Lufkin manufactures oil field pumping units and power transmission products. It also was involved in production of highway trailers, but is exiting this business this year. The mainstay is the oil field supply and the growth portion is the power transmission.
I have been watching the company for months and waiting for a pullback. I think we'll see one shortly when oil pulls back after the Saudi's increase oil production by 500,000 barrels next month. The market tends to punish good companies when sector rotation occurs so I'm looking to pick up this good growth stock closer to 70 and enjoy its eventual rise to 95.
]]>Most folks go for the standard staples when a market declines to preserve capital, but a few plan for the day a market recovers. I suspect that we've been in a secular bear market since 2000 or 2001. Secualr markets are different from others in that they are longer term and generally last between eight and twenty years. Now cyclical markets, on the other hand,are usually correlated with shorter-term fluctuations of the economic cycle.
The last secular bear market we experienced occurred between 1966 and 1982, a period in which the Dow Jones Industrial Average declined at a per year rate of -1.5%. Have you noticed that the Dow has gone nowhere in nominal terms and the S & P has yet to sustain its former height since 2000?
One of the defining trends of a secular market is its inflation background. During the secular bear market of 1966 to 1982 inflation increased over 6.5% per year. Since 2000 inflation has risen over 3% per year and with oil prices rising, that number is surely headed higher. With continued oil inflation and food inflation it will be much harder for the market to make much upside progress. That means that our returns in most sectors will probably stink.
During the 1970's stagflation helped keep stocks (I wasn't paying much attention to bonds) in a secular bear market and it kept gold and commodities in a secular bull market. Those trends ended in 1980 with a huge thud and by 1982 a huge secular bull market had risen from the ashes and continued through the 1980's and 1990's. This ended with the Asian financial crisis, the tech bubble and later bust, the deflation worry, and the rise of the emerging economies, particularly the BRIC nations which seems to be bringing us back to another uptrend in commodities.
Now here's where research comes in. The piece of the puzzle I have long ignored and don't pay any attention to is the bond yield curve. I learned from several bond, financial, and gold company web sites that in an environment of rising inflation, short term interest rates usually rise more than long-term rates, which makes the yield curve flatter than usual.
During the secular bear market of 1966-1982, the mean spread between the 10-year and three month Treasury yield was just under one per cent. During the bull market that followed the spread was double or two per cent. Since 2000 the spread has averaged 1.5% and we could see that average drop closer to the 1970's average if inflation rises. That, in turn, would support a secular bull in gold and commodities. Gold performs better when the yield curve is flat than when it is steep.
How long it is going to take to send this secular bear back to the woods is open for debate. I don't know the answer to that, but my research tells me that when the bull returns the sectors with the brightest outlook include tech, consumer discretionary, materials, and industrials.
For now I'm sticking with the commodity plays in both the US and emerging makets. It's possible to still buy natural gas producers and gold miners without breaking the bank. But I'm keeping my eye on the prize of an eventual bottom and am positioning myself to take advantage of the upcoming secular bull. It may be in two years or four, but I'm adding dollars to the trendy four sectors I listed above.
]]>Fast forward from high praise to current conditions. My message is to run, run, run from this and most of the financial stocks. Sure value players are probably casting gleeful eyes at Fannie now that the price has dropped precipitiously. But waiting for the rise in value stocks in the financial markets today will be like watching grass grow in September; it will be a slow, ardious process.
Currently several analysts have a sell rating on the stock. There is a big reason for all of this and they have even more insight into the numbers than many of us.
My suggestion is to wait. Watch the economy post this phoney stimulus mess and then evaluate Fannie very closely. She may show some life in 2009 or 2010, but I'd let the stock rise closer to 30-32 range to see if it can hold. I'd be afraid to tie up good money in hopes that it might go up, because it could sit for ages with all the headwinds the economy is facing.
At issue is supply and demand. We're using more than we're producing in most of the commodities so that makes the price rise. It's simple economics. Yes, there'll be dips and rallies within those individual resources; gold, oil, grains, natural gas, and coal can all rise and fall with the news of the day, but the underlying trend remains upward and will probably continue for a few years.
