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Monday, January 17, 2011
Jubak: The 10 best stocks for a volatile '11
3 trends that hold true
Why start with the trends? Why not go straight to stock picks? In a volatile year, like 2010 or (as I project) 2011, the toughest challenge is staying invested. The second-toughest is knowing when to use the swings of the pendulum toward excessive fear to buy. (For more on this, see my column on investing when you fear the zombies are about to walk.)
You want to use market volatility to buy low -- and not let it send you running to the hills after you've sold low. The easiest way to do that is to indentify some longer-term trends that you want to own through a reasonable amount of volatility.
A big rally in 2011?
View more MSN videosGo to CNBC
What are some of those longer-term trends for 2011? Here are three.
* Food prices are headed higher, as are farm incomes. Speaking at the Bank of America/Merrill Lynch Global Industries Conference on Dec. 15, fertilizer company Potash of Saskatchewan (POT, news) said that by the middle of 2010 it had become apparent that, for the eighth time in the past 12 years, grain production would fall short of consumption and the world would have to draw down its stockpiles. In 2011, Potash estimates, it will take a 5% increase in grain production to keep pace with consumption. That will be a tough if not impossible task, because grain production has grown by only an average of 2% a year in the past few decades. Without a record increase in production, global grain stocks would fall to the historical lows of 2006 and 2007. That's certain to produce higher grain and food prices -- good for farmers and the companies that sell stuff to them but bad for consumers, especially poor consumers. According to the Food and Agriculture Organization of the United Nations, by November 2010 the year-to-year increase in the global food price index was 22%.
* Commodity prices are rising, and there's a real possibility of supply falling short of demand for such commodities as copper. Encouraged by this, the global mining industry is raising capital-spending budgets for 2011 and beyond as fast as it can. A survey of global mining executives by the Financial Times puts mining capital spending at $115 billion to $120 billion in 2011. That would be a record, surpassing the peak of $110 billion set in 2010.
Now, I can't tell you what the price of any commodity will be in 2011 -- too much depends on where the People's Bank of China comes down on inflation and growth in 2011. But I can tell you that mining companies are not going to cancel orders for capital goods on volatility in commodity prices, and they're going to be reluctant to cancel orders even on extraordinary volatility, because they're afraid of losing their place in the customer line. These companies remember from the last big commodities boom that supplies of capital goods are limited and suppliers can quickly ramp up to meet demand. Order early or forget about getting your order filled.
* 2011 is shaping up as a year of interest-rate stability -- or at least, a year when fears of interest-rate increases from central banks start to recede. The Federal Reserve isn't going to raise the short-term interest rates it controls in 2011. The European Central Bank won't raise rates significantly in 2011. Central banks in many developing markets are likely to finish their rounds of interest-rate increases in 2011. The People's Bank of China isn't much of a wild card -- the bank is signaling that if it raises rates at all in 2011, it will be little more than a gesture.
This doesn't mean that long-term interest rates, the ones central banks don't control, won't keep rising. In comparison to historical real rates -- that is interest rates minus inflation -- long-term rates are extremely low. So I expect interest rates at the long end of the yield curve to continue to move up. But that's exactly what should happen as the world's economies, especially the U.S. economy, return to something like the pre-crisis normal. (For more on the trend in interest rates, see my post "Higher interest rates, lower bond prices: It's a new world.")
In this world, bank profits should move up -- banks raise funds at short-term interest rates and lend at long-term interest rates. Add in falling default rates on consumer credit and mortgage loans, and some uptick in sentiment produced by whatever leaders in the United States and the eurozone contrive to deliver as gestures toward fiscal responsibility, and 2011 looks like a good year to be a lender
Now, I'll add some stock picks for 2011 to go with these trends.
* Higher food prices and higher farm incomes: farm equipment maker Deere (DE, news), fertilizer producer Yara International (YARIY, news), irrigation equipment maker Yara International (YARIY, news) and seed company Syngenta (SYT, news).
* Rising capital spending by commodity producers: mining equipment maker Joy Global (JOYG, news), tire and wheel maker (for mining and farm equipment) Titan International (TWI, news) and copper and gold miner Freeport-McMoRan Copper & Gold (FCX, news) because it has the ability to expand production at a modest cost. (For more on the capital spending story at Freeport McMoRan, see the Dec. 14 buy in "Higher interest rates, lower bond prices: it's a new world" for my Jubak's Picks portfolio.)
* Better times for banks: Spanish bank Banco Santander (STD, news) and U.S. banks Citigroup (C, news) and JPMorgan Chase (JPM, news).
These 10 picks won't give you a balanced portfolio. The group is heavily weighted toward commodities. To these 10, I'd look to add technology, where I favor chip equipment makers such as ASML Holding (ASML, news), transportation equipment makers such as Cummins (CMI, news), and consumer goods companies such as Google (GOOG, news), Apple (AAPL, news) and Amazon.com (AMZN, news)
Why start with the trends? Why not go straight to stock picks? In a volatile year, like 2010 or (as I project) 2011, the toughest challenge is staying invested. The second-toughest is knowing when to use the swings of the pendulum toward excessive fear to buy. (For more on this, see my column on investing when you fear the zombies are about to walk.)
You want to use market volatility to buy low -- and not let it send you running to the hills after you've sold low. The easiest way to do that is to indentify some longer-term trends that you want to own through a reasonable amount of volatility.
A big rally in 2011?
View more MSN videosGo to CNBC
What are some of those longer-term trends for 2011? Here are three.
* Food prices are headed higher, as are farm incomes. Speaking at the Bank of America/Merrill Lynch Global Industries Conference on Dec. 15, fertilizer company Potash of Saskatchewan (POT, news) said that by the middle of 2010 it had become apparent that, for the eighth time in the past 12 years, grain production would fall short of consumption and the world would have to draw down its stockpiles. In 2011, Potash estimates, it will take a 5% increase in grain production to keep pace with consumption. That will be a tough if not impossible task, because grain production has grown by only an average of 2% a year in the past few decades. Without a record increase in production, global grain stocks would fall to the historical lows of 2006 and 2007. That's certain to produce higher grain and food prices -- good for farmers and the companies that sell stuff to them but bad for consumers, especially poor consumers. According to the Food and Agriculture Organization of the United Nations, by November 2010 the year-to-year increase in the global food price index was 22%.
* Commodity prices are rising, and there's a real possibility of supply falling short of demand for such commodities as copper. Encouraged by this, the global mining industry is raising capital-spending budgets for 2011 and beyond as fast as it can. A survey of global mining executives by the Financial Times puts mining capital spending at $115 billion to $120 billion in 2011. That would be a record, surpassing the peak of $110 billion set in 2010.
Now, I can't tell you what the price of any commodity will be in 2011 -- too much depends on where the People's Bank of China comes down on inflation and growth in 2011. But I can tell you that mining companies are not going to cancel orders for capital goods on volatility in commodity prices, and they're going to be reluctant to cancel orders even on extraordinary volatility, because they're afraid of losing their place in the customer line. These companies remember from the last big commodities boom that supplies of capital goods are limited and suppliers can quickly ramp up to meet demand. Order early or forget about getting your order filled.
* 2011 is shaping up as a year of interest-rate stability -- or at least, a year when fears of interest-rate increases from central banks start to recede. The Federal Reserve isn't going to raise the short-term interest rates it controls in 2011. The European Central Bank won't raise rates significantly in 2011. Central banks in many developing markets are likely to finish their rounds of interest-rate increases in 2011. The People's Bank of China isn't much of a wild card -- the bank is signaling that if it raises rates at all in 2011, it will be little more than a gesture.
This doesn't mean that long-term interest rates, the ones central banks don't control, won't keep rising. In comparison to historical real rates -- that is interest rates minus inflation -- long-term rates are extremely low. So I expect interest rates at the long end of the yield curve to continue to move up. But that's exactly what should happen as the world's economies, especially the U.S. economy, return to something like the pre-crisis normal. (For more on the trend in interest rates, see my post "Higher interest rates, lower bond prices: It's a new world.")
In this world, bank profits should move up -- banks raise funds at short-term interest rates and lend at long-term interest rates. Add in falling default rates on consumer credit and mortgage loans, and some uptick in sentiment produced by whatever leaders in the United States and the eurozone contrive to deliver as gestures toward fiscal responsibility, and 2011 looks like a good year to be a lender
Now, I'll add some stock picks for 2011 to go with these trends.
* Higher food prices and higher farm incomes: farm equipment maker Deere (DE, news), fertilizer producer Yara International (YARIY, news), irrigation equipment maker Yara International (YARIY, news) and seed company Syngenta (SYT, news).
* Rising capital spending by commodity producers: mining equipment maker Joy Global (JOYG, news), tire and wheel maker (for mining and farm equipment) Titan International (TWI, news) and copper and gold miner Freeport-McMoRan Copper & Gold (FCX, news) because it has the ability to expand production at a modest cost. (For more on the capital spending story at Freeport McMoRan, see the Dec. 14 buy in "Higher interest rates, lower bond prices: it's a new world" for my Jubak's Picks portfolio.)
* Better times for banks: Spanish bank Banco Santander (STD, news) and U.S. banks Citigroup (C, news) and JPMorgan Chase (JPM, news).
These 10 picks won't give you a balanced portfolio. The group is heavily weighted toward commodities. To these 10, I'd look to add technology, where I favor chip equipment makers such as ASML Holding (ASML, news), transportation equipment makers such as Cummins (CMI, news), and consumer goods companies such as Google (GOOG, news), Apple (AAPL, news) and Amazon.com (AMZN, news)
Jubak: 10 stocks for the next 10 years
The Terrific 10
And now for the fun part. Putting together my 2011 list of 10 stocks for 10 years.Here are the five long-term picks already in the portfolio that I think will do best in 2011:
- Bunge (BG, news), the big global buyer, seller, storer, transporter and processor of soybean and other oil seeds, is a stock to own in a year that's shaping up to repeat the food-price spike of 2008.
- Cemex (CX, news) will see what was a handicap in 2010 -- the Mexican company's exposure to the moribund U.S. construction sector -- turn into an advantage. For once, Porfirio Díaz's lament -- Poor Mexico, so far from God, so close to the United States -- will be an advantage. (Well, at least if you're selling cement.) The stock lost 5.8% in 2010.
- Deltic Timber (DEL, news) sells timber and timberland for development. Amazingly, the stock was up 22.7% in 2010. This year should be better as life gradually returns to the U.S. housing market. (Let's say the housing market comes out of intensive care and investors conclude that the patient will actually survive.)
- Johnson Controls (JCI, news) did amazingly well in 2010 -- up 42.3% -- considering that two of the company's three businesses were in sectors of the economy that had been crushed. This year will be better for the company's auto-interior and auto-battery businesses and for its buildingwide energy-efficiency unit.
- Rayonier (RYN, news) is another timber producer with a lot of land that it was busy developing until the U.S. mortgage crisis hit. The gradual winding down of that crisis will make 2011 a better year for Rayonier. Not that 2010 was all that bad. The stock was up 29.4%.
- Baidu.com (BIDU, news): China's leading search engine operator has just started to tap into the market for electronic retailing.
- DuPont (DD, news): With its mix of seeds and enzymes acquired (not to recently) by buying Pioneer Hi-Bred and (very recently) Danisco, I think DuPont is targeting two of the biggest technology opportunities -- and challenges -- of the next decade. Those are growing more food and producing more energy from plants without making the first challenge more difficult.
- Fluor (FLR, news): With a choice between Jacobs Engineering and Fluor, I'd go with Fluor and its bigger backlog of orders.
- Gol Linhas Aeréas Inteligentes (GOL, news): Air travel is exploding in emerging economies as economic growth leads to increases in the number of people who can afford to fly. And on top of that, the low-cost domestic airline can look forward to a big increase in traffic as Brazil hosts the World Cup in 2014 and the Olympic Games in 2016.
- Yingli Green Energy (YGE, news): Yingli is my choice for a horse to ride in China's solar industry.
