re not all American. IBND is fairly new — launched in May 2010 — but was still the first ETF of its kind. It’s designed to measure investment-grade corporate bond markets outside the U.S.

While IBND excludes dollar-denominated bonds, it does have some U.S. exposure. Some large American companies (especially banks) issue bonds in other currencies. IBND still provides mostly non-U.S. exposure, though.

Now, are international bond ETFs for everyone? No, absolutely not! It all depends on your personal goals and circumstances. If you think they may be what you need, I’ve given you five to check out. These are some of my favorites.

Best wishes,

Ron

P.S. If you’re interested in foreign bonds or foreign bond ETFs, you should look at the Weiss Sovereign Debt Ratings before investing. Click here to learn more.

Read more here:
Five International Bond ETFs to Look at Now

Commodities, ETF, Mutual Fund, Uncategorized

Economy tanking! What to do? See this video BEFORE it’s too late!

June 5th, 2011

In the coming weeks, I’m going to release some of the most important investment recommendations of my career — to go for the explosive profits that are generated when the economy sinks.

If you’d like to get them and ride this powerful wave to an unprecedented wealth building opportunity, be sure to watch this video.

If not, at least take some of the urgent steps to protect yourself that I’ll tell you about here this morning.

But first, if you think Friday’s horrendous job number was a shocker, consider this:

The U.S. government — the last and
only financial savior of the economy —
has run out of money!

It borrowed massively from millions of citizens. But that wasn’t enough.

It borrowed a shocking $4 trillion from China, Japan, OPEC countries and even emerging market countries like Brazil … and that wasn’t enough either.

It ran the printing presses around the clock, and even THAT wasn’t enough.

Now, despite all the government stimulus, government rescues, government borrowing, and government money printing, the economy is STILL stumbling and slumping …

* The job market is coming apart at the seams! Job growth plunged 77% from last month — from 232,000 to a miserable 54,000 — less than ONE THIRD what Wall Street was expecting! And the disaster wasn’t just in a few weak sectors either. We saw actual job LOSSES in temporary help, retail, government, and major sectors.

* Manufacturing is fading fast! The Institute for Supply Management’s key manufacturing index plunged to 53.5 in May from 60.4 in April. That mirrored an epic fall in the group’s service sector index, and a report from the Fed showing industrial production flat-lined in April.

* Housing is sinking again! New home starts plunged almost 11% in April. Pending home sales fell 12 times as much as expected. Prices nationwide have just plunged to the lowest levels in nearly a decade. Over 2.2 million homes are in foreclosure. Millions more are in the pipeline.

* Consumer spending is on the ropes! Retailers as diverse as Gap, Staples, Lowe’s, Polo Ralph Lauren, Jos. A. Bank, and Target have all warned about sales and earnings trends. A key consumer confidence plunged to a six-month low of 60.8 in May, missing estimates by a country mile. Auto sales dropped by almost 4% last month, plunging the annualized rate to the lowest since last September.

I’m not an optimist or a pessimist by nature. I’m a realist. And all I can say is that the data is UNAMBIGUOUSLY pointing to a massive decline.

What’s most remarkable is that, in order to prevent just this outcome, the U.S. government spent trillions of extra dollars … borrowed trillions more from overseas … and printed still MORE trillions to pump into the housing market and the economy.

And at every step of the way, they SWORE on a stack of bibles that if we just flushed enough borrowed and printed dollars down the toilet, it would somehow defeat the economic cycle.

Well the evidence is now clear: They were wrong. And unless you take defensive action — or better yet, offensive action — you are the one who’s going to suffer the consequences. While our political leaders either get re-elected or march off into the sunset, the one that has to pay the price is you and me!

But whatever happens, don’t ever say we didn’t warn you. We’re warning you now. And we warned you before. From the get-go, we told you that the recovery was bought and paid for by the government and that it was doomed to fail.

What should prudent investors do?

First and foremost, get your cash to safer place.

Bank failures may not be at the top of the news right now. But they’re happening just the same. Meanwhile, the establishment rating agencies are finally beginning to recognize the sinking bank finances that our low bank ratings have been warning about all along. Get the Weiss Rating on your bank. Then get out of any bank with a rating of D+ or lower. Among them are some of the biggest!

Second, reduce your exposure to U.S. stocks. Take profits off the table. And whether at a profit or a loss, get out of the most vulnerable sectors — banks, housing, construction, retail, and more.

Third, don’t forget the dangers facing long-term bonds. Sure, you’re always going to see some flights to quality temporarily drive up bond prices. But don’t let that fool you. The federal deficit is a monster. The Fed has pumped money into the economy like crazy and is continuing to do so. That means inflation is already in the pipeline — bad news for bonds.

Fourth, for vulnerable investments that you’re unable or unwilling to sell, hedge! For almost every investment sector and asset class, there are specialized ETFs designed to go UP when your investments go down, helping to offset losses.

Fifth, go on the offense. Use this crisis as an opportunity to turn sour lemons into sweet lemonade.

I show you how in my video.

Best wishes,

Mike

Read more here:
Economy tanking! What to do? See this video BEFORE it’s too late!

Commodities, ETF, Mutual Fund, Uncategorized

Economy tanking! Last Day for New Blockbuster Video!

June 5th, 2011

Tomorrow morning I’m going to release one of the most important trading recommendations of my career — to go for the explosive profits that are generated when the economy sinks.

If you’d like to get it and ride this powerful wave to an unprecedented wealth building opportunity, be sure to watch this video before 11:59 pm TONIGHT.

If not, at least take some of the urgent steps to protect yourself that I’ll tell you about here this morning.

But first, if you think Friday’s horrendous job number was a shocker, consider this:

The U.S. government — the last and
only financial savior of the economy —
has run out of money!