Read Saturday's "Options Report" in the Wall Street Journal by Geoffrey Rogow. The near-term options on USO show a put-call ratio of 1.82. The Materials Select Sector SPDR Fund has a put-call ratio of 2.57. If the options traders can be trusted, a bubble from the energy and materials stocks is safe from bursting soon.
Note the insider buying list where Chesapeake Energy (CHK) CEO A.McClendon purchased millions of dollars of his own stock at an average cost exceeding $54.00 per share. Because CHK has been one of my biggest gainers over this decade, I'm buying, too, Mr. McClendon. I'm also loading up on another natural gas producer, El Paso (EP).
Gold is rising today. It's often at its lowest point in the second quarter before moving higher through the first quarter of the following year. I'm a buyer of gold mining stocks. The jewelry association today announced big gold purchases because they felt the metal was downright cheap at current prices. I continue to like GG, GFI, NEM, EGO, and AUY, but I think most of the gold mining stocks will move upward on momentum alone.
All the best to you healthcare and financial supporters out there, but your time has yet to arrive. I'll join your bandwagon in 2011 or 2012.
]]>But wait all you hopeful investors sitting on the sidelines waiting to buy into stocks as soon as a full recovery hits. Come take a quick stroll with me back into the seventies. Remember the Vietnam War and all the angst the country was going through during this period? How about gas lines? No sugar or other items out of stock on the grocery shelves? And then there was inflation. Up ten per cent one year and fifteen percent another. Life became unaffordable--fast.
Some of the same government officials who are in the government now were also running the government back then. Do some history research into the Nixon administration and you'll see some of the same cast of characters that are making decisions today. They laid the groundwork for the problems that exploded during the Carter administration and those are the same problems that our next president will be facing in the next year.
Gold is up over 300% in this decade. I'm wondering how much higher it will rise in the next decade. Oil is in the same situation along with most metals, agriculture and other commodities in general. There is a finite supply of resources and a huge demand for most of them. It is not a condition that will go away in a month or a year or two. It may take a decade or longer. Buy oil, buy gold, buy natural gas and companies that mine, drill, explore, or produce these commodities. It is the only way you can keep up with the raging inflation that we are on track to develop.
Liquidity is rampant. The world needs to re-flate and it will do so in the form of gold. Participate or you will be left behind. And, yes, one day gold will drop but interest rates may be at 15% or mortgages at 11% or some other gosh awfully high number. When inflation gets up there, then it's time to sell your gold, oil, and other commodities because the economy will be on the verge of breaking. I remember because I was paying attention during the seventies.
]]>Goldcorp is a member of the basic materials sector. The 52 week stock price range is between 21.00 and 46.30. At this writing Goldcorp is about ten dollars a share below its 52 week high. This is the slow quarter for gold companies and that makes it a buying opportunity for you, the investor. Demand from Asia picks up in the third and fourth quarters as buyers place their orders for wedding season.
There are 708 million shares outstanding with 55% of them held by institutions. Management is repurchasing stock.
Book value (18.17) is bullish. Book value reflects the value at which assets are carried on the balance sheet.
Relative performance of stocks versus bonds is a favorable influence for Goldcorp. When the total return for stocks has outperformed bonds, that makes a bullish case for Goldcorp.
The long-term debt/capital ratio is 7.16%. This reflects well on the company's financial stability. The average ratio for gold companies is 9.5%.
2008 earnings were higher than expected and 2009 earnings projections are 25% higher yet. Look at the current price of gold and realize that Goldcorp's cost of removing the metal from the ground is around 200 dollars per ounce. There's a huge percentage between the production cost and the sales price. If gold goes up higher in price, then Goldcorp's profits will also rise even higher.
Finally examine your personal beliefs about inflation. Gold has always been a hedge in that area. If you have noticed higher prices in your life, methinks you might consider purchasing a little insurance to tide you over. Think about the financial debt that the USA has accumulated, the credit problems on Wall Street, and the rising price of crude oil. Know that the war in Iraq is a huge and continuing expense.
If the current crop of politicians remain in power, it will be more of the same. If we elect to change horses and try to balance the budget, think about rising interest rates and inflation until things stabilize. It won't be a wand that can be waived overnight.