Sunday, January 16, 2011
Profit from Soaring Food Prices
he classic play, of course, is farm equipment maker Deere (NYSE: DE). Deere's sales closely track farm income. Its shares popped Jan. 12 when the US Department of Agriculture announced that US corn, soybean, and wheat inventories had fallen by 10.5%, 15.2%, and 4.7%, respectively. Lower inventories translate to higher prices for US farmers and higher sales for Deere. (Deere is a member of my long-term Jubak Picks 50 portfolio.)
Seed makers are a slightly longer-term investment, because the next big payoff is from drought-resistant seeds that require less water, and that research is just starting to yield results. My two favorites here are DuPont (NYSE: DD) and Europe's Syngenta (NYSE: SYT).
Investing in Fertilizer Is Another Way to Play
You can't grow plants, no matter how drought resistant, without nutrients. And in many countries, applying more fertilizer is the best way, in the short term, to increase yields. My picks here are Potash of Saskatchewan (NYSE: POT), Agrium (NYSE: AGU), and Yara International (OTC: YARIY).
In that group, I'd probably give the lead to Yara International because of its recent moves on bulk liquid fertilizers. The company is in the process of acquiring the part it doesn't yet own of Yara Nipro, the market leader in bulk liquid fertilizers in Eastern Australia. Liquid fertilizers are particularly well-suited to farming in areas where water is scarce; in many of these markets, liquid fertilizers are just establishing a foothold. Only 3% of fertilizer in Eastern Australia is supplied in liquid form, for example.
Speaking of water, irrigation emerges as a growth industry as weather becomes less predictable. Lindsay Corporation (NYSE: LNN), a stock I added to Jubak's Picks in December, is a leader in big, center-pivot irrigation systems. Jain Irrigation Systems, which specializes in extremely efficient drip irrigation systems, is the other irrigation pick I'd make. Unfortunately for US investors, the company trades only on the Indian stock market. (The ticker is JI.IN, in case you can buy it there.)
Bigger Is Better Among Suppliers
Now let's go to the other side of the trend and look at companies that will profit as consumers and consumer-facing companies look to avoid the worst effects of rising food prices.
Brazil's Marfrig Alimentos is an example. In the last year, the company has become a supplier to US fast-food restaurants, and I think that's a likely growth opportunity as those outlets look for cheaper supplies. I'd also add Bunge (NYSE: BG), the big soybean supplier. Bunge has the global contacts to source the soybeans it processes at the best global price of the moment—and that will give the company the ability to ride the changing currents of rising food prices. (The stock is also in my Jubak Picks 50 portfolio.)
Following this same logic, I'd favor the biggest of the global food companies, because they can source their ingredients from whatever part of the globe is cheapest at the moment. Here, my pick would be Nestlé (OTC: NSRGF).
That list of ten stocks (not counting Jain Irrigation) doesn't exhaust the opportunity. But it should be enough to get you started.
At the time of publication, Jim Jubak did not own shares of any of the companies mentioned in this post in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), owned shares of Agrium, Deere, Lindsay, Marfrig, Nestlé, Syngenta, and Yara International as of the end of November. For a full list of the stocks in the fund at the end of November, see the fund's portfolio here. The portfolio at the end of December will be posted in a few days.
Seed makers are a slightly longer-term investment, because the next big payoff is from drought-resistant seeds that require less water, and that research is just starting to yield results. My two favorites here are DuPont (NYSE: DD) and Europe's Syngenta (NYSE: SYT).
Investing in Fertilizer Is Another Way to Play
You can't grow plants, no matter how drought resistant, without nutrients. And in many countries, applying more fertilizer is the best way, in the short term, to increase yields. My picks here are Potash of Saskatchewan (NYSE: POT), Agrium (NYSE: AGU), and Yara International (OTC: YARIY).
In that group, I'd probably give the lead to Yara International because of its recent moves on bulk liquid fertilizers. The company is in the process of acquiring the part it doesn't yet own of Yara Nipro, the market leader in bulk liquid fertilizers in Eastern Australia. Liquid fertilizers are particularly well-suited to farming in areas where water is scarce; in many of these markets, liquid fertilizers are just establishing a foothold. Only 3% of fertilizer in Eastern Australia is supplied in liquid form, for example.
Speaking of water, irrigation emerges as a growth industry as weather becomes less predictable. Lindsay Corporation (NYSE: LNN), a stock I added to Jubak's Picks in December, is a leader in big, center-pivot irrigation systems. Jain Irrigation Systems, which specializes in extremely efficient drip irrigation systems, is the other irrigation pick I'd make. Unfortunately for US investors, the company trades only on the Indian stock market. (The ticker is JI.IN, in case you can buy it there.)
Bigger Is Better Among Suppliers
Now let's go to the other side of the trend and look at companies that will profit as consumers and consumer-facing companies look to avoid the worst effects of rising food prices.
Brazil's Marfrig Alimentos is an example. In the last year, the company has become a supplier to US fast-food restaurants, and I think that's a likely growth opportunity as those outlets look for cheaper supplies. I'd also add Bunge (NYSE: BG), the big soybean supplier. Bunge has the global contacts to source the soybeans it processes at the best global price of the moment—and that will give the company the ability to ride the changing currents of rising food prices. (The stock is also in my Jubak Picks 50 portfolio.)
Following this same logic, I'd favor the biggest of the global food companies, because they can source their ingredients from whatever part of the globe is cheapest at the moment. Here, my pick would be Nestlé (OTC: NSRGF).
That list of ten stocks (not counting Jain Irrigation) doesn't exhaust the opportunity. But it should be enough to get you started.
At the time of publication, Jim Jubak did not own shares of any of the companies mentioned in this post in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), owned shares of Agrium, Deere, Lindsay, Marfrig, Nestlé, Syngenta, and Yara International as of the end of November. For a full list of the stocks in the fund at the end of November, see the fund's portfolio here. The portfolio at the end of December will be posted in a few days.
I’m Upping the Stakes on Goldcorp
On January 13, Goldcorp (NYSE: GG) announced production and cost guidance for 2011.
Let’s just say that my investment thesis for Goldcorp—that this is a low-cost producer of gold with rising production—remains intact.
In 2010, the company said, gold production grew to a record 2.52 million ounces. For 2011, Goldcorp forecast production of 2.7 million ounces. Over the next five years, the company projected that gold production will increase by 60%.
The company hasn’t finished final accounting for 2010 operating costs (Goldcorp reports year-end results on February 24), but Goldcorp expects that total cash costs will be about $285 an ounce (including revenue from byproducts such as copper from mining gold), or less than $450 an ounce on a co-product basis (which allocates cost on a metal-by-metal basis.) Cash costs, the company projects, will continue a downward trend over the next five years.
After a cash payment of $765 million as part of its acquisition of Andean Resources, Goldcorp finished the year with $530 million in cash. Cash flow for 2011 will be approximately $2.5 billion. Goldcorp projects capital expenditures for 2011 at $1.8 billion, with plans for the construction of six new mines over the next five years.
I think Goldcorp should be a core part of any inflation-hedge, gold portfolio. (The stock is a member of both my Jubak’s Picks 12-18 month portfolio and my Jubak Picks 50 long-term portfolio.) I’d use the recent pullback in gold and gold stocks—Goldcorp is down almost 10% from December 6 to January 13—as an opportunity to build positions.
As of January 14, I’m raising my target price to $55 a share by October 2011 from my previous target of $51 by December 2010. The shares peaked in December around $46.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own pos
Let’s just say that my investment thesis for Goldcorp—that this is a low-cost producer of gold with rising production—remains intact.
In 2010, the company said, gold production grew to a record 2.52 million ounces. For 2011, Goldcorp forecast production of 2.7 million ounces. Over the next five years, the company projected that gold production will increase by 60%.
The company hasn’t finished final accounting for 2010 operating costs (Goldcorp reports year-end results on February 24), but Goldcorp expects that total cash costs will be about $285 an ounce (including revenue from byproducts such as copper from mining gold), or less than $450 an ounce on a co-product basis (which allocates cost on a metal-by-metal basis.) Cash costs, the company projects, will continue a downward trend over the next five years.
After a cash payment of $765 million as part of its acquisition of Andean Resources, Goldcorp finished the year with $530 million in cash. Cash flow for 2011 will be approximately $2.5 billion. Goldcorp projects capital expenditures for 2011 at $1.8 billion, with plans for the construction of six new mines over the next five years.
I think Goldcorp should be a core part of any inflation-hedge, gold portfolio. (The stock is a member of both my Jubak’s Picks 12-18 month portfolio and my Jubak Picks 50 long-term portfolio.) I’d use the recent pullback in gold and gold stocks—Goldcorp is down almost 10% from December 6 to January 13—as an opportunity to build positions.
As of January 14, I’m raising my target price to $55 a share by October 2011 from my previous target of $51 by December 2010. The shares peaked in December around $46.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own pos
Nvidia: Looking Ahead to January 2011 Quarterly Results
his post describes our model of NVIDIA's (NASDAQ: NVDA) Income Statement for fiscal 2011's fourth quarter, which will end on 30 January 2010.
The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report. Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data. We begin by reviewing background information about NVIDIA and the business environment in which it is currently operating.
NVIDIA is best known for its powerful Graphics Processing Units that rapidly perform the complex calculations required to produce hyper-realistic images for computers and video games.
The company's share price shot up earlier this month in a favorable response to announcements NVIDIA made in conjunction with the Consumer Electronics Show in Las Vegas. NVIDIA proclaimed its latest chips for mobile devices, such as the dual-core Tegra 2, are being used in increasing numbers of notebook computers, tablets, and smartphones. NVIDIA also made known it would develop CPUs using technology from ARM Holdings (NASDAQ: ARMH) for a wide variety of other platforms. This latter disclosure is significant because Microsoft (NASDAQ: MSFT) decided to enable a future version of the Windows operating system to work on ARM chips, allowing these devices to compete directly against the x86 devices developed by Intel (NASDAQ: INTC).
The ARM products, therefore, open another front in NVIDIA's rivalry with Intel. NVIDIA has promoted the use of its parallel-processing GPUs for applications now running on Intel's general-purpose microprocessors. Intel's latest generation of microprocessors, known as Sandy Bridge, includes sophisticated graphics capabilities that might eventually cut into sales of the discrete GPUs made by NVIDIA and Advanced Micro Devices (NYSE: AMD).
NVIDIA's latest successes follow a couple of challenging years for the company. NVIDIA reported net losses of $30 million and $68 million in fiscal 2009 and fiscal 2010, respectively. Annual revenue slipped from $3.4 billion to $3.3 billion.
For financial reporting purposes, NVIDIA has three principal businesses: GPU, Professional Solutions, and Consumer Products. The GPU business, which had Revenue of $1.7 billion in fiscal 2010 (53 percent of the total), sells products for desktop and notebook personal computers. NVIDIA GPUs are installed in computers made by Apple (NASDAQ: AAPL), Hewlett Packard (NYSE: HPQ), Dell (NASDAQ: DELL), and Lenovo.
The Professional Solutions business had Revenue of $510 million in fiscal 2010 from sales of products used by graphic professionals (such as broadcasters) and for high-performance computing. Media and Communications Processors (now part of GPU) had Revenue of $872 million. Consumer Products took in $164 million from the sale and licensing of products that are embedded in tablets, smartphones, personal media players, and other consumer electronics devices.
The company's market value slid from $23 billion in late 2007, prior to the worldwide financial crisis, to as low as $5 billion. The latest spike in the share price has brought the market value back up over $11 billion.
In March 2010, NVIDIA extended for three years a program for repurchasing up to $2.7 billion of its common shares.
In the October-ending third quarter of fiscal 2011, NVIDIA earned $0.15 per diluted share on a GAAP basis. This amount was down 22 percent from earnings of $0.19 in the same three months of the previous year.
Excluding a beneficial insurance settlement in the earlier period, earnings per share increased from $0.13 to $0.15.
We are now ready to look specifically at the January 2011 quarter.
When NVIDIA reported its third-quarter results on 11 November, it provided the following guidance for the January quarter:
The outlook for the fourth quarter of fiscal 2011 is as follows:
• Revenue is expected to be up 3 to 5 percent from the third quarter.