It borrowed massively from millions of citizens. But that wasn’t enough.

It borrowed a shocking $4 trillion from China, Japan, OPEC countries and even emerging market countries like Brazil … and that wasn’t enough either.

It ran the printing presses around the clock, and even THAT wasn’t enough.

Now, despite all the government stimulus, government rescues, government borrowing, and government money printing, the economy is STILL stumbling and slumping …

* The job market is coming apart at the seams! Job growth plunged 77% from last month — from 232,000 to a miserable 54,000 — less than ONE THIRD what Wall Street was expecting! And the disaster wasn’t just in a few weak sectors either. We saw actual job LOSSES in temporary help, retail, government, and major sectors.

* Manufacturing is fading fast! The Institute for Supply Management’s key manufacturing index plunged to 53.5 in May from 60.4 in April. That mirrored an epic fall in the group’s service sector index, and a report from the Fed showing industrial production flat-lined in April.

* Housing is sinking again! New home starts plunged almost 11% in April. Pending home sales fell 12 times as much as expected. Prices nationwide have just plunged to the lowest levels in nearly a decade. Over 2.2 million homes are in foreclosure. Millions more are in the pipeline.

* Consumer spending is on the ropes! Retailers as diverse as Gap, Staples, Lowe’s, Polo Ralph Lauren, Jos. A. Bank, and Target have all warned about sales and earnings trends. A key consumer confidence plunged to a six-month low of 60.8 in May, missing estimates by a country mile. Auto sales dropped by almost 4% last month, plunging the annualized rate to the lowest since last September.

I’m not an optimist or a pessimist by nature. I’m a realist. And all I can say is that the data is UNAMBIGUOUSLY pointing to a massive decline.

What’s most remarkable is that, in order to prevent just this outcome, the U.S. government spent trillions of extra dollars … borrowed trillions more from overseas … and printed still MORE trillions to pump into the housing market and the economy.

And at every step of the way, they SWORE on a stack of bibles that if we just flushed enough borrowed and printed dollars down the toilet, it would somehow defeat the economic cycle.

Well the evidence is now clear: They were wrong. And unless you take defensive action — or better yet, offensive action — you are the one who’s going to suffer the consequences. While our political leaders either get re-elected or march off into the sunset, the one that has to pay the price is you and me!

But whatever happens, don’t ever say we didn’t warn you. We’re warning you now. And we warned you before. From the get-go, we told you that the recovery was bought and paid for by the government and that it was doomed to fail.

What should prudent investors do?

First and foremost, get your cash to a safer place. Bank failures may not be at the top of the news right now. But they’re happening just the same. Meanwhile, the establishment rating agencies are finally beginning to recognize the sinking bank finances that our low bank ratings have been warning about all along. Get the Weiss Rating on your bank. Then get out of any bank with a rating of D+ or lower. Among them are some of the biggest!

Second, reduce your exposure to U.S. stocks. Take profits off the table. And whether at a profit or a loss, get out of the most vulnerable sectors — banks, housing, construction, retail, and more.

Third, don’t forget the dangers facing long-term bonds. Sure, you’re always going to see some flights to quality temporarily drive up bond prices. But don’t let that fool you. The federal deficit is a monster. The Fed has pumped money into the economy like crazy and is continuing to do so. That means inflation is already in the pipeline — bad news for bonds.

Fourth, for vulnerable investments that you’re unable or unwilling to sell, hedge! For almost every investment sector and asset class, there are specialized ETFs designed to go UP when your investments go down, helping to offset losses.

Fifth, go on the offense. Use this crisis as an opportunity to turn sour lemons into sweet lemonade. That’s what I’m going to start doing tomorrow. If you want to join me, see my video.

No guarantees, but I’m utterly convinced that this situation — a rapidly sinking economy plus sectors that are still grossly overvalued — is ripe for the same kind of big declines that generated the stupendous profits last time around — 166% betting on sinking real estate and 241.9% betting on falling bank stocks.

All strictly with ETFs that any investor can buy and sell any time during trading hours!

Tonight at 11:59 PM, my video goes offline. So today is your last day to see it — and to join my ETF trading service that’s issuing the new landmark recommendations tomorrow.

Plus, another thing happens at midnight tonight: The Charter Enrollment window closes. So anyone who misses the deadline not only misses out on a major profit opportunity, but also the $400 cash discount!

Needless to say, not all investments can go up 166% or 241.9% in such a short period of time. Nor can we go back in time to grab them now. But consider this:

Earlier this week, even as the Dow cratered, an inverse investment I had recommended shot up almost 4% in value.

Another ETF I recommended first thing in the morning closed the day up more than 6%.

IN A SINGLE DAY!

But now, with the job market sinking, banks stocks plunging, the housing bust striking anew, there’s no time to wait.

This is why I’m going out with major new recommendations tomorrow and why your deadline to join me is tonight.

Click here for my video where I give you my strategy and show you how to join.

Best wishes,

Mike

Read more here:
Economy tanking! Last Day for New Blockbuster Video!

Commodities, ETF, Mutual Fund, Real Estate, Uncategorized

George Soros Just Spent $455 Million on These Two Stocks

June 3rd, 2011

George Soros Just Spent $455 Million on These Two Stocks

Billionaire investor George Soros and his team of advisors take a “top-down” approach. This means they seek out big, “macro” investing themes, and then work their way down to the best ways to play that theme. Every quarter, they adjust their stakes in a range of companies, either by loading up or pulling back, while also looking to enter a few new positions.

In the most recent quarter, Soros, through his financial services company Soros Fund Management, added two brand new positions to his portfolio. Each could be viewed as a proxy for major themes playing out in the global economy.