It took years for the last gold runup to go from 200 dollars per ounce to over 800 dollars per ounce. When Paul Volker finally got inflation under control by raising interest rates, I was getting 15% interest on my certificates of deposit at the bank. Personally I'm putting my money where my mouth is. I feel so strongly about the upcoming inflationary environment that I've got over ten per cent of my total assets in the shiny stuff and the companies that mine it. A large portion of my funds are in Goldcorp.
]]>Alternative energy has etched a hope in the psyche of the nation. We can improve the technology to lower energy costs; right now though most of the improvements available are cost prohibitive. Someday they won't be. I don't know about individual companies but I do know about hope. Rather than focus on one or two stocks in the alternative energy area, I would suggest one focus on an ETF that specializes in that arena. There are too many horses with too broad a spectrum to distinguish an obvious winner yet. With diversification one can profit until a clearer picture forms.
]]>Folks, the Fed are the Greeks and the gifts they are offering will stress our financial system.
All of the "smart" traders baled out of gold the past two days and booked profits. I suffered a 7 percent decline in my portfolio, but I'm holding on. Why? Because a new twist can arrive at any moment and gold will resume it's climb upwards. If you question this, read up on financial history and technical patterns for the answers.
I urge you to add some gold mining stocks to your portfolio while the shiny metal is down. TV ads are running, begging citizens to sell their gold for extra money. It happened in the seventies and it is happening now. The purchasers know that gold is going much higher and they see an opportunity to make a profit.
Like Troy, we need to keep our defenses up in this economic climate. So far the Fed has taken the tax money of the poor and middle class to bail out the very rich on Wall Street. The Fed will have to address continued problems until the decling home values and the credit mess the housing bubble created subsides.
]]>Tomorrow is Fed rate cut day. Another debasement to our dollar. Ordinarily I like rate cuts because it makes my gold stocks shine. But, folks, this is serious. These "Wizards" who are leading us down the yellow brick road don't have a clue as to what they are doing to our markets. If you think this market is bleak, you ain't seen nothing yet. This credit mess is international ---spread by hedge funds, investment banks, and all of the darlings down on Wall Street. Markets will be headed in a southerly direction for a long while but hopefully there will be some bubble like cushions tossed out to smooth the ride.
Load up on gold. It was the only asset class to remain positive during the depression. Oil stocks are also good, but make sure they pay dividends. We may get another bubble first, but the seeds have been sown, the path is obvious. We're in for a year or more of misery. If we're lucky enough to see the S&P rise to 1350 or 1400 in the stimulus package quarter, SELL and pocket some money. You'll need it to pay the extra bills caused by rising inflation. Unfortunately, house prices, financial investments, and wages will not be participating.
]]>HOGWASH to all of the above. Does anyone remember the Wizard of OZ? The "Wizard" was calling all the shots and when questioned, his classic line was "Pay NO Attention to the Man Behind the Curtain." That very advice holds true in today's market climate. Here's why.
Do you believe that our whole financial system is at risk and will fall apart? If so, take a look at the financial history of this country, beginning in the 1800"s with the tulip bulb bubble. That bubble pricked and moved on to railroads, steel, and other bubbles. Review the depression and the lead up to that decade. Other items of interest are the savings and loan debaucle of the Bush One presidency, the irrational exhuberance in tech stocks of the 90's, and the market reactions to 9-11-01.
Many of you may not recall these items, especially if you weren't investing during those years. Well, let me be a calming influence to you, because I'm old and I've been investing since the early sixties. I've also got the experience and the profits to back up my words. No, I wasn't around for the great depression of the thirties, but my parents were so I feel well schooled in that era, too.
Stop listening to the entertainment talking heads and start your own thinking. Look for p/e's. Look at dividend yields. If you don't know what either of those items are, then you're not investing. When you buy a company, you're purchasing it with the expectation that it has a future going forward and that you will participate in it's profits. You want earnings growth potential and a dividend to cushion you in the worst of markets. Remember that earnings drive the market and will push up the price of your stock.