• GAAP gross margin is expected to be flat.
• GAAP operating expenses are expected to be approximately $300 million.
• GAAP tax rate is expected to be 18 to 20 percent.
Since NVIDIA forecast a 3-to-5 percent Revenue gain relative to the third quarter's $844 million, they were effectively estimating that Revenue would be between $869 million and $886 million. Given the company's recent sales successes, we are selecting $880 million, a figure in the upper half of the guidance range, as our target for NVIDIA's revenue in the January quarter.
This target value is 10.4 percent less than Revenue of $982 million in the year-earlier quarter.
The Gross Margin in the October quarter was 46.5 percent of Revenue, and the guidance indicates NVIDIA expects a similar percentage in the latest period. Our target is 47 percent. Combining the targets for Revenue and Gross Margin yields an estimated Cost of Goods Sold in the quarter equal to (1 - 0.47) * $880 million, or $466 million.
The $300 million guidance for Operating expenses covers Research and Development and Sales, General, and Administrative costs. We have partitioned the $300 million figure into $210 million for R&D and $90 million for SG&A.
Subtracting the estimated operating costs from the Revenue target, and assuming no special operating charges (for, say, restructuring, asset impairments, or warranties), yields a projected Operating Income of $114 million. This estimate is 15 percent is less than Operating Income of $139 million in the year-earlier quarter.
We are estimating $5 million, net, for Interest and other non-operating income and expenses. This figure brings pretax income up to $119 million.
Applying a 19 percent income tax rate would result in a tax provision of $23 million, and Net Income of $96 million (about $0.17 per share). Net Income was $131 million ($0.23 per share) in the quarter that ended 31 January 2010.
Please click here to see a normalized depiction of the projected results next to NVIDIA's quarterly Income Statements for the last couple of years. Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats. The standardization facilitates cross-company comparisons.
Full disclosure: Long NVDA at time of writing.
The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report. Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data. We begin by reviewing background information about NVIDIA and the business environment in which it is currently operating.
NVIDIA is best known for its powerful Graphics Processing Units that rapidly perform the complex calculations required to produce hyper-realistic images for computers and video games.
The ARM products, therefore, open another front in NVIDIA's rivalry with Intel. NVIDIA has promoted the use of its parallel-processing GPUs for applications now running on Intel's general-purpose microprocessors. Intel's latest generation of microprocessors, known as Sandy Bridge, includes sophisticated graphics capabilities that might eventually cut into sales of the discrete GPUs made by NVIDIA and Advanced Micro Devices (NYSE: AMD).
For financial reporting purposes, NVIDIA has three principal businesses: GPU, Professional Solutions, and Consumer Products. The GPU business, which had Revenue of $1.7 billion in fiscal 2010 (53 percent of the total), sells products for desktop and notebook personal computers. NVIDIA GPUs are installed in computers made by Apple (NASDAQ: AAPL), Hewlett Packard (NYSE: HPQ), Dell (NASDAQ: DELL), and Lenovo.
The Professional Solutions business had Revenue of $510 million in fiscal 2010 from sales of products used by graphic professionals (such as broadcasters) and for high-performance computing. Media and Communications Processors (now part of GPU) had Revenue of $872 million. Consumer Products took in $164 million from the sale and licensing of products that are embedded in tablets, smartphones, personal media players, and other consumer electronics devices.
In March 2010, NVIDIA extended for three years a program for repurchasing up to $2.7 billion of its common shares.
In the October-ending third quarter of fiscal 2011, NVIDIA earned $0.15 per diluted share on a GAAP basis. This amount was down 22 percent from earnings of $0.19 in the same three months of the previous year.
Excluding a beneficial insurance settlement in the earlier period, earnings per share increased from $0.13 to $0.15.
We are now ready to look specifically at the January 2011 quarter.
When NVIDIA reported its third-quarter results on 11 November, it provided the following guidance for the January quarter:
The outlook for the fourth quarter of fiscal 2011 is as follows:
• Revenue is expected to be up 3 to 5 percent from the third quarter.
• GAAP gross margin is expected to be flat.
• GAAP operating expenses are expected to be approximately $300 million.
• GAAP tax rate is expected to be 18 to 20 percent.
This target value is 10.4 percent less than Revenue of $982 million in the year-earlier quarter.
The Gross Margin in the October quarter was 46.5 percent of Revenue, and the guidance indicates NVIDIA expects a similar percentage in the latest period. Our target is 47 percent. Combining the targets for Revenue and Gross Margin yields an estimated Cost of Goods Sold in the quarter equal to (1 - 0.47) * $880 million, or $466 million.
Subtracting the estimated operating costs from the Revenue target, and assuming no special operating charges (for, say, restructuring, asset impairments, or warranties), yields a projected Operating Income of $114 million. This estimate is 15 percent is less than Operating Income of $139 million in the year-earlier quarter.
We are estimating $5 million, net, for Interest and other non-operating income and expenses. This figure brings pretax income up to $119 million.
Please click here to see a normalized depiction of the projected results next to NVIDIA's quarterly Income Statements for the last couple of years. Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats. The standardization facilitates cross-company comparisons.
Full disclosure: Long NVDA at time of writing.
Raymond James Best Stock Picks for 2011
Raymond James is out with its "Analysts Best Picks for 2011" report. We highlighted their picks from 2010 and those performed pretty well with a 22.3% return. In fact, their annual selections have a 10 year average return of 12.4%.
The report details analysis of the fundamentals, growth prospects and risks associated with each stock. They've selected 13 stocks again this year and in alphabetical order, here are the Analysts' Best Stock Picks for 2011:
- Allscripts Healthcare (MDRX)
- Bank of America (BAC)
- CONSOL Energy (CNX)
- Covidien (COV)
- Digital Realty Trust (DLR)
- Equinix (EQIX)
- Halliburton (HAL)
- HealthSouth (HLS)
- Lincoln National (LNC)
- NVIDIA (NVDA)
- Panera Bread (PNRA)
- Pioneer Natural Resources (PXD)
- Stanley Black & Decker (SWK)
There are some pretty familiar names in that bunch and a few prevalent themes. They've included multiple plays in the health space with MDRX, HLS, and COV. Also, technology is represented with two names in NVDA and EQIX. Also, energy/natural resources are abundant via PXD, CNX and HAL. We wanted to highlight a few of their selections below:
The report details analysis of the fundamentals, growth prospects and risks associated with each stock. They've selected 13 stocks again this year and in alphabetical order, here are the Analysts' Best Stock Picks for 2011:
- Allscripts Healthcare (MDRX)
- Bank of America (BAC)
- CONSOL Energy (CNX)
- Covidien (COV)
- Digital Realty Trust (DLR)
- Equinix (EQIX)
- Halliburton (HAL)
- HealthSouth (HLS)
- Lincoln National (LNC)
- NVIDIA (NVDA)
- Panera Bread (PNRA)
- Pioneer Natural Resources (PXD)
- Stanley Black & Decker (SWK)
There are some pretty familiar names in that bunch and a few prevalent themes. They've included multiple plays in the health space with MDRX, HLS, and COV. Also, technology is represented with two names in NVDA and EQIX. Also, energy/natural resources are abundant via PXD, CNX and HAL. We wanted to highlight a few of their selections below:
Range Resource (RRC) and SouthWestern Energy
Range Resources (NYSE:RRC) is targeting 25% production growth in 2011, as the company plans further development of its extensive holdings in the Appalachian Basin that are prospective for the Marcellus Shale. The company is also developing liquids areas in the Permian Basin and Granite Wash.
Marcellus Shale
Range Resources has 1.3 million acres that are prospective for the Marcellus Shale, including 850,000 net acres in the fairway or core area of the play. Range Resources projects that its production from the Marcellus Shale will reach between 400 million and 420 million cubic feet equivalent per day by the end of 2011. This would represent production growth of 25% over 2010.
Range Resources favors the Marcellus Shale because much of its acreage in the play is in the wet gas area in Pennsylvania. Wells here produce significant amount of natural gas liquids, including propane, butane and ethane, which yield higher revenues compared to a dry gas well.
Divestitures
Range Resources has traditionally sold non-core assets to help fund its development program. The company will continue this in 2011, and plans to sell the company's Barnett Shale properties in 2011.
Other companies that are active in the Barnett Shale include Quicksilver Resources (NYSE:KWK), which has 163,000 net acres in the Fort Worth basin. The company estimates that its production grew between 12% and 15% from this basin in 2010 over last year.
Permian Basin
Range Resources is also moving into basins in the United States that are exposed to oil and liquids. The company has 105,000 acres in the Permian Basin in Texas and New Mexico, and is looking at the Wolfberry and Bone Spring formations. The company plans its first well in 2011.
Granite Wash
Range Resources also has approximately 42,000 net acres in the panhandle area of Texas that is prospective for the Granite Wash. The company plans four test wells in 2011 on its properties.
Unit Corp (NYSE:UNT) is active in the Granite Wash, and has 38,000 net acres in the play. The company plans to drill 22 operated wells in the Granite Wash in 2011. SM Energy (NYSE:SM) has properties in Oklahoma that are prospective for the Granite Wash, and has allocated $60 million in capital in 2011 to develop these properties.
Hedges
Range Resources is also protected from continued weak natural gas prices in 2011, as the company has hedged 84% of its natural gas production at a floor price of $5.56.
The Bottom Line
Range Resources is planning to grow production by 25% in 2011, as the company will continue to harvest the large bet it made on the Marcellus Shale. The company is also expanding into the Permian Basin and Granite Wash to boost oil and liquids production.
Southwestern Energy (NYSE:SWN) will continue the company's above average organic production growth in 2011 as it continues to put the majority of its capital into the Fayetteville Shale area in Arkansas. The company will also move forward on its New Ventures program to find future areas to develop.
2011 Capital Plan
Southwestern Energy announced a $1.9 billion capital budget for 2011, down from $2.1 billion in 2010. The company plans to spend $1.6 billion of the 2011 budget in its exploration and production segment. Southwestern Energy expects this amount of capital to grow production by 18% over 2010 levels.
Fayetteville Shale
Southwestern Energy has allocated $1.15 billion of this capital towards development of the Fayetteville Shale in Arkansas. This level of spending will allow the company to drill and complete as many as 350 net wells in 2011.
Southwestern Energy has almost 900,000 net acres under lease here and while it might seem that after nine years of development that there might be little left to drill, Southwestern Energy has thousands of drilling locations left to develop.
Not all exploration and production companies are as committed to the Fayetteville Shale. Petrohawk Energy (NYSE:HK) just sold its properties here to Exxon Mobil (NYSE:XOM) for $575 million.
Drilling Efficiencies
Southwestern Energy will also continue to be more efficient in drilling in the Fayetteville Shale in 2011. The company expects lateral lengths on wells in the Fayetteville Shale to average 4,800 feet in 2011, and take an average of 9.5 days to drill.
Gathering System
Southwestern Energy has built a large natural gas gathering systems in the Fayetteville Shale area over the last few years and has allocated $225 million in capital here in 2011. This system consists of more than 1500 miles of gathering lines and processed 1.7 million cubic feet per day of natural gas as of October 2010. Southwestern Energy might look to monetize this asset in 2011 if needed.
Other companies involved in the mid stream include Regency Energy Partners LP (Nasdaq:RGNC), which owns pipelines, and natural gas gathering and processing assets in the United States.
Marcellus Shale
Southwestern Energy has 151,000 net acres in under lease in the Marcellus Shale, and started development in 2010. In 2011, the company expects to operate two rigs and put $265 million in capital into the Marcellus Shale. The company will participate in between 40 and 45 gross wells during the year.
New Ventures
Southwestern Energy has a New Ventures group which is working on finding new plays in North America for the company to develop. In 2011, Southwestern Energy has allocated $170 million in capital for its New Ventures area which includes drilling two wells. The one area in the New Ventures group that Southwestern Energy has discussed is the Maritimes Basin in New Brunswick, Canada.