Here's why they're worth looking into…

Adecoagro (Nasdaq: AGRO)
This ticker symbol says it all. Adecoagro owns and operates nearly 40 massive farms in Brazil, Argentina and Uruguay, a region known for fertile and productive land. Indeed, agriculture has always been the leading export in Argentina, but it also now holds the top spot in Brazil's export economy. This isn't just a play on soybeans or wheat either. It's also a play on cotton, rice, sugar cane-based ethanol, dairy cows, coffee, sugar and other commodities. This all means Adecoagro's annual results aren't subject to the vagaries of volatile prices for any particular commodity, though it surely helps that just about all the items noted above have seen a surge in price in recent quarters.

For George Soros, his $330 million investment (of roughly 27 million shares) in Adecoagro is the perfect play for the ongoing global demographic changes that are taking place. As the global population continues to rise, the amount of unused arable land continues to shrink. In addition the growing middle classe in many emerging markets are consuming ever more calories on a per-capita basis.

Beyond the demographic appeal of South American agriculture, Soros has likely spotted three other reasons to own this stock. First, operating income appears set to rise nicely in the near-term, from $74 million in 2010 to more than $150 million this year, and to $200 million by 2013, according to one of Brazil's largest banks, Banco Itau. Second, high-quality agricultural land is becoming a scarce commodity as new cities pop up in formerly rural areas of South America and Asia. Soros likely anticipates solid appreciation potential in the land Adecoagro holds. Third, Adecoagro plans to aggressively ramp up its ethanol business. Unlike the U.S. production of corn-based ethanol, which needs the help of government subsidies, Brazil's sugar cane-based approach is considered to be more cost-effective and more environmentally sound. In a world of high oil prices, sugar cane-based ethanol is likely to see rising demand.

Adecoagro pulled off a $12 initial public offering (IPO) in late January, rose higher, but now trades right at the offering price. The main reason for the underwhelming post-IPO action is in the complex nature of the company's business. In effect, investors need to figure out a value for each distinct business group. For example, the ethanol business alone is likely worth about $1 billion, according to Banco Itau. The bank's analysts think shares deserve to trade up to $16 (implying a 30% gain) over the course of this year, and perhaps well higher down the road as the company's growth plans come into focus and its real estate holdings appreciate in value.

Look for Soros to hold this stock as a key long-term position for his eponymous investment fund. For the rest of us, Adecoagro provides a way to get into farming without getting down in the dirt, as I discussed in this article earlier this year. The bottom line is that farmland has been a solid investment for a long time and will likely remain so for many years to come.

Visteon (NYSE: VC)

One of the most stunning consequences of the recent global recession was the absolute implosion of demand for new cars and trucks. Many key auto makers and their key suppliers had been used to operating with lots of debt, so when the downturn hit and sales began to slide, they either had to cut costs drastically, seek government bailouts or file for bankruptcy, as was the case with General Motors (NYSE: GM) and Chrysler in 2009. Visteon, which is an auto-part maker and a Ford Motor (NYSE: F) spin-off, couldn't avoid the maelstrom and sought bankruptcy protection as well.

But that's beginning to look like ancient history now: Visteon went public once again last October (with a much cleaner balance sheet) and saw its shares rise from about $50 to $75 before a recent pullback down to $61. George Soros' firm established a new 2.1-million share position (worth about $125 million), presumably after the stock suffered a 20% drop in just two days in early March, after announcing a year-over-year decline in first-quarter sales and profits.

Commodities, Real Estate, Uncategorized

This "Boring" Stock Is Up 52%… And It Could Go Even Higher

June 2nd, 2011

This

If you want to know where an industry is headed, then just peek inside a few checkbooks.

If companies are reining in their spending, then they might be saving pennies for a rainy day. But when an entire sector starts forking over unusually large amounts for expansion projects, it's sending a crystal clear signal: Business is looking strong.

I've found one of those signals in an unlikely place…

  • On March 28, energy firm Williams Companies Inc. (NYSE: WMB) announced $320 million in plant upgrades in order to supply Nova Chemicals with 17,000 barrels of ethane and ethylene a day.

    Uncategorized

Bill Gates Just Spent $51 Million on this Stock

May 24th, 2011

Bill Gates Just Spent $51 Million on this Stock

Bill Gates founded Microsoft (Nasdaq: MSFT) in 1975 and for a time was the wealthiest person on the planet, thanks to the company's ubiquitous Windows operating system. In June 2008, Gates gave up his day-to-day role at Microsoft to spend more time working with his wife at the Bill & Melinda Gates Foundation. Mexican businessman Carlos Slim has since taken the title as the world's richest person, while Gates has shifted focus to his philanthropic efforts.

A significant portion of Gates' $56 billion wealth has shifted to his foundation as well as his private investment vehicle, Cascade Investment LLC. The foundation received significant further support when Gates' long-time friend and fellow billionaire Warren Buffett committed to donating a significant portion of his $47 billion net worth to the Bill & Melinda Gates Foundation.

When you are investing such vast sums of money for philanthropic work, you need to play it safe in terms of investment risk and preserving the long-term value of the asset base. After all, the Gates Foundation has to fund grants to support causes such as global health and related charitable gifting for many years to come. As such, investors following these types of investments can sleep well knowing that they're intended to be relatively safe.

Recently, Cascade and the Bill & Melinda Gates Foundation have been accumulating a nearly $1 billion stake in Mexican bottler Coca-Cola FEMSA S.A.B de C.V. (NYSE: KOF). Better known as Coca-Cola Femsa, it is the largest bottler of Coca-Cola (NYSE: KO) products in Latin America. Mexico is the company's largest market in the region, at close to 40% of sales, followed by Venezuela at more than 20%. The company also serves Brazil, Argentina and most of Central America.