Take your age and timeframe into consideration. It doesn't make too much sense for me to invest in something that may payoff in five to ten years, but it may make sense for you. Want an example? Then look at the demographics. They baby boomers are not going to live forever. They will need new joints, lots of medicine, medical facilities, senior housing, dental care, pet care for their animals, financial management, and eventually cremation and burial. There's a slew of companies providing these services to pick from in virtually all of these areas. Check them out yourself. Look at their history, their p/e's and their guidance going forward. Avoid any who are heavily in debt as their future prospects could be impaired. If you find one that looks good to you, then purchase some shares when the talking heads are spouting gloom and doom. Sure, your stock could go down a little, but if the p/e is low and the fundamentals are sound, then you're in it for the long term and you'll be rewarded over the years.
These words are from an investor that bought APPL under 10, PEP at 29, and COP (when it was the old Phillips Petroleum) at 16. Yes, I picked them up in the 70's. 80's and 90's and used the same method outlined above. I also bought utilities in the 1960's and retired almost two decades ago because their dividends were paying me more than my employer.
If you don't like the boomer play, then watch the commodities. They are more immediate, but once again, I urge you to do your own research. The gold mining companies are paying anywhere from 190 dollars to 390 dollars to get an ounce of gold out of the ground. Find a company with large reserves, a low cost and good earnings going forward. (Since gold is going for over 950 dollars an ounce at this writing, the earnings picture looks pretty bright for the shiny metal.) This country's failure to provide a strong dollar policy portends an even brighter picture for the future.
Learn economics, do your own thinking and research, remember no one will take care of your assets like you will, and most of all pay NO attention to the man behind the curtain.
Afraid to go all out on one stock and want some exposure to the area? Then try RJA and GSG. RJA is Rogers Elements, an agricultural index started by Jimmy Rogers, the investment biker, no less. He's sitting over in China in the land of opportunity now and is a huge bull on agriculture. The index features about 20 various ag commodities from wheat and corn at a high per cent of the index down to greasy beans at the lower per cent end. It's new and up over 10% since I bought and unfortunately not available in SLO. (It must be too thinly traded) I mention it in hopes it can eventually be traded here as it is a sure winner.
GSG is easily available and it is the symbol for the S&P commodities index. You get exposure to a broad area that should trend upward for some time.
Gold is best played by owning the mining companies now rather than the metal itself. The metal has seen a considerable runup and will go higher. How high? Who knows? This I do know: the mining companies are just beginning to see their profits accelerate and they have miles to go. The major players are Newmont, Barrick, Goldcorp, Kinross and Yamana. There are others and the gold industry is ripe for consolidation. Too nervous to pick one? Try a fund or purchase the options when they become available in the not too distant future.
The energy world is confusing. There's oil, natural gas, drillers, refiners, etc. Which one gives you the most bang for the buck? All that is driven by demand and depends on weather, time of year, world tensions, etc. It's a tough call to decide what's going to happen. One thing I do know. S. America is have some natural gas problems and Cuba may also open up some in the future. PZE (Petrobras) is inexpensive, pays a nice dividend and is a safe way to play this.
The African continent is an increasing player on the oil stage. SSL (Sassol) is a large cap global company that has a patented process of making oil from coal. It is a huge industry in S. Africa and is sharing its technology worldwide for a price. Barrons wrote a piece on it not long ago and gave it high marks.
Want some good old American company? Take a look at CHK (Cheasapeke) They are sitting on the Barnett Shale project in Ft Worth Texas and a boatload of natural gas. They also own several of their rigs and property in the Applachians. Natural gas is plentiful, clean burning, and is produced in our own country. .
]]>Does anyone think that a recession will improve the inflationary outlook? Will all of those global commodities just drop because the USA has a consumer slowdown? Folks, get real. We're in for more inflation spirals because the FOMC will probably cut rates at least one more percent before this summer. That will cause the dollar to drop, and gold and other commodities to rise even more.
There's lots of ways to play this out. Load up on the gold mining stocks: Newmont, Barrick, Goldcorp, Kinross, and Yamana. There are others so do some research, but don't go too small. There may be some takeover possibilities in the smaller mines, but tread carefully and do your homework.