The Bottom Line
Southwestern Energy will continue to put the majority of its capital in 2011 towards developing the Fayetteville Shale, as this exploration and production company sticks with the basin the company was built on.
Marcellus Shale
Range Resources has 1.3 million acres that are prospective for the Marcellus Shale, including 850,000 net acres in the fairway or core area of the play. Range Resources projects that its production from the Marcellus Shale will reach between 400 million and 420 million cubic feet equivalent per day by the end of 2011. This would represent production growth of 25% over 2010.
Range Resources favors the Marcellus Shale because much of its acreage in the play is in the wet gas area in Pennsylvania. Wells here produce significant amount of natural gas liquids, including propane, butane and ethane, which yield higher revenues compared to a dry gas well.
Divestitures
Range Resources has traditionally sold non-core assets to help fund its development program. The company will continue this in 2011, and plans to sell the company's Barnett Shale properties in 2011.
Other companies that are active in the Barnett Shale include Quicksilver Resources (NYSE:KWK), which has 163,000 net acres in the Fort Worth basin. The company estimates that its production grew between 12% and 15% from this basin in 2010 over last year.
Permian Basin
Range Resources is also moving into basins in the United States that are exposed to oil and liquids. The company has 105,000 acres in the Permian Basin in Texas and New Mexico, and is looking at the Wolfberry and Bone Spring formations. The company plans its first well in 2011.
Granite Wash
Range Resources also has approximately 42,000 net acres in the panhandle area of Texas that is prospective for the Granite Wash. The company plans four test wells in 2011 on its properties.
Unit Corp (NYSE:UNT) is active in the Granite Wash, and has 38,000 net acres in the play. The company plans to drill 22 operated wells in the Granite Wash in 2011. SM Energy (NYSE:SM) has properties in Oklahoma that are prospective for the Granite Wash, and has allocated $60 million in capital in 2011 to develop these properties.
Hedges
Range Resources is also protected from continued weak natural gas prices in 2011, as the company has hedged 84% of its natural gas production at a floor price of $5.56.
The Bottom Line
Range Resources is planning to grow production by 25% in 2011, as the company will continue to harvest the large bet it made on the Marcellus Shale. The company is also expanding into the Permian Basin and Granite Wash to boost oil and liquids production.
Southwestern Energy (NYSE:SWN) will continue the company's above average organic production growth in 2011 as it continues to put the majority of its capital into the Fayetteville Shale area in Arkansas. The company will also move forward on its New Ventures program to find future areas to develop.
2011 Capital Plan
Southwestern Energy announced a $1.9 billion capital budget for 2011, down from $2.1 billion in 2010. The company plans to spend $1.6 billion of the 2011 budget in its exploration and production segment. Southwestern Energy expects this amount of capital to grow production by 18% over 2010 levels.
Fayetteville Shale
Southwestern Energy has allocated $1.15 billion of this capital towards development of the Fayetteville Shale in Arkansas. This level of spending will allow the company to drill and complete as many as 350 net wells in 2011.
Southwestern Energy has almost 900,000 net acres under lease here and while it might seem that after nine years of development that there might be little left to drill, Southwestern Energy has thousands of drilling locations left to develop.
Not all exploration and production companies are as committed to the Fayetteville Shale. Petrohawk Energy (NYSE:HK) just sold its properties here to Exxon Mobil (NYSE:XOM) for $575 million.
Drilling Efficiencies
Southwestern Energy will also continue to be more efficient in drilling in the Fayetteville Shale in 2011. The company expects lateral lengths on wells in the Fayetteville Shale to average 4,800 feet in 2011, and take an average of 9.5 days to drill.
Gathering System
Southwestern Energy has built a large natural gas gathering systems in the Fayetteville Shale area over the last few years and has allocated $225 million in capital here in 2011. This system consists of more than 1500 miles of gathering lines and processed 1.7 million cubic feet per day of natural gas as of October 2010. Southwestern Energy might look to monetize this asset in 2011 if needed.
Other companies involved in the mid stream include Regency Energy Partners LP (Nasdaq:RGNC), which owns pipelines, and natural gas gathering and processing assets in the United States.
Marcellus Shale
Southwestern Energy has 151,000 net acres in under lease in the Marcellus Shale, and started development in 2010. In 2011, the company expects to operate two rigs and put $265 million in capital into the Marcellus Shale. The company will participate in between 40 and 45 gross wells during the year.
New Ventures
Southwestern Energy has a New Ventures group which is working on finding new plays in North America for the company to develop. In 2011, Southwestern Energy has allocated $170 million in capital for its New Ventures area which includes drilling two wells. The one area in the New Ventures group that Southwestern Energy has discussed is the Maritimes Basin in New Brunswick, Canada.
The Bottom Line
Southwestern Energy will continue to put the majority of its capital in 2011 towards developing the Fayetteville Shale, as this exploration and production company sticks with the basin the company was built on.
DuPont - From Gunpowder To Plastics To Yogurt
If a company is going to hang around for a couple of centuries, it is a good bet that it will have to change and adapt with the times. DuPont (NYSE:DD) is an excellent case in point - while grouped into the generally stodgy, boring, and cyclical "chemicals" industry group, DuPont has a rather remarkable record of remaking itself and getting involved in new growth markets. Though DuPont's record of diversification is not flawless, investors should at least be willing to give management the benefit of the doubt with this latest acquisition.
3D - DuPont's Danisco DealDuPont announced Monday morning that it would acquire Danish ingredient and enzyme company Danisco for $5.8 billion in cash and the assumption of an additional $500 million of Danisco's debt. The deal gives a better than 25% premium to Danisco shareholders and will likely produce more than 10% earnings dilution for DuPont in the first year.
As has already been widely reported, this is an unusually large deal for DuPont - the largest deal the company has done since it acquired Pioneer for nearly $8 billion more than a decade ago. That deal, though, has proven to be an exceptionally good move in hindsight, as DuPont is now one of the leading advanced seed trait companies in the world.
Some New, Some OldAbout two-thirds of Danisco's revenue comes from products for the food industry - an industry that DuPont has heretofore not been much of a focus for the company. In addition to a sweeteners business that competes with the likes of Tate and Lyle (Nasdaq:TATYY), Danisco sells a host of so-called "enablers" that include emulsifiers, stabilizers, flavor enhancers, and so on. In more practical terms, when you buy a bottle of salad dressing and it stays shelf-stable for weeks, that is because of the kinds of products Danisco produces.
Food is not often thought of as a growth industry, and it is true that companies like International Flavors and Fragrances (NYSE:IFF), Kellogg (NYSE:K), and McCormick (NYSE:MKC) do not excite the growth crowd. By the same token, though, there is more growth here than many realize. Danone's (Nasdaq:DANOY) Activia yogurt product has been a big seller, and Danisco has a sizable cultures business. Moreover, more and more foods that were previously sold only "fresh" (in the refrigerated/frozen sections) or dehydrated are migrating to the center aisles of the grocery stores, and that is also because of the kinds of products Danisco produces
While much of the Danisco business will be new to DuPont, it is not altogether unfamiliar. DuPont and Danisco have been working together on enzymes related to bioethanol, and Danisco's promising industrial enzymes business has to be at least some of the logic of the deal. In other words, companies like Novozymes (Nasdaq:NVZMY) and Amyris (Nasdaq: AMRS) cannot be altogether thrilled with this deal - sure, it validates the growth potential of their markets, but it also gives them a very well-heeled competitor.
Ample Opportunities to ImproveAlthough DuPont shareholders don't seem overly thrilled with the deal (judging by the initial trading action in the shares), this looks like a promising long-term investment. Not only does it seem like a logical extension to DuPont's existing businesses in agriculture and biofuels, but it gives the company new growth markets and new customers. Moreover, Danisco carries some of the less-desirable legacies of an old European company - it has a lot of facilities spread over the world and does not operate in an especially lean fashion. Figure on DuPont addressing this relatively quickly and squeezing cost savings or synergies from it.
The Bottom LineIt is not every day that a company like DuPont can make a meaningful deal that delivers leadership positions in several sizable markets. Though it is likely true that this deal will not dramatically impact DuPont's growth rate in the near term, it will nevertheless add some growth and it will further broaden the company's base of business - a positive for more conservative investors who value DuPont for its long stream of dividend payments.
3D - DuPont's Danisco DealDuPont announced Monday morning that it would acquire Danish ingredient and enzyme company Danisco for $5.8 billion in cash and the assumption of an additional $500 million of Danisco's debt. The deal gives a better than 25% premium to Danisco shareholders and will likely produce more than 10% earnings dilution for DuPont in the first year.
As has already been widely reported, this is an unusually large deal for DuPont - the largest deal the company has done since it acquired Pioneer for nearly $8 billion more than a decade ago. That deal, though, has proven to be an exceptionally good move in hindsight, as DuPont is now one of the leading advanced seed trait companies in the world.
Some New, Some OldAbout two-thirds of Danisco's revenue comes from products for the food industry - an industry that DuPont has heretofore not been much of a focus for the company. In addition to a sweeteners business that competes with the likes of Tate and Lyle (Nasdaq:TATYY), Danisco sells a host of so-called "enablers" that include emulsifiers, stabilizers, flavor enhancers, and so on. In more practical terms, when you buy a bottle of salad dressing and it stays shelf-stable for weeks, that is because of the kinds of products Danisco produces.
Food is not often thought of as a growth industry, and it is true that companies like International Flavors and Fragrances (NYSE:IFF), Kellogg (NYSE:K), and McCormick (NYSE:MKC) do not excite the growth crowd. By the same token, though, there is more growth here than many realize. Danone's (Nasdaq:DANOY) Activia yogurt product has been a big seller, and Danisco has a sizable cultures business. Moreover, more and more foods that were previously sold only "fresh" (in the refrigerated/frozen sections) or dehydrated are migrating to the center aisles of the grocery stores, and that is also because of the kinds of products Danisco produces
While much of the Danisco business will be new to DuPont, it is not altogether unfamiliar. DuPont and Danisco have been working together on enzymes related to bioethanol, and Danisco's promising industrial enzymes business has to be at least some of the logic of the deal. In other words, companies like Novozymes (Nasdaq:NVZMY) and Amyris (Nasdaq: AMRS) cannot be altogether thrilled with this deal - sure, it validates the growth potential of their markets, but it also gives them a very well-heeled competitor.
Ample Opportunities to ImproveAlthough DuPont shareholders don't seem overly thrilled with the deal (judging by the initial trading action in the shares), this looks like a promising long-term investment. Not only does it seem like a logical extension to DuPont's existing businesses in agriculture and biofuels, but it gives the company new growth markets and new customers. Moreover, Danisco carries some of the less-desirable legacies of an old European company - it has a lot of facilities spread over the world and does not operate in an especially lean fashion. Figure on DuPont addressing this relatively quickly and squeezing cost savings or synergies from it.
The Bottom LineIt is not every day that a company like DuPont can make a meaningful deal that delivers leadership positions in several sizable markets. Though it is likely true that this deal will not dramatically impact DuPont's growth rate in the near term, it will nevertheless add some growth and it will further broaden the company's base of business - a positive for more conservative investors who value DuPont for its long stream of dividend payments.
John Paulson's Top Picks
Paulson's HoldingsHere are a list of Paulson and Co's top holdings:
Bottom LineDespite the controversy, John Paulson's record over the last few years makes him a name worth watching.
| Company | Market Cap | % Composition |
| SPDR Gold Trust (NYSE:GLD) | 57.11B | 17.6% |
| AngloGold Ashanti Limited (NYSE:AU) | 16.32B | 8.28% |
| Bank of America Corp. (NYSE:BAC) | 150.97B | 7.88% |
| Citigroup(NYSE:C) | 149.55B | 7.24% |
| Hartford Financial Services Group Inc. (NYSE:HIG) | 12.57B | 4.41% |
Bottom LineDespite the controversy, John Paulson's record over the last few years makes him a name worth watching.