Coke is the dominant carbonated beverage in Latin America, with an estimated market share of 60%. Given the popularity of Coke, Coca-Cola Femsa has grown rapidly in recent years. In the past decade, sales and net income have expanded by more than 20% annually. Growth has slowed somewhat in the past three to five years but has still been impressive, as annual sales and earnings increases have both been in the mid-teens. This year will likely be no exception: analysts currently project sales growth of 17.7% and total sales of nearly $10 billion. They also expect earnings of $4.96 per share, more than 10% ahead of last year's $4.50 per share.

Uncategorized

Bill Gates Just Spent $51 Million on this Stock

May 24th, 2011

Bill Gates Just Spent $51 Million on this Stock

Bill Gates founded Microsoft (Nasdaq: MSFT) in 1975 and for a time was the wealthiest person on the planet, thanks to the company's ubiquitous Windows operating system. In June 2008, Gates gave up his day-to-day role at Microsoft to spend more time working with his wife at the Bill & Melinda Gates Foundation. Mexican businessman Carlos Slim has since taken the title as the world's richest person, while Gates has shifted focus to his philanthropic efforts.

A significant portion of Gates' $56 billion wealth has shifted to his foundation as well as his private investment vehicle, Cascade Investment LLC. The foundation received significant further support when Gates' long-time friend and fellow billionaire Warren Buffett committed to donating a significant portion of his $47 billion net worth to the Bill & Melinda Gates Foundation.

When you are investing such vast sums of money for philanthropic work, you need to play it safe in terms of investment risk and preserving the long-term value of the asset base. After all, the Gates Foundation has to fund grants to support causes such as global health and related charitable gifting for many years to come. As such, investors following these types of investments can sleep well knowing that they're intended to be relatively safe.

Recently, Cascade and the Bill & Melinda Gates Foundation have been accumulating a nearly $1 billion stake in Mexican bottler Coca-Cola FEMSA S.A.B de C.V. (NYSE: KOF). Better known as Coca-Cola Femsa, it is the largest bottler of Coca-Cola (NYSE: KO) products in Latin America. Mexico is the company's largest market in the region, at close to 40% of sales, followed by Venezuela at more than 20%. The company also serves Brazil, Argentina and most of Central America.

Coke is the dominant carbonated beverage in Latin America, with an estimated market share of 60%. Given the popularity of Coke, Coca-Cola Femsa has grown rapidly in recent years. In the past decade, sales and net income have expanded by more than 20% annually. Growth has slowed somewhat in the past three to five years but has still been impressive, as annual sales and earnings increases have both been in the mid-teens. This year will likely be no exception: analysts currently project sales growth of 17.7% and total sales of nearly $10 billion. They also expect earnings of $4.96 per share, more than 10% ahead of last year's $4.50 per share.

Uncategorized

US Data Drag Down the Dollar

May 17th, 2011

We had a pretty volatile trading day yesterday, with the dollar falling dramatically in early trading but climbing back up through most of the afternoon. Overnight trading has been choppy, and the dollar is trading pretty much right where it was when I headed home last night. It was the volatile Empire Manufacturing data that sent the dollar into a tailspin yesterday morning. An index of manufacturing in the New York region was cut nearly in half, falling from 21.70 in April to a measure of just 11.88 in May. This number is traditionally very volatile, so it shouldn’t have any long-term impact, but it did set the markets in a ‘sell dollar’ mode which continued when the Net TIC flows were released 30 minutes later.

Global demand for US long-term financial assets such as government bonds slowed in March as investors shortened up their maturities and China trimmed their portfolio of US Treasuries. The total TIC flows were up at $116 billion in March versus $95.6 billion the month before. But the makeup of these purchases is what is concerning. Foreigners decreased their net long term TIC flows from an adjusted $27.2 billion February to $24 billion in March. This figure is a good gauge on international confidence in the US economy and foreigners seem to be getting more concerned over the inflation prospects in the US, and perhaps worry about our ability to pay down our long term debt. Investors typically shift to the shorter end of the curve when they are concerned about inflation, or in volatile times when they just want to ‘hide’ from market volatility. Both combined to push investors away from the longer dated maturities and into the short term US Treasury bills.

The problem this creates for the US is two-fold. First, with fewer buyers of the longer dated maturities, interest rates on these securities will be forced up. Right now the Treasury has been able to hold longer-term rates down with the bond buying of QE2, but what happens when that program is scheduled to end? The lack of buying interest in our longer term securities could push interest rates dramatically higher after QE2, and help force another round of quantitative easing (this is the vicious circle that Chuck has been warning readers about).

The second problem with the shortening of maturities is that the US will have to roll that debt in the coming months and years, and with global interest rates on an increasing path, our debt will get less and less attractive to these foreign investors. In order to attract these buyers, rates will have to go higher. These higher rates will increase the already skyrocketing debt burden on the US, as interest payments will be forced up along with the rates offered to foreign investors. More and more of our budget will be used to pay these foreign bondholders, and our debt hole will continue to get deeper.

China is the biggest foreign owner of US Treasuries (our own Federal Reserve is now the largest holder of our debt!!) and they have been trimming their holdings. Figures released yesterday show China now owns $1.145 trillion of the debt, which is down $9 billion from their holdings as of February. The holdings had reached a record of $1.175 trillion in October of last year. China has been vocal about their concerns regarding the growing debt burden of the US, and the amount of new debt the Treasury department continues to add. According to many with knowledge of China’s central bank, the amount of US Treasuries in China’s investment portfolio will be gradually cut and the funds diversified into other currencies and fixed income securities. This is not good news for the US dollar or debt situation.