Some mines hedge gold and some do not. The mines that hedge agree in advance to sell at a fixed price sometimes a year or more out. The mines that do not hedge go with the current prices. These mines have the most upside when gold is rising like it is now.
It costs between 350 and 400 dollars to mine an ounce of gold according to the annual reports I have been reading. When gold sells at nine hundred an ounce, the potential for profit looks pretty darn good.
You can also own the metal now through the ETF. Personally I believe the mining stocks have the best upside, but either way gold is a winner.
If you want to do a little more research on the gold subject, google the US Gold website and start reading. The charts and the other details are quite informative and give a thorough explanation of gold's relationship to the stock market. US Gold is a small company, but the CEO is the former CEO of Goldcorp and brings years of knowledge and experience to the table. The web site is informative and offers lots of information to those seeking to learn about gold in general.
]]>The Fed needs to cut rates. That drives the US dollar down and drives gold up. Gold is an inflation hedge. Anybody out there besides the Fed and the Prez believe that inflation is under control? If so, please read the last two issues of "The Economist." Pay particular attention to the charts on the back pages where they list the percentage that various commodities rise every week. It's large, folks, double digit large.
Then please google US Gold and go to the company's website. The chart showing the Dow to gold ratio smacks your eyes as you hit the site. Read all the data; it's mindboggling, but informative. Gold has a very bright future. Oh, if you still like Apple, wait for it to bottom and buy and hold. Like me, eventually you'll be rewarded because it is a good company with solid products and excellent management.
]]>We've been hearing for months about the sub-prime mess and the ugliest facts may still get uglier. One story today forecast that the S & P average could drop by one half. The fear mongers are having a field day.
Where should an investor be in the midst of this environment? Hopefully, you are sitting tight. Also, I cross my fingers that you have rid your holdings of all financials, home builders, and retailers for the time being. Rate cuts will return all these sectors to higher prices someday, but it may take a while.
We can all make some money in hard assets. That's mainly commodity-type stuff like gold, oil, agriculture. Is there upside in gold? Yes, because the Fed continues to cut rates which, in turn, sinks the dollar. Someday the dollar will strengthen. That's the time to watch closely because maybe it will be time to take some profits off the table. Things like this do not turn on a dime.
Oil is always a good hedge. Prices rise, prices fall, but everybody needs oil. Sooner or later your oil stocks will give you profits. Select carefully because some pay excellent dividends and that money can cushion you while you wait for a rise in the stock prices.
And finally there's agriculture. Lots of individual stocks to chose from in that sector and a few ETF's. There's been a large run up in the ag sector over the past several months, but there's probably more upside to come. People gotta eat!
Finally there's the value plays. Lots of good stocks are getting hammered in this sell-off. When the pain is finally over, some of them will have twenty to thirty dollars upside per share. There are plenty of financial publications out there making recommendations. Read all you can and select carefully. No one can predict a market bottom so when it feels right, stick you toe in the water and buy your picks. Have faith in your judgement and be patient. Eventually you will begin to see profits again and all this angst will be history.
]]>The beginning of 2008 may present an opportunity for profits in energy, agriculture, and gold, but later in the year may set up one of the biggest buying opportunites for value investors in years. Sell off some of your profitable positions to raise cash in the first quarter so you will be well positioned to take advantage of the upcoming fire sale in some stock sectors.
One of Sir John Templeton's best remarks was "Buy when there's blood on the streets." Well, investors, there'll be plenty of that in the financials and the retailers. Personally I'm loading up on SHLD (Sears Holding), AIG, and several of the higher yielding banks. There's still time to pick and choose over the next six months as things may get even more grim. Consumers have Christmas bills and high energy bills to pay and raises have failed to keep up with the rising costs even though they mirror the "inflation" rate.
When you invest, go for the large caps and pay attention to the dividend yield. You may have to hold your stock picks for a period of time; you may as well get paid by the company as you wait for the market to improve. Also, watch for buybacks. Those can accelerate your progress. Most companies announce buybacks and there are web sites that track this information for you.
One final word on value, put your patient cap on. These stocks can drag around for months before they take off, but the upside is always worth the wait if you select carefully.
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