Southern Copper Still Worthwhile
Copper has enjoyed a strong year in 2010, with many of the metal's stocks running up accordingly. Will copper prices remain firm? What are the copper mining companies' prospects? Are copper stocks still a good investment? We look at Southern Copper (NYSE:SCCO) in this light. Copper Runs UpLike so many of the commodities, the metal prices have surged in the last year or so. The recent Comex copper price saw the metal's futures trading at $4.26 per pound, where a scant two years ago prices were down in the $1 range. Southern Copper earned $1.59 per share in 2008, $1.10 in 2009, and has earned $1.25 in its first three quarters of 2010. The stock price has climbed back near the ten-year high in the $40s which it reached in 2007 before the global recession. Demand for the metal has been far ahead of the pace of the slowly improving global economy.
Investing In CopperCopper is famously regarded as "Dr. Copper," the smart metal, as its wide industrial uses are a gauge on the health of demand and economic conditions. Copper miners such as Southern Copper, which mines copper and molybdenum in Chile, Peru and Mexico, are the main way to invest. Southern Copper has a $41 billion market cap, does $4.8 billion in annual sales, and has $2.3 billion in cash along with $2.8 billion in long-term debt.
The company pays a dividend currently yielding 3.5%, but this dividend is set each quarter and can fluctuate widely. The company is expected to earn more in its upcoming year-over-year quarters, with analyst estimates that project its fiscal 2010 to finish out at an EPS of $1.84, with a $3.17 EPS for fiscal 2011. Southern trades at just over 27 times current earnings but has a forward P/E under 15.
Other Copper StocksNatural resources behemoth BHP Billiton (NYSE:BHP) mines copper, gold, zinc, silver, and produces potash fertilizer and natural gas. Growth will be substantial, though it's not expected to be quite as robust as some other copper miners. BHP pays a 2% dividend and gives investors exposure to other valuable natural resources. The stock currently sells at 20 times earnings.
Teck Resources (NYSE:TCK), the Canadian diversified miner, is a large copper producer as well. The company pays a small dividend, but is expected to nearly double its earnings this year with sizable growth next year. The stock trades at just under 20 times earnings.
Rio Tinto (NYSE:RIO) is another major diversified miner with its shares trading at an attractive forward multiple of under nine times projected earnings. The pattern for the copper miners is similar; the earnings trajectory continues to be attractive, even accelerating, going forward. Taesko Mines (NYSE:TGB) recently announced its fourth quarter sales of copper, which were for shipments of 33.6 million pounds. Its 2010 total sales were 86.3 million pounds, while its inventory from the third quarter was slashed.
Emerging Markets DemandHigh demand in China is expected to continue for copper as a secular, not merely cyclical, trend. A growing middle class and the expected increase in housing construction in Brazil will continue to fuel copper's demand there, while Australia, home to BHP Billiton, continues to feature a strong economy. All signs point to the global economy gathering steam, so the demand for copper should continue to be increasingly strong.
Southern Copper StockSouthern Copper, with its large reserves of the metal, is considered a purer copper play than the other names. It should continue to benefit from the rising demand for copper and the growing global economic recovery. While copper prices, like any commodity prices, can take sudden turns, the strong industrial and commercial use of copper makes the long term fundamental story appealing for Southern Copper's business and its stock. Just pay careful attention to the stock price and look for a better buying opportunity when its share price comes down. (For related reading, take a look at The Copper King: An Empire Built On Manipulation.)
Investing In CopperCopper is famously regarded as "Dr. Copper," the smart metal, as its wide industrial uses are a gauge on the health of demand and economic conditions. Copper miners such as Southern Copper, which mines copper and molybdenum in Chile, Peru and Mexico, are the main way to invest. Southern Copper has a $41 billion market cap, does $4.8 billion in annual sales, and has $2.3 billion in cash along with $2.8 billion in long-term debt.
The company pays a dividend currently yielding 3.5%, but this dividend is set each quarter and can fluctuate widely. The company is expected to earn more in its upcoming year-over-year quarters, with analyst estimates that project its fiscal 2010 to finish out at an EPS of $1.84, with a $3.17 EPS for fiscal 2011. Southern trades at just over 27 times current earnings but has a forward P/E under 15.
Other Copper StocksNatural resources behemoth BHP Billiton (NYSE:BHP) mines copper, gold, zinc, silver, and produces potash fertilizer and natural gas. Growth will be substantial, though it's not expected to be quite as robust as some other copper miners. BHP pays a 2% dividend and gives investors exposure to other valuable natural resources. The stock currently sells at 20 times earnings.
Teck Resources (NYSE:TCK), the Canadian diversified miner, is a large copper producer as well. The company pays a small dividend, but is expected to nearly double its earnings this year with sizable growth next year. The stock trades at just under 20 times earnings.
Rio Tinto (NYSE:RIO) is another major diversified miner with its shares trading at an attractive forward multiple of under nine times projected earnings. The pattern for the copper miners is similar; the earnings trajectory continues to be attractive, even accelerating, going forward. Taesko Mines (NYSE:TGB) recently announced its fourth quarter sales of copper, which were for shipments of 33.6 million pounds. Its 2010 total sales were 86.3 million pounds, while its inventory from the third quarter was slashed.
Emerging Markets DemandHigh demand in China is expected to continue for copper as a secular, not merely cyclical, trend. A growing middle class and the expected increase in housing construction in Brazil will continue to fuel copper's demand there, while Australia, home to BHP Billiton, continues to feature a strong economy. All signs point to the global economy gathering steam, so the demand for copper should continue to be increasingly strong.
Southern Copper StockSouthern Copper, with its large reserves of the metal, is considered a purer copper play than the other names. It should continue to benefit from the rising demand for copper and the growing global economic recovery. While copper prices, like any commodity prices, can take sudden turns, the strong industrial and commercial use of copper makes the long term fundamental story appealing for Southern Copper's business and its stock. Just pay careful attention to the stock price and look for a better buying opportunity when its share price comes down. (For related reading, take a look at The Copper King: An Empire Built On Manipulation.)
Potash Continues To Surge
Potash typically trades at higher prices than would otherwise be dictated by market forces, because the largest five companies control 65% of production, thus reducing competition. As long as Canpotex maintains the potash cartel, prices are unlikely to fall. Furthermore, as indicated by the USDA World Agricultural Supply and Demand Estimates report, the demand for global farm products is outpacing supply. Demand would actually be even higher if developing nations had more stable commercial banking operations, which would extend farm credits.
With diets in emerging markets, specifically China, become more nutrient-oriented, and new farmland developments requiring more fertilizer to produce competitive yields on less arable land, potash prices will continue to escalate, along with commodities such as corn and soybeans
With diets in emerging markets, specifically China, become more nutrient-oriented, and new farmland developments requiring more fertilizer to produce competitive yields on less arable land, potash prices will continue to escalate, along with commodities such as corn and soybeans
IBio Headed for $10 Level?
Goldman Small Cap Research recently initiated coverage of iBio (IBIO) with a Speculative Buy rating and a six-month price target of $6.00. It appears that the research firm’s forecast has news in the segment in February that could take it to the $10.00 leveli
Goldman believes that iBio is a paradigm-changing biotech that offers investors the typical biotech rewards with much lower investment risk. The iBio model enables product development and revenue generation without the typical capital costs and multi-year approval timeframe associated with traditional biotechs. iBio owns the intellectual property and technology related to its revolutionary platform, iBioLaunch. iBioLauch enables commercial scale production of proteins using genes injected into hydroponically grown plants used to produce the target proteins. This platform is suited for use in alternative influenza and bio-defense vaccines, orphan biologics, biosimilars and biobetters, each representing market sizes in the tens of billions.
Interestingly, the technology was developed by one of its partners, the Fraunhofer USA Center for Molecular Biotechnology (FCMB). FCMB is part of a huge international organization with over 17,000 scientists and engineers worldwide. The company’s partners and funders are Tier 1 and clearly validate the technology, and the iBio model. iBio is also partnered with the Bill and Melinda Gates Foundation, which, along with DARPA has provided $70M in development funding, including for a proof-of-platform concept Phase I clinical trial.
It looks like catalysts are around the corner and shareholder value should be realized throughout the year. The Company’s Phase I clinical trial of the technology has commenced and top-line results are expected in the coming months. Given the broad applications of the platform for use in the production of vaccines cheaper, faster, and with no animal cell production, iBio is positioned to quickly secure deals that will result in royalty streams later this year. Plus, the pending FDA approval decision for comparable Protalix (PLX) in February could drive investors toward iBio.
Goldman believes that a PRX approval could take the stock toward the $10.00 level.
Goldman believes that iBio is a paradigm-changing biotech that offers investors the typical biotech rewards with much lower investment risk. The iBio model enables product development and revenue generation without the typical capital costs and multi-year approval timeframe associated with traditional biotechs. iBio owns the intellectual property and technology related to its revolutionary platform, iBioLaunch. iBioLauch enables commercial scale production of proteins using genes injected into hydroponically grown plants used to produce the target proteins. This platform is suited for use in alternative influenza and bio-defense vaccines, orphan biologics, biosimilars and biobetters, each representing market sizes in the tens of billions.
Interestingly, the technology was developed by one of its partners, the Fraunhofer USA Center for Molecular Biotechnology (FCMB). FCMB is part of a huge international organization with over 17,000 scientists and engineers worldwide. The company’s partners and funders are Tier 1 and clearly validate the technology, and the iBio model. iBio is also partnered with the Bill and Melinda Gates Foundation, which, along with DARPA has provided $70M in development funding, including for a proof-of-platform concept Phase I clinical trial.
It looks like catalysts are around the corner and shareholder value should be realized throughout the year. The Company’s Phase I clinical trial of the technology has commenced and top-line results are expected in the coming months. Given the broad applications of the platform for use in the production of vaccines cheaper, faster, and with no animal cell production, iBio is positioned to quickly secure deals that will result in royalty streams later this year. Plus, the pending FDA approval decision for comparable Protalix (PLX) in February could drive investors toward iBio.
Goldman believes that a PRX approval could take the stock toward the $10.00 level.
Neoprobe Looks to Become a Major Player in Oncology
Within the $40 trillion US market, the biotechnology sector has become a hot investment option for those looking to hedge against a possible upcoming market correction. During the past six months, shares within the NASDAQ Bio Index (NASDAQ:IBB) are up 20.12%, while the S&P Bio Index (NYSE:XBI) matched those gains with 21.02%. This is not especially surprising when considering that the companies in this industry are guided primarily by the science behind the products rather than the economic environments surrounding them.
Many small pharmaceutical companies experience large percentage gains leading up to their new drug application (NDA) or potentially positive results from ongoing clinical trial results that may attract partnerships, buyouts and other attractive events for shareholders. No better company exemplifies these opportunities than Neoprobe Corporation (NEOP.OB), whose 2011 upcoming events may propel it to new 52-week highs in the blink of an eye. Here is a 20-year old biotech company with stable annual sales that cover all the overhead, two diagnostic drugs in phase 3 clinical trials about to see completion with new drug applications, and target potential sales of $3 billion and $450 million respectively. Given that the current market cap is hovering around $177 million, this would represent a significant opportunity for new and current shareholders going forward. Due to this, it is not surprising that TriPoint Global Research rated the stock (pdf) a ‘Market Outperform’ and gave it a price target of $5.00, which was quickly followed up by WBB Securities recently upgrading the stock to a target of $6.00, representing more than a 100% gain from current levels.
FDA Catalyst Companies Have Been Red Hot
Neoprobe is highly expected to gain momentum on the back of its catalysts, especially when comparing it to other companies undergoing similar circumstances:
First and foremost, when analyzing Neoprobe, it is important to note that they are doing something many small cap over-the-counter companies never do — applying in order to be listed on the NYSE:AMEX major exchange. On August 3rd, the company, along with President and CEO, Mr. Bupp made this development official (pdf) and issued the following statement, “A potential listing on NYSE: AMEX would serve as a positive milestone for our Company and would enhance shareholder value. A listing would provide greater market exposure, especially to institutional investors, and provide increased liquidity for our investors.”