We will get another round of data on the state of the US housing market this morning. The housing downturn is kind of old news by now, but construction is still one of the drivers of the US economy, and housing continues to be a drag. Housing starts are expected to have increased slightly from last month’s 549K, and building permits are projected to have remained flat. The problem with the housing market is that the banks that now own many of the ‘available’ homes are slowly releasing them back into the market. As they put these foreclosed homes back into the market, they free up capacity to start the foreclosure proceedings on additional homes. There is still a huge glut of supply, both in the market and ‘waiting in the wings’, so I don’t expect our housing downturn to reverse for some time.

An agreement was reached by European financial chiefs without the help of the IMF leader who is spending some time on Rikers Island. But the bailout wasn’t for Greece; but instead, a 76 billion euro package was given to Portugal. The finance chiefs want Greece to do more in order to win improved aid terms. Extra money for Greece will be tied to demands for deeper spending cuts and additional asset sales. The Greek government has been reticent to let go and privatize some of their best state assets, but the EU officials want to see more privatization in an effort to reduce the overall debt burden. The sale of the state assets will probably be an easier sell to the Greek citizens than additional spending cuts, but both will be needed in order for Greece to avoid default, and even with these efforts many believe default is inevitable. The euro (EUR) recovered one cent to top $1.42 in early European trading, and according to technical analysis, the $1.4121 is an area of support, with $1.3958 a major support level.

UK inflation rates accelerated to 4.5% in April to the fastest since October 2008, possibly forcing BOE Governor Mervyn King to explain publicly why officials haven’t raised interest rates yet. The pound (GBP) rose as investors felt that the BOE would now be force to push rates up at their next meeting. King did say inflation is likely to rise further in the coming months, but feels it will be easing back toward the bank’s 2% target next year.

Another central bank that is expected to be raising rates is the Reserve Bank of Australia. But interest rate increases aren’t the only tool Australia will be using to fight rising prices. Australia’s Treasury Secretary said the local currency would probably stay elevated ‘for some time’ helping to contain inflation. Singapore’s central bank has used the value of their currency as their main tool in combating inflation, and the idea seems to be growing in popularity. Countries such as Australia, Brazil, and Singapore have the advantage of a strong economy, which allows them to let their currencies rise without fear of the negative impact on exports. All three of these country’s currencies have been rising, and will probably continue as their central banks try to keep internal price pressures from overheating.

Australia and Brazil have been very volatile of late, as commodity prices continue to swing wildly. But Singapore hasn’t been subject to the same wild swings, and should be considered by investors as a good candidate for some Asian exposure. Singapore held an election on May 7th and the majority party lost some seats, but still held on to power. This was seen as a positive for the country, as the opposition voices have forced some changes and ‘soul searching’ on the part of the Prime Minister Lee Hsien Loong. But on the negative side, Mr. Loong’s party has done a very good job of running the country, which has seen an unprecedented string of growth while maintaining solid economic fundamentals.

Singapore’s retail sales unexpectedly rose 7% in March from a year earlier after dropping a revised 3.2% in February. Singapore’s unemployment rate is at a three-year low, and tourists from Asian and Europe are visiting the city in record numbers. As I mentioned earlier, Singapore is unique in that their central bank does not use interest rates to combat inflation, but instead lets the value of their currency appreciate to slow down their export driven economy. This is a big plus for currency investors, as global inflation continues to push the Singapore dollar higher. All indications are that Mr. Loong will be able to continue to encourage good growth while maintaining control of the money supply. Again, the Singapore dollar (SGD) is an excellent choice for those looking for alternatives to the slow and steady Chinese renminbi (CNY) or the very volatile (and currently overpriced) Japanese yen (JPY).

Both gold and silver dropped a bit yesterday, continuing the wild ride that they have been on lately. Gold is now trading well below $1,500 and silver is back to the mid $33 range. Investors who are getting tired of the constant swings in these precious metals may want to consider our latest MarketSafe CD, which was introduced by Chuck at the Global Currency Expo last weekend. The Timeless Metals MarketSafe CD has a 5-year term and the return is based on the performance of gold, silver, platinum, copper, and nickel. Additional information on our newest MarketSafe offering can be found on our website here.

To recap: US data showed NY manufacturing is down, and housing is expected to show additional drags on the economy. China is reducing the amount of debt they are buying, not a good sign when the US continues to run up huge deficits. The EU leaders bailed out Portugal, but want more from Greece before they restructure their debt. UK inflation rose, and may force rates higher. Singapore’s central bank continues to allow their currency to appreciate, and we introduced our latest MarketSafe CD based on metals.

Chris Gaffney
for The Daily Reckoning

US Data Drag Down the Dollar originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
US Data Drag Down the Dollar




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

2 New IPOs with Strong Upside

May 12th, 2011

2 New IPOs with Strong Upside

A dozen years ago, Silicon Valley was responsible for one of the most prolific initial public offering (IPO) markets ever seen. Many fortunes were made, as a record 486 companies went public in 1999. The next year was the second-best ever, with 406 additional new issues coming to the market. Of course, many dollars were subsequently lost in that mania and no one wants a return of such frothy days.

But the IPO market is surely getting back on its feet. If the economy obliges, we may get close to 200 IPOs this year, the best showing since 2007. The good news is that the quality of newly-public companies is fairly high, as investors only accept companies that have real businesses and a true path to profits. The one blight on the IPO market: China-based companies. The five worst performers of the past 12 months in the new-issues market all hail from mainland China, according to investment adviser Renaissance Capital. The list is led by China Xiniya Fashion (NYSE: XNY), whose shares have dropped

Uncategorized

The very strongest sectors and countries right now …

May 10th, 2011

Nilus MattiveLast week, I shared a recent stock screen I conducted … and I commented on some of the specific companies that it turned up. Today, I want to continue looking at the stock market, but from a much broader perspective.

Let’s start with one of my favorite topics …

How the Various Stock Market Sectors Are Performing!

Back in February, I told you how each of the market’s ten major groups had done in 2010. And I also made some predictions about which areas would be strongest this year.

Specifically, I said that income investors should pay particular attention to health care (especially pharmaceutical stocks!).

So far this year, that has proven to be dead on. In fact, through the end of April, health care was the second-best sector in terms of performance.

Meanwhile, energy — my favorite out of 2010′s strong performers — is in the lead so far. And consumer staples stocks — another one of my perennial income favorites — have also been performing very well year to date.

Take a look …

Best Market Sectors

Obviously, there’s still plenty of time for new trends to emerge … and the current winners can reverse course at any time … but if anything, I think defensive sectors like staples and health care will only do BETTER throughout the rest of this year.

Why?

Because based on some of last week’s data — including tepid ISM data and a renewed rise in the nation’s unemployment rate — more investors will start re-considering their current strategies and naturally gravitate back toward recession-resistant companies.

Of course, it was that very same risk of renewed U.S. economic weakness — as well as a falling dollar — that has also caused me to beat the drum on foreign dividend payers in recent columns, too.

So let’s also take a quick look at …

Which Countries Have Been Performing
Most Strongly So Far This Year!

Most professional investors break up foreign markets into those that are “developed” and those that are “emerging.”

And while these definitions are certainly malleable — and becoming even more malleable as the world’s balance of economic power continues to shift — here’s a standard breakdown of the very best developed markets so far this year (through April) …

Best Developed Markets

Interestingly enough, places like Australia and the U.K. were farther down the list — producing gains of 10.09 percent and 8.52 percent, respectively.

And the United States? It was also in the middle of the pack with a 9.01 percent rise.

Perhaps the biggest shock comes when you look at the best-performing emerging markets, however. Here are the top five performers through April …

Best Emerging Markets

As you can see, past darlings like China and Brazil were nowhere near the top … with results of 1.94 percent and -0.55 percent, respectively.

Heck, Indonesia was the only Asian country to make the top 5! How different things look today versus a year or two ago, eh?

None of this is predictive, of course. In fact, I’ve become more positive on China now that other investors have turned their backs on it. [Editor’s note: Nilus is currently recommending two Chinese dividend stocks for his Dad’s Income Portfolio.

But that brings up a good question …

How Can You Play These Kinds of Sector and Country Trends?

Personally, I continue to favor individual dividend stocks.

When it comes to the ten sectors of the U.S. stock market, there are income-producing shares to be found in every single one … and by choosing the very best companies you can get great capital appreciation as well as solid checks in the mail.

Plus, the proliferation of dividend-paying American Depositary Receipts (and Shares) has also made it possible to buy many top-quality international companies right here on U.S. exchanges, too.

At the same time, I recognize that you may not be interested in picking single stocks to buy … nor are there a lot of ADRs available from companies operating in the more obscure countries.

Advertisement

That’s okay. You can still use exchange-traded funds (ETFs) to target just about whatever sector or country you want. Like mutual funds, ETFs can give you solid diversification … they trade like regular stocks … and as long as you choose wisely, the expenses will be quite low. Heck, companies like WisdomTree even offer ETFs expressly focused on dividend-paying foreign stocks!

But whichever way you decide to go, I do encourage you to continue following these larger trends if you want to get the very best performance out of your own portfolio. In these fast-moving markets it’s absolutely critical to find the very best combination of growth and value.

Best wishes,

Nilus

P.S. If you’d rather have someone else do all the work of picking individual income stocks from the very best sectors and countries, I’d be happy to help you out! In fact, you can get all my best ideas for just $69 a year! Click here for the details.

Read more here:
The very strongest sectors and countries right now …

Commodities, ETF, Mutual Fund, Uncategorized

4 Blue Chip Stocks with 50% Upside Potential

May 5th, 2011

4 Blue Chip Stocks with 50% Upside Potential

It's been a heck of a run for small-cap stocks. The Russell 2000 Index has risen roughly 80% in just two years and a number of individual stocks have doubled, tripled or even quadrupled. The move is understandable; Small stocks were so badly beaten-up during the downturn that a rebound seemed inevitable.

But now it's time to shift gears. The average stock in the Russell 2000 now trades for roughly 21 times trailing earnings and more than two times book value. Both of these metrics are roughly 20% above the historical norm. More importantly, key themes expected to play out in the U.S. economy are estimated to benefit larger rather than smaller companies. First, the weak dollar is likely to boost the prospects of large cap companies with a high degree of international exposure. Second, consumer spending may finally move up as employment trends strengthen.

Most major retailer stocks are mid and large caps residing in the S&P 500. And that's where I'm setting my sights for 2012: the S&P 500, which has also had a strong run but still has its share of laggards. Four companies in particular have largely missed out on the strong bull market but look poised to catch up in the next few months. I see at least 50% upside potential for each stock.

1. Citigroup (NYSE: C)
Bank stocks remain out of favor. With the housing market still quite weak and lending activity accordingly slow, there are good reasons for caution. As I noted a few weeks ago, many bank stocks can be obtained for right around book value.

The dim sector view is obscuring a brighter picture for Citigroup. With each passing quarter, it's becoming more apparent that this is really a play on international economic activity — especially in places such as China, Brazil and India — and less of a play on the moribund U.S. economy.

Right now, quarterly results are mixed, as strong international results offset tepid domestic results. Yet profits are building, which is pumping up book value. Merrill Lynch believes that Citigroup's book value will hit $6.21 by the end of this year, more than 30% higher than the current share price. By the end of 2012, book value could approach $6.75 if current trends continue. Assuming investors finally warm to the stock later this year and set their targets on that end-of-2012 book value forecast, shares look to have 50% upside.