As of this moment, the company is well on its way to meeting the AMEX requirements, as the share price has now officially remained above the $2 mark for the last 2 weeks, as well as meeting the $50M market cap, along with the minimum $15 million market value public float and minimum of $4 million in shareholder quity. An announcement from the major exchange is expected to be announced sooner rather than later due to the fact that they have satisfied the conditions for the Standard 3 listing.
An improving financial condition also helps its cause since the Company had no outstanding debt at the end of the second quarter and had positive shareholders’ equity of $2.7 million, or $0.03 per share, versus a deficit of $9.9 million, or ($0.12) per share at the end of 2009.
Catalysts Expected During 2011
The company’s blockbuster product, Lymphoseek, a ‘first-in-class’ radiopharmaceutical designed to identify lymphatic tissue and support intra-operative biopsies during solid tumor cancer surgeries, is expected to present additional requested data from phase 3 clinical trials during first quarter 2011. This clinical trial is due to the fact that on October, 16, 2010, Neoprobe completed a pre-NDA assessment with the FDA which requested more data to support the pending NDA submission. Due to this, the company expects a potential NDA filing by mid-2011 along with a potential commercial launch.
According to a report by TriPoint Global Research (pdf), “The potential market for Lymphoseek exceeds $370 million annually, according to the Company and it will be a ‘first-in‐class’ radiopharmaceutical, making it eligible for insurance reimbursement.
Further out, there is even greater potential in the reinvigorated RIGScan CR, the original biological radio-diagnostic developed by the Company to identify occult tumor during colorectal cancer surgeries. Neoprobe is preparing a Special Protocol Assessment (SPA) for the FDA, after having received the go‐ahead from its European counterpart (the EMEA) in late 2008. A response to this SPA is expected early in 2011. Neoprobe intends to use this to help secure a partner for the further development and marketing of RIGScan CR, and a positive response to the SPA would make a licensing deal less risky and potentially more rewarding to a prospective partner.”
In addition to the initial label for lymphatic mapping in breast cancer and melanoma, there is anticipated significant off‐label use of Lymphoseek for other cancer types in the U.S., Europe and other markets, once approval for the initial indications are received and distribution is established.
Neoprobe intends to continue expanding the label for Lymphoseek to include colorectal, prostrate and other solid-tumor cancers. Also, Neoprobe has conducted early clinical work involving Lymphoseek in prior-day
injection imaging and intraoperative detection in breast cancer patients. Success in this direction would likely result in more rapid sales uptake, since hospitals would then have the opportunity to access additional
insurance reimbursement codes.
Revenue Projections
According to many analysts, the revenues going forward for the company are expected to jump drastically on the years going forward should Lymphoseek gain marketing approval. Within the first year alone, Neoprobe is projected to go from $2.3 million in revenues as per their last quarterly filling, to well over $6.8 million according to analysts (pdf). During subsequent years, revenues are expected to triple in 2012 to $20 million, then jump to $38 million in 2013 and finally top out around $50 million in 2014, as they begin to dominate market share.
(click image to enlarge)
Furthermore, Neoprobe is believed to be the market leader in gamma detection devices, with an estimated 70% market share. The total market for these systems is estimated to be in the $250 million area, with annual gross demand estimated at $20-$25 million including partner share, according to the Company. Demand is expected to accelerate if and when Lymphoseek is approved, since it would be the first radiopharmaceutical to have a label for lymphatic mapping, making it reimbursable under healthcare insurance.
1/11/11 OneMedForum Presentation Highlights
(press release found here)
During the 2008 stock market crash Neoprobe did much better than the markets, gaining 98% as a result of progress in the development of two different diagnostic agents, Lymphoseek and RIGScan CR. Suceeding these gains, in 2009 the company went on to jump 114%, followed by a 69% share appreciation in 2010 all the while avoiding the infamous flash crash.
Consistent Insider Buying
Stock market veterans know very well that one of the prime metrics used in formulating opinions on a company is the insider buying. When a company’s own management team believes in its product and begins to invest in the company, it is generally believed that a favourable and optimistic future outlook is in the works. A total of 411,185 shares were purchased during 2010 by insiders, increasing their stake to 13% owned.
(click image to enlarge)
Due to all these reasons and more, it is no surprise that CNBC has also given exposure to Neoprobe by Uri Landesman, manager of the $550 million dollar Platinum Partners fund. “We expect approvals in Neoprobe’s products along with its oncology tracking drug, which will be the source of a bidding war between their distributor Cardinal and Cardinal’s competitor, Covidien”. The analyst outlines that there are many important near term milestones for its oncology products, as well as expectations of a first quarter 2011 filing for their lead compound, a first in class diagnostic for surgeons performing solid tumor procedures.
This clip can be accessed by visiting the CNBC website here.
Technical Analysis
The technical standpoint on Neoprobe shows an ‘Ascending Triangle’ pattern formation on the cusp of a breakout which could potentially appreciate the stock to a target price of $2.75. The ‘Golden Cross’ has also occurred giving further momentum to the bulls as the 50-days moving average crossed above the 200-days moving average.
This is further backed by a bullish MACD divergence and full stochastic cross which took part on low volume accumulation, generally seen just prior to a high volume breakout. Relative Strength Index (RSI) also shows a three month long uptrend that indicates continued buying pressure.
(click image to enlarge)
Many small pharmaceutical companies experience large percentage gains leading up to their new drug application (NDA) or potentially positive results from ongoing clinical trial results that may attract partnerships, buyouts and other attractive events for shareholders. No better company exemplifies these opportunities than Neoprobe Corporation (NEOP.OB), whose 2011 upcoming events may propel it to new 52-week highs in the blink of an eye. Here is a 20-year old biotech company with stable annual sales that cover all the overhead, two diagnostic drugs in phase 3 clinical trials about to see completion with new drug applications, and target potential sales of $3 billion and $450 million respectively. Given that the current market cap is hovering around $177 million, this would represent a significant opportunity for new and current shareholders going forward. Due to this, it is not surprising that TriPoint Global Research rated the stock (pdf) a ‘Market Outperform’ and gave it a price target of $5.00, which was quickly followed up by WBB Securities recently upgrading the stock to a target of $6.00, representing more than a 100% gain from current levels.
FDA Catalyst Companies Have Been Red Hot
Neoprobe is highly expected to gain momentum on the back of its catalysts, especially when comparing it to other companies undergoing similar circumstances:
- DepoMed (NASDAQ:DEPO) gained a whopping 143% during the last six months after Pfizer stated it would not file patent infringement lawsuit on its lead blockbuster drug, DM-1796. The company is seeking approval for the treatment of pain associated with post-herpetic neuralgia (PHN) following singles with an estimated review date of 1/30/11.
- CorCept Therapeutics (NASDAQ:CORT) appreciated 49% during the last 12 months on the back of the company’s expectations to file an NDA with the FDA by the end of the first quarter in 2011 for its lead product, CORLUX, for the treatment of Cushing’s Syndrome.
- Amarin Corporation (NASDAQ:AMRN) is by far the heavyweight winner in this category, having its share price rocket a staggering 600% during the last 12 months. These gains are primarly due to its product blockbuster lead product, AMR101 receiving highly positive clinial phase 3 results to support a potential NDA filing in 2011.
First and foremost, when analyzing Neoprobe, it is important to note that they are doing something many small cap over-the-counter companies never do — applying in order to be listed on the NYSE:AMEX major exchange. On August 3rd, the company, along with President and CEO, Mr. Bupp made this development official (pdf) and issued the following statement, “A potential listing on NYSE: AMEX would serve as a positive milestone for our Company and would enhance shareholder value. A listing would provide greater market exposure, especially to institutional investors, and provide increased liquidity for our investors.”
As of this moment, the company is well on its way to meeting the AMEX requirements, as the share price has now officially remained above the $2 mark for the last 2 weeks, as well as meeting the $50M market cap, along with the minimum $15 million market value public float and minimum of $4 million in shareholder quity. An announcement from the major exchange is expected to be announced sooner rather than later due to the fact that they have satisfied the conditions for the Standard 3 listing.
An improving financial condition also helps its cause since the Company had no outstanding debt at the end of the second quarter and had positive shareholders’ equity of $2.7 million, or $0.03 per share, versus a deficit of $9.9 million, or ($0.12) per share at the end of 2009.
Catalysts Expected During 2011
The company’s blockbuster product, Lymphoseek, a ‘first-in-class’ radiopharmaceutical designed to identify lymphatic tissue and support intra-operative biopsies during solid tumor cancer surgeries, is expected to present additional requested data from phase 3 clinical trials during first quarter 2011. This clinical trial is due to the fact that on October, 16, 2010, Neoprobe completed a pre-NDA assessment with the FDA which requested more data to support the pending NDA submission. Due to this, the company expects a potential NDA filing by mid-2011 along with a potential commercial launch.
According to a report by TriPoint Global Research (pdf), “The potential market for Lymphoseek exceeds $370 million annually, according to the Company and it will be a ‘first-in‐class’ radiopharmaceutical, making it eligible for insurance reimbursement.
Further out, there is even greater potential in the reinvigorated RIGScan CR, the original biological radio-diagnostic developed by the Company to identify occult tumor during colorectal cancer surgeries. Neoprobe is preparing a Special Protocol Assessment (SPA) for the FDA, after having received the go‐ahead from its European counterpart (the EMEA) in late 2008. A response to this SPA is expected early in 2011. Neoprobe intends to use this to help secure a partner for the further development and marketing of RIGScan CR, and a positive response to the SPA would make a licensing deal less risky and potentially more rewarding to a prospective partner.”
In addition to the initial label for lymphatic mapping in breast cancer and melanoma, there is anticipated significant off‐label use of Lymphoseek for other cancer types in the U.S., Europe and other markets, once approval for the initial indications are received and distribution is established.
Neoprobe intends to continue expanding the label for Lymphoseek to include colorectal, prostrate and other solid-tumor cancers. Also, Neoprobe has conducted early clinical work involving Lymphoseek in prior-day
injection imaging and intraoperative detection in breast cancer patients. Success in this direction would likely result in more rapid sales uptake, since hospitals would then have the opportunity to access additional
insurance reimbursement codes.
Revenue Projections
According to many analysts, the revenues going forward for the company are expected to jump drastically on the years going forward should Lymphoseek gain marketing approval. Within the first year alone, Neoprobe is projected to go from $2.3 million in revenues as per their last quarterly filling, to well over $6.8 million according to analysts (pdf). During subsequent years, revenues are expected to triple in 2012 to $20 million, then jump to $38 million in 2013 and finally top out around $50 million in 2014, as they begin to dominate market share.
(click image to enlarge)
Furthermore, Neoprobe is believed to be the market leader in gamma detection devices, with an estimated 70% market share. The total market for these systems is estimated to be in the $250 million area, with annual gross demand estimated at $20-$25 million including partner share, according to the Company. Demand is expected to accelerate if and when Lymphoseek is approved, since it would be the first radiopharmaceutical to have a label for lymphatic mapping, making it reimbursable under healthcare insurance.
1/11/11 OneMedForum Presentation Highlights
(press release found here)
- Lymphoseek Breast & Melanoma superiority trial completion expected early February, so we have to wait several more weeks for that
- Top line data to support NDA to be announced shortly afterward in early February
- 500 Lymphoseek patients with no adverse safety events are reported
- Lymphoseek gross margin now 75% (number is slightly better than was expected)
- As part of the RIGS reactivation they will be seeking the 12-year exclusive under the Biologics Price Competition and Innovation Act of 2009
- Completion of Head & Neck Sentinel trial in Q4-2011.
- 2011 sales are expected to break the $10 million level, marking a 5x increase year-over-year
During the 2008 stock market crash Neoprobe did much better than the markets, gaining 98% as a result of progress in the development of two different diagnostic agents, Lymphoseek and RIGScan CR. Suceeding these gains, in 2009 the company went on to jump 114%, followed by a 69% share appreciation in 2010 all the while avoiding the infamous flash crash.
Consistent Insider Buying
Stock market veterans know very well that one of the prime metrics used in formulating opinions on a company is the insider buying. When a company’s own management team believes in its product and begins to invest in the company, it is generally believed that a favourable and optimistic future outlook is in the works. A total of 411,185 shares were purchased during 2010 by insiders, increasing their stake to 13% owned.
(click image to enlarge)
Due to all these reasons and more, it is no surprise that CNBC has also given exposure to Neoprobe by Uri Landesman, manager of the $550 million dollar Platinum Partners fund. “We expect approvals in Neoprobe’s products along with its oncology tracking drug, which will be the source of a bidding war between their distributor Cardinal and Cardinal’s competitor, Covidien”. The analyst outlines that there are many important near term milestones for its oncology products, as well as expectations of a first quarter 2011 filing for their lead compound, a first in class diagnostic for surgeons performing solid tumor procedures.
This clip can be accessed by visiting the CNBC website here.
Technical Analysis
The technical standpoint on Neoprobe shows an ‘Ascending Triangle’ pattern formation on the cusp of a breakout which could potentially appreciate the stock to a target price of $2.75. The ‘Golden Cross’ has also occurred giving further momentum to the bulls as the 50-days moving average crossed above the 200-days moving average.
This is further backed by a bullish MACD divergence and full stochastic cross which took part on low volume accumulation, generally seen just prior to a high volume breakout. Relative Strength Index (RSI) also shows a three month long uptrend that indicates continued buying pressure.
(click image to enlarge)
Saturday, January 15, 2011
Goldman Sachs sees 21% S&P 500 return in 2011
The S&P 500 stock index will produce a 21% total return this year, according to a report Friday from Goldman Sachs researchers.
The return will consist of a 19% increase in the index level to 1,500 and a 2% dividend yield, they write in their report, “U.S. Equity Views.” The index ended 2010 at 1,257.64. At the close of trading Friday, the index was at 1,271.5.
“We forecast that at year-end 2011 the nominal size of the U.S. economy will be 5% larger than today,” to $15.3 trillion in terms of gross domestic product, David J. Kostin, managing director and U.S. investment strategist in global investment research at Goldman Sachs Group, wrote in the report.
Goldman Sachs economics research unit forecasts a U.S. real GDP growth, adjusted for inflation, of 3.4% in 2011 and 3.8% in 2012.
In addition, Mr. Kostin and his equity research colleagues predict the S&P 500 price-to-earnings ratio will rise by almost 8%, or 1 point, to 14.1 from 13.1, while the level of forward earnings per share, measured using forecasted earning, will be 11% higher than last year.
Goldman Sachs economics research unit forecasts the 10-year U.S. Treasury note yield will rise to 3.75% at the end of 2011 and 4.25% at the end of 2012, from 2.8% in 2010, while the two-year Treasury rate will rise to 1% in 2011 and 2% in 2012, from 0.7% in 2010, the report said.
“U.S. economic recovery prospects improved following the December … compromise between Congress and the White House to extend” the 2001 and 2003 tax cuts for two years, the report said. Other favorable factors include the agreement to provide emergency unemployment benefits through the end of 2011 and reduced payroll taxes this year.
The return will consist of a 19% increase in the index level to 1,500 and a 2% dividend yield, they write in their report, “U.S. Equity Views.” The index ended 2010 at 1,257.64. At the close of trading Friday, the index was at 1,271.5.
“We forecast that at year-end 2011 the nominal size of the U.S. economy will be 5% larger than today,” to $15.3 trillion in terms of gross domestic product, David J. Kostin, managing director and U.S. investment strategist in global investment research at Goldman Sachs Group, wrote in the report.
Goldman Sachs economics research unit forecasts a U.S. real GDP growth, adjusted for inflation, of 3.4% in 2011 and 3.8% in 2012.
In addition, Mr. Kostin and his equity research colleagues predict the S&P 500 price-to-earnings ratio will rise by almost 8%, or 1 point, to 14.1 from 13.1, while the level of forward earnings per share, measured using forecasted earning, will be 11% higher than last year.
Goldman Sachs economics research unit forecasts the 10-year U.S. Treasury note yield will rise to 3.75% at the end of 2011 and 4.25% at the end of 2012, from 2.8% in 2010, while the two-year Treasury rate will rise to 1% in 2011 and 2% in 2012, from 0.7% in 2010, the report said.
“U.S. economic recovery prospects improved following the December … compromise between Congress and the White House to extend” the 2001 and 2003 tax cuts for two years, the report said. Other favorable factors include the agreement to provide emergency unemployment benefits through the end of 2011 and reduced payroll taxes this year.
Credit Suisse's 18 Best Stock Picks for 2011
Jake Lynch
01/04/11 - 07:00 AM EST
BOSTON (TheStreet) -- Focus List, the top U.S. stock picks of Credit Suisse(CS), has outperformed the S&P 500 in each of the past six years. In 2010, an equal-weighting of Credit Suisse's Focus List generated a return of more than 17%, beating the S&P 500's 15% rise. In 2009, Focus List surged 48%, trouncing the S&P 500's 27% advance. Here is a look at picks 18 to 11 on the 2011 list.
18. International Game Technology(IGT)
17. Procter & Gamble(PG)
16. Time Warner(TWX)
15. PetroHawk Energy(HK)
14. Robert Half International(RHI)
13. Health Management Associates(HMA)
12. Ingersoll-Rand(IR)
11. Cytec(CYT)
Now, here is a closer look at Credit Suisse's 10 best stock picks for 2011, based on potential return. Below, they are order by upside, from good to great.
10. Polo(RL) is an apparel designer. Ralph Lauren's prestige is bolstering sales in all geographies. Credit Suisse is encouraged by the launch of its Lauren handbags line, strength in Southeast Asia, a critical emerging market, the launch of online shopping in the U.K. and a South Korean business starting in 2011. Its current sales distribution is roughly 65% North America, 20% Europe and 10% Asia. Equalizing these channels is a long-term goal, which should boost margins and long-term earnings per share to roughly $15. Credit Suisse believes that Polo will be "one of the best performing discretionary stocks over the next few years." Its target implies 17% upside in the next year.
9. BlackRock(BLK) is the world's largest investment company, based on assets under management. Credit Suisse analysts are encouraged by recent stake reductions by Bank of America and PNC Financial. Credit Suisse expects the company to benefit from the trend toward exchange-traded funds, or ETFs, and a leading international distribution network. The recent enhancement of the Bank of America-Merrill Lynch Global Distribution Agreement will increase product reach. BlackRock's stock already sells at a premium to peers, based on earnings. Still, Credit Suisse expects it to trade at nearly 19 times 2011 earnings within the next 12 months.
8. Kroger(KR) beat the quarterly consensus sales and adjusted earnings expectations by 1% and 1.6%, respectively, but the supermarket chain's stock corrected 9.4% on announcement due to a weaker-than-anticipated selling gross margin and a 2.1% net income miss. Credit Suisse believes the market is overlooking quarterly positives, including a 6% pop in EBITDA and ongoing cost-cutting initiatives. It expects management to repurchase $200 million to $300 million of stock in the fourth quarter, helping earnings per share. Shares trades at a forward earnings multiple of 11 and a cash-flow multiple of 4.6, 25% and 50% discounts to food and staples retailing averages.
7. Morgan Stanley(MS) is a financial services company, with investment banking, research, trading and asset management operations. Credit Suisse just cut its fourth-quarter earnings estimate for the bank, due to one-time items, but is reiterating its prediction of outperformance in 2011. Credit Suisse notes the stock's sizable historical discount and franchise power as positives. Its $35 12-month target, consistent with a 25% return, is notably conservative. That price target is equivalent to 1.1 times year-end book value and 1.3 times tangible book estimates. Those multiples reflect 59% and 55% discounts to historical averages.
6. Guess(GES) designs apparel. Its stock has jumped 17% in the past three months, but Credit Suisse remains optimistic about upside. The researcher expects positive forward earnings revisions going forward and multiple expansion as the market comes to appreciate the company's global brand power. Management has proven its commitment to reward shareholders, boosting the regular dividend 25% and paying a special $2 dividend in December, equivalent to a 4.3% additional yield on the share price. Credit Suisse believes Guess could achieve sales growth in the midteens in the next few years. Its $60 target suggests a one-year gain of 27%.
5. Western Union(WU) is a money transfer and payment services company. In addition to making the Credit Suisse Focus List, Western Union made the 2011 Top Picks List at Barclays. Credit Suisse analysts are encouraged by Western Union's recently announced 100 million euro bid for Angelo Costa, which should solidify European growth rates. The acquisition would add 7,500 locations in Europe. Credit Suisse has a $25 target on the stock, equivalent to 17-times its 2011 earnings projection. That target suggests a return of 33%. Barclays is marginally less bullish, with a $24 price target. Two thirds of Wall Street researchers rate it "buy."
4. Intel(INTC) is the world's largest chipmaker. A foray into tablets and smart phones has gotten little recognition from the Street, but Credit Suisse believes that any success outside of Intel's PC business will be "multiple accretive." Investors are concerned that tablets and net books will cannibalize PC sales and that enterprise spending in 2011 could surprise to the downside. Credit Suisse believes that Intel can maintain and perhaps extend its lead market share in PCs, and that opportunity in smartphone and tablet markets is "more tangible than what the market expects, both on share and profitability." At a trailing earnings multiple of 11, Intel is 47% cheaper than its five-year average.
3. Bank of America(BAC) jumped 5% yesterday on news that it will pay $2.8 billion to Fannie Mae and Freddie Mac to rectify buy-back demands. The bank's stock was the third worst-performing Dow stock of 2010, having fallen more than 11%. Credit Suisse expects near-term revenue headwinds, but reiterates that the bank is the cheapest large-cap bank stock, costing just six times normalized 2012 earnings, a huge peer, market and historical discount. Credit Suisse's $20 target implies 43% upside. Other analysts view the stock favorably. Of those covering Bank of America, 21, or 62%, advise purchasing its shares, and 13 recommend holding them.
2. Research In Motion(RIMM) designs and manufactures Blackberry smartphones and recently debuted a tablet computer, PlayBook. Its chief competitor is Apple, maker of the iPhone. The iPhone's expansion to Verizon in 2011 presents a major headwind. Still, Credit Suisse is optimistic about overseas growth and believes that Research In Motion can maintain its 16%-17% market share in 2011, despite weaker North America sales. The market has been overwhelmingly pessimistic about RIM. Its stock trades at just 8.1 times Credit Suisse's 2012 earnings projection, a huge discount to tech peers. That forecast doesn't include potential EPS from tablets.
1. Sprint(S) is the runt of the mobile carrier litter, trailing Verizon and AT&T. But, Credit Suisse expects Sprint's stock to outperform the aforementioned competitors' shares in 2011. It upgraded its savings estimate from the company's Network Vision upgrade to $2 billion to $2.5 billion. Credit Suisse calls Sprint its "highest conviction outperform." It values Sprint's core business at $6 a share, based on discounted cash flow analysis, with $4 of upside from Vision. It expects the company to enjoy only $2 of this potential upside, equivalent to an $8, 12-month target and an outsized 82% return. This is an unpopular view. Just 34% of analysts rate Sprint's shares "buy."
Vanadium: Energy's Holy Grail
Tony Spencer, Financial Post · Thursday, Dec. 9, 2010
Read more: http://www.nationalpost.com/todays-paper/Vanadium+Energy+Holy+Grail/3949307/story.html#ixzz1B9kCWSqD
How do you bottle sunlight?
It's the major hurdle preventing renewable energy's acceptance into the mainstream.
The moment the sun sets or the wind drops, that energy source shuts down for business. You can hardly power a major electrical grid on such uncertainty.
Likewise, any surplus of wind or solar power has nowhere to go -- except to be either wasted or discharged back into the ground.
The truth is renewable energy will never realize its full potential until we develop efficient ways to store and harness the energy it produces. So that when the source is either offline or producing a surplus, we can continue to draw power.
The solution lies in energy storage.