2. Best Buy (NYSE: BBY)

Conventional wisdom says that this major consumer-electronics retailer is in disarray, steadily losing market share to aggressive players such as Wal-Mart Stores Inc. (NYSE: WMT). The fact that sales are expected to rise just 3% this year gives little reason for optimism. Yet if you dig deeper, then you'll see a company suffering from internal missteps and a still-weak consumer economy — not one that has lost its competitive edge.

To be sure, Best Buy's move of placing a big promotional emphasis on 3-D TVs now looks misguided. Consumers simply didn't want them, and that's the nature of electronics retailing — there are hits and misses.

But management appeared chastened at a mid-April management meeting as it laid out a game plan that looks more sound. In coming quarters, Best Buy will place an even greater emphasis on mobile devices such as tablets and smartphones, while also helping consumers navigate the “connected home.” That's a fancy way of describing the next wave of consumer electronics from TVs to radios to car stereos set for release in coming quarters that will have Internet connectivity at its core. This level of actual “interaction” with products is something rivals such as Wal-Mart and Amazon.com (Nasdaq: AMZN) simply can't replicate. In addition, Best Buy is boosting its efforts in the area of new and used video games and is ramping up its presence in China.

These initiatives, coupled with the fact that employment trends should continue to strengthen, has me convinced that expectations for the mere 2% sales growth in calendar 2012 (fiscal 2013) are far too low. Whereas the analyst consensus sees per-share profits of about $3.67, I see them rising to $4. Shares currently trade for less than seven times this admittedly bullish view. If that multiple expanded to 12, which is not unreasonable, you'd be looking at 50% upside.

3. GM (NYSE: GM)
My colleagues and I have written about the disappointing post-IPO performance of GM. Rising fuel prices clearly bear some of the blame, but it didn't help that management has decided to sharply boost engineering spending in 2011 to have a fresher product line down the road. Unless tensions in Egypt and Libya spread to Saudi Arabia, the risk premium could eventually come out of the oil market, helping prices to ease down toward the $90-a-barrel mark. As oil prices cool, GM's shares could get a solid lift. [Here are other reasons this is a good long-term stock to own.]

Analysts at UBS spot another catalyst: “Given its size, we believe GM will be the biggest beneficiary of the upcoming Japan-related inventory shortages, with the potential to gain of as much as 110 basis points of additional (market) share in 2011. We expect these gains can boost 2011 EBIT by $1billion and EPS [earnings per share] by $0.60/share.”

Yet it's the product line that will serve as the main catalyst for this stock. GM's entire car line is in the midst of a revamp, with a big focus on quality and fuel efficiency. Steadily rising market share, coupled with ongoing increases in industry volume, should help GM to operate its factories closer to full capacity and push up margins. As that happens, analysts look for EPS to hit $5 in 2012 and perhaps $6 in 2013. I'm betting investors will begin to focus on that 2013 outlook later this year. Slap a price-to-earnings (P/E) ratio of just eight on that 2013 outlook, and shares would rise to $48, or 50% above current levels.

4. Akamai Technologies (Nasdaq: AKAM)
The bloom is off the rose for this former tech highflyer. Shares have fallen nearly 40% since December and are now touching 52-week lows. Investors have grown concerned that tough competition in the company's core business of providing content delivery networks (CDNs) is leading to steady price erosion. That's surely the case, as it has been for a number of years.

Yet investors are missing the bigger picture. Akamai is also rolling out a wide range of ancillary products and services that are just now being tested and deployed by customers. These new offerings carry far higher profit margins than the commoditized CDN business.

Right now, analysts think profits will rise in the low double-digits in 2011 and again in 2012. Yet that view assumes a significant shrinkage in profit margins as further CDN price cuts take hold. But the new offerings hold the promise of sustaining and even boosting margins. If that happens, then profit growth will be in the upper teens, not the lower teens.

In recent weeks, management has cleared the decks and set a very low bar. Once investors see that future results will be above the currently pessimistic view, then the profit multiple could expand again and push shares back up toward the 52-week high of $54, more than 50% above current levels.

Action to Take –> Each of these stocks is in the midst of a tough period, which has led to a sharp contraction in their profit multiples. Yet each of these companies possesses a strong brand and meaningful operating leverage that will begin to show once operations start to turn. With just a few breaks, these stocks could see a nice uptick in the multiple — and perhaps a 50% gain.


– David Sterman

P.S. — We've just identified six surprising events that could break your portfolio wide open in 2011. Knowing these pivot points in advance lets you focus your investing strategy like a beam of light in the dark… and make a lot of money in a hurry. Get them free by simply watching this video presentation.

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
4 Blue Chip Stocks with 50% Upside Potential

Read more here:
4 Blue Chip Stocks with 50% Upside Potential

Uncategorized

4 Blue Chip Stocks with 50% Upside

May 5th, 2011

4 Blue Chip Stocks with 50% Upside

It's been a heck of a run for small-cap stocks. The Russell 2000 Index has risen roughly 80% in just two years and a number of individual stocks have doubled, tripled or even quadrupled. The move is understandable; Small stocks were so badly beaten-up during the downturn that a rebound seemed inevitable.

But now it's time to shift gears. The average stock in the Russell 2000 now trades for roughly 21 times trailing earnings and more than two times book value. Both of these metrics are roughly 20% above the historical norm. More importantly, key themes expected to play out in the U.S. economy are estimated to benefit larger rather than smaller companies. First, the weak dollar is likely to boost the prospects of large cap companies with a high degree of international exposure. Second, consumer spending may finally move up as employment trends strengthen.

Most major retailer stocks are mid and large caps residing in the S&P 500. And that's where I'm setting my sights for 2012: the S&P 500, which has also had a strong run but still has its share of laggards. Four companies in particular have largely missed out on the strong bull market but look poised to catch up in the next few months. I see at least 50% upside potential for each stock.

1. Citigroup (NYSE: C)
Bank stocks remain out of favor. With the housing market still quite weak and lending activity accordingly slow, there are good reasons for caution. As I noted a few weeks ago, many bank stocks can be obtained for right around book value.

The dim sector view is obscuring a brighter picture for Citigroup. With each passing quarter, it's becoming more apparent that this is really a play on international economic activity — especially in places such as China, Brazil and India — and less of a play on the moribund U.S. economy.

Right now, quarterly results are mixed, as strong international results offset tepid domestic results. Yet profits are building, which is pumping up book value. Merrill Lynch believes that Citigroup's book value will hit $6.21 by the end of this year, more than 30% higher than the current share price. By the end of 2012, book value could approach $6.75 if current trends continue. Assuming investors finally warm to the stock later this year and set their targets on that end-of-2012 book value forecast, shares look to have 50% upside.

2. Best Buy (NYSE: BBY)

Conventional wisdom says that this major consumer-electronics retailer is in disarray, steadily losing market share to aggressive players such as Wal-Mart Stores Inc. (NYSE: WMT). The fact that sales are expected to rise just 3% this year gives little reason for optimism. Yet if you dig deeper, then you'll see a company suffering from internal missteps and a still-weak consumer economy — not one that has lost its competitive edge.

To be sure, Best Buy's move of placing a big promotional emphasis on 3-D TVs now looks misguided. Consumers simply didn't want them, and that's the nature of electronics retailing — there are hits and misses.

But management appeared chastened at a mid-April management meeting as it laid out a game plan that looks more sound. In coming quarters, Best Buy will place an even greater emphasis on mobile devices such as tablets and smartphones, while also helping consumers navigate the “connected home.” That's a fancy way of describing the next wave of consumer electronics from TVs to radios to car stereos set for release in coming quarters that will have Internet connectivity at its core. This level of actual “interaction” with products is something rivals such as Wal-Mart and Amazon.com (Nasdaq: AMZN) simply can't replicate. In addition, Best Buy is boosting its efforts in the area of new and used video games and is ramping up its presence in China.

These initiatives, coupled with the fact that employment trends should continue to strengthen, has me convinced that expectations for the mere 2% sales growth in calendar 2012 (fiscal 2013) are far too low. Whereas the analyst consensus sees per-share profits of about $3.67, I see them rising to $4. Shares currently trade for less than seven times this admittedly bullish view. If that multiple expanded to 12, which is not unreasonable, you'd be looking at 50% upside.

3. GM (NYSE: GM)
My colleagues and I have written about the disappointing post-IPO performance of GM. Rising fuel prices clearly bear some of the blame, but it didn't help that management has decided to sharply boost engineering spending in 2011 to have a fresher product line down the road. Unless tensions in Egypt and Libya spread to Saudi Arabia, the risk premium could eventually come out of the oil market, helping prices to ease down toward the $90-a-barrel mark. As oil prices cool, GM's shares could get a solid lift. [Here are other reasons this is a good long-term stock to own.]

Analysts at UBS spot another catalyst: “Given its size, we believe GM will be the biggest beneficiary of the upcoming Japan-related inventory shortages, with the potential to gain of as much as 110 basis points of additional (market) share in 2011. We expect these gains can boost 2011 EBIT by $1billion and EPS [earnings per share] by $0.60/share.”

Yet it's the product line that will serve as the main catalyst for this stock. GM's entire car line is in the midst of a revamp, with a big focus on quality and fuel efficiency. Steadily rising market share, coupled with ongoing increases in industry volume, should help GM to operate its factories closer to full capacity and push up margins. As that happens, analysts look for EPS to hit $5 in 2012 and perhaps $6 in 2013. I'm betting investors will begin to focus on that 2013 outlook later this year. Slap a price-to-earnings (P/E) ratio of just eight on that 2013 outlook, and shares would rise to $48, or 50% above current levels.

4. Akamai Technologies (Nasdaq: AKAM)
The bloom is off the rose for this former tech highflyer. Shares have fallen nearly 40% since December and are now touching 52-week lows. Investors have grown concerned that tough competition in the company's core business of providing content delivery networks (CDNs) is leading to steady price erosion. That's surely the case, as it has been for a number of years.

Yet investors are missing the bigger picture. Akamai is also rolling out a wide range of ancillary products and services that are just now being tested and deployed by customers. These new offerings carry far higher profit margins than the commoditized CDN business.

Right now, analysts think profits will rise in the low double-digits in 2011 and again in 2012. Yet that view assumes a significant shrinkage in profit margins as further CDN price cuts take hold. But the new offerings hold the promise of sustaining and even boosting margins. If that happens, then profit growth will be in the upper teens, not the lower teens.

In recent weeks, management has cleared the decks and set a very low bar. Once investors see that future results will be above the currently pessimistic view, then the profit multiple could expand again and push shares back up toward the 52-week high of $54, more than 50% above current levels.

Action to Take –> Each of these stocks is in the midst of a tough period, which has led to a sharp contraction in their profit multiples. Yet each of these companies possesses a strong brand and meaningful operating leverage that will begin to show once operations start to turn. With just a few breaks, these stocks could see a nice uptick in the multiple — and perhaps a 50% gain.


– David Sterman

P.S. — We've just identified six surprising events that could break your portfolio wide open in 2011. Knowing these pivot points in advance lets you focus your investing strategy like a beam of light in the dark… and make a lot of money in a hurry. Get them free by simply watching this video presentation.

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
4 Blue Chip Stocks with 50% Upside

Read more here:
4 Blue Chip Stocks with 50% Upside

Uncategorized

Copyright 2009-2013 MarketDailyNews.COM

LOG