Influential energy industry analyst Nick Hodge concurs: "Energy storage is the Holy Grail of the energy market." In a recent sector report, American investment bankers Piper Jaffray project the blue-sky potential of this emerging clean technology frontier: "We estimate spending of $600-billion plus on energy storage solutions over the next 10 to 12 years."
No wonder energy storage is the new global gold rush.
One battery in particular, the vanadium redox flow battery, already shows enormous potential as an energy storage solution. In fact, it's the only battery technology today capable of powering everything from a single home right up to the storage demands of a power grid.
With the world now increasingly wireless, we depend on batteries like never before to run our netbooks, power our smartphones and soon, our vehicles. Battery technology continues to rapidly progress as consumers, corporations and governments drive the cleantech sector to innovate better solutions.
The race is on to build a better battery.
A little-known metal called vanadium is beginning to play a pivotal role in both battery power and energy storage technology. This is because vanadium makes highly powerful and efficient batteries -- both in a stand-alone capacity for large-scale power grid usage and as an additive in small-scale battery applications.
So, what is vanadium? Why is it so special? And why have you likely never heard of it?
Vanadium is a strategic metal that is essential for engineering as well as for the automotive, shipping, and construction industries. It is irreplaceable for its role in aerospace. This is because vanadium possesses the remarkable ability to make steel alloys both stronger and lighter. In fact, vanadium-titanium alloys have the best strength-to-weight ratio of any engineered material.
With the boom in global infrastructure development, steel consumption is driving the market for vanadium. While the steel industry currently uses 90% to 97% of the 60,000 tonnes of vanadium produced annually worldwide, its application in the growing trend toward battery power and energy storage marks a significant tipping of the scales.
It turns out that renewable energy's greatest challenge is vanadium's greatest opportunity.
The vanadium redox flow battery (VRFB), invented at the University of New South Wales in Australia, is a game-changer. It has a lifespan of tens of thousands of cycles, does not self-discharge while idle or generate high amounts of heat when charging, and can absorb and discharge huge amounts of electricity instantly--over and over again.
VRFB technology not only provides the missing link in scaling renewable energy to national levels but also in reducing dependence on fossil fuels. Safe and versatile, the VRFB is fast moving toward mainstream acceptance as a medium for grid-scaled energy storage by the global green industry.
The signs are evident: China's Prudent Energy, a rising star and VRFB manufacturer based in Beijing and Washington, was named to the 2010 Global Cleantech 100 as one of the most promising private technology companies poised to make a significant market impact over the next decade. Prudent Energy was chosen from more than 5,000 firms from 14 countries by an expert committee drawn from Fortune 500 titans including BASF, GE, Honeywell, IBM, Siemens and Proctor & Gamble.
"It's a matter of a better technology winning the day," according to Prudent Energy president Tim Hennessy: "Our vanadium redox battery energy storage systems are unique in their ability to repeatedly deep cycle and rapidly recharge with little or no capacity change. Our units have been independently tested, and the field results over the last three years have shown a performance way in excess of any other technology currently in the field."
Prudent Energy has installed VRFB systems all around the world and, unlike other flow battery systems, the energy-holding electrolyte in their systems operates at room temperature and never wears out.
Meanwhile, in Europe, the recent acquisition of Cellstrom GmbH, another VRFB manufacturer based in Austria, by German conglomerate Gildemeister GmbH, underlines the recognition by global corporations of the growing importance of energy storage. Since 2008, Cellstrom has successfully marketed VRFBs throughout Europe and most recently in India, where they are installed as back-up systems for factories in regions frequently hit by power outages.
The U.S. Department of Energy (DoE) has identified VRFBs as a leading solution for storing renewable energy. They are currently conducting a smart grid regional demonstration program with field research for the VRFB in the city of Painesville, Ohio, in conjunction with state and local power authorities. "This project will help ensure that residents and businesses in Painesville have access to a safe, secure and stable power supply," Ohio Gov. Ted Strickland said.
Vanadium is also proving to be a highly effective additive to existing batteries in small-scale applications. In the case of electric cars, vanadium is being combined with lithium to act as a "supercharger" that increases the battery's energy density and, hence, the distance a car can travel.
Clean technologies and materials analyst, Jon Hykawy of Byron Capital Markets, sees a new fork in the road: "Vanadium is the best cathode material that can be used in these automobiles. And we're starting to see that conjecture being borne out by the battery industry, which is looking at lithium-vanadium-phosphate cathodes as one of the more important drivers for a higher-power, and, potentially, a much less expensive battery for the automotive industry."
Germany's DBM Energy recently made headlines with its testing of a lithium-vanadium polymer battery. Refitted into an Audi A2 electric car, the result was the setting of a new distance world record, with the car driving over 600 km on a single charge. Even more impressive, DBM Energy says the battery shows 97% efficiency and can be recharged in as fast as six minutes using any standard electrical socket.
By comparison, the 2011 Chevy Volt can only travel 56 km on its lithium-ion battery alone until its range extender kicks in, with a 10-hour recharge cycle. Along with DBM, a host of other companies including China's BYD Auto Co., Japan's GS Yuasa Corp., Japan's Subaru and U.S.A.'s Valence Technologies, have vanadium-based batteries either in development or in plans for production.
The question is with growing acceptance for vanadium usage in cars and energy storage solutions, what is holding the technology back from mass adoption?
Martha Schreiber, chief operating officer of Cellstrom GmbH, pins it down to a combination of price and legal issues: "The highly volatile price of vanadium makes it very difficult to calculate stable price conditions, not only for manufacturers but for the end consumer as well. Moreover, this leads to a very conservative pricing policy by manufacturers to the detriment of mass-market penetration. The technology for VRFBs has also been blocked by original patents dating back to 1987. It has only been since their expiry in 2007 that has allowed companies to openly develop the technology."
These emerging energy storage technologies require a high-purity form of vanadium called V2O5 (vanadium pentoxide). And the amount a single VRFB requires is massive: anywhere from one to five tonnes each. Today, the current value of steel-grade V2O5 is around $7 per pound and expected to increase, while battery manufacturers are paying anywhere between $10 to $30 per pound for battery-grade V2O5.
On the strength of the steel industry alone, vanadium demand is growing at 7% annually and predicted to outpace global supplies by 2012. Analysts firmly believe that vanadium demand will significantly increase over the coming years but they are less able to confidently predict that supply can keep up with demand. China is currently the world's largest exporter and consumer of vanadium, followed by South Africa and Russia.
With very few primary mines coming on line in the next decade, this leads to a delicate balancing act where supply can keep pace only if all junior projects reach market and none are delayed.
The crux is that the VRFB can only be developed to its full potential once the global supply and pricing of V2O5 is stabilized.
One project is set to accomplish just that: The aptly named Green Giant vanadium project in Madagascar is an initiative of Toronto-based mining companyEnergizerResources( TSX. V: EGZ) and is singularly positioned to supply battery-grade V2O5 in sufficient quantity to meet the surge in demand.
The Green Giant vanadium deposit is a sedimentary-hosted deposit, allowing for relatively easy extraction, which makes it unique among the world's known deposits. The company just released an updated and expanded National Instrument 43-101 compliant resource estimate of 59 million tonnes, making it the third largest known vanadium deposit in the world. And the resource has excellent potential to expand even further: 75% of its 21-km (18-mile) vanadium trend remains open for drilling.
Energizer Resources has assembled a management team with the necessary experience and networks to develop the Green Giant project. Led by president and chief operating officer, Julie Lee Harrs, a seasoned mining executive formerly with Vale Inco and Sherritt International, Energizer is at the cusp of playing an integral part in renewable energy's storage solution. Ms. Lee Harrs recognizes the scale of the opportunity: "Energizer is positioning itself to be the largest supplier of battery-grade V2O5 in the world -- while at the same time being able to accommodate the growing demand from the steel market. The Green Giant has incredible scalability to be able to meet the demands of both industries and ramp up as necessary."
Energizer Resources is further supported by an impressive group of directors and consultants including Richard Quesnel, Brian Tobin, Peter Harder and Howard Balloch, who offer extensive mining, political and governmental experience. Not to mention DRA Mineral Projects, a leading mine engineering and construction company based in South Africa, who will lead the development of the Green Giant project.
Energizer's Green Giant is positioned to be the only mining operation capable of economically supplying battery-grade V2O5, while at the same time bringing the necessary stability of supply and price to the vanadium market.
When Piper Jaffray projects a $600-billion market for energy storage solutions, there's little doubt the future will be battery powered. Energy industry analyst Nick Hodge agrees: "With that kind of anticipated spending, you should seriously start thinking about allocating a portion of your portfolio to energy storage companies."
In the race to build a better battery, it makes equal sense to consider investing in the resource companies that will provide the raw materials for these energy storage manufacturers.
In that respect, it's hard not to go with a company like Energizer Resources -- because when it comes to vanadium and the power to release its massive energy potential, Energizer holds the key.
To learn more about vanadium and the Green Giant project, visit Energizer Resources at www.energizerresources.com sor call 1-800-818-5442.
It's the major hurdle preventing renewable energy's acceptance into the mainstream.
The moment the sun sets or the wind drops, that energy source shuts down for business. You can hardly power a major electrical grid on such uncertainty.
Likewise, any surplus of wind or solar power has nowhere to go -- except to be either wasted or discharged back into the ground.
The truth is renewable energy will never realize its full potential until we develop efficient ways to store and harness the energy it produces. So that when the source is either offline or producing a surplus, we can continue to draw power.
The solution lies in energy storage.
Influential energy industry analyst Nick Hodge concurs: "Energy storage is the Holy Grail of the energy market." In a recent sector report, American investment bankers Piper Jaffray project the blue-sky potential of this emerging clean technology frontier: "We estimate spending of $600-billion plus on energy storage solutions over the next 10 to 12 years."
No wonder energy storage is the new global gold rush.
One battery in particular, the vanadium redox flow battery, already shows enormous potential as an energy storage solution. In fact, it's the only battery technology today capable of powering everything from a single home right up to the storage demands of a power grid.
With the world now increasingly wireless, we depend on batteries like never before to run our netbooks, power our smartphones and soon, our vehicles. Battery technology continues to rapidly progress as consumers, corporations and governments drive the cleantech sector to innovate better solutions.
The race is on to build a better battery.
A little-known metal called vanadium is beginning to play a pivotal role in both battery power and energy storage technology. This is because vanadium makes highly powerful and efficient batteries -- both in a stand-alone capacity for large-scale power grid usage and as an additive in small-scale battery applications.
So, what is vanadium? Why is it so special? And why have you likely never heard of it?
Vanadium is a strategic metal that is essential for engineering as well as for the automotive, shipping, and construction industries. It is irreplaceable for its role in aerospace. This is because vanadium possesses the remarkable ability to make steel alloys both stronger and lighter. In fact, vanadium-titanium alloys have the best strength-to-weight ratio of any engineered material.
With the boom in global infrastructure development, steel consumption is driving the market for vanadium. While the steel industry currently uses 90% to 97% of the 60,000 tonnes of vanadium produced annually worldwide, its application in the growing trend toward battery power and energy storage marks a significant tipping of the scales.
It turns out that renewable energy's greatest challenge is vanadium's greatest opportunity.
The vanadium redox flow battery (VRFB), invented at the University of New South Wales in Australia, is a game-changer. It has a lifespan of tens of thousands of cycles, does not self-discharge while idle or generate high amounts of heat when charging, and can absorb and discharge huge amounts of electricity instantly--over and over again.
VRFB technology not only provides the missing link in scaling renewable energy to national levels but also in reducing dependence on fossil fuels. Safe and versatile, the VRFB is fast moving toward mainstream acceptance as a medium for grid-scaled energy storage by the global green industry.
The signs are evident: China's Prudent Energy, a rising star and VRFB manufacturer based in Beijing and Washington, was named to the 2010 Global Cleantech 100 as one of the most promising private technology companies poised to make a significant market impact over the next decade. Prudent Energy was chosen from more than 5,000 firms from 14 countries by an expert committee drawn from Fortune 500 titans including BASF, GE, Honeywell, IBM, Siemens and Proctor & Gamble.
"It's a matter of a better technology winning the day," according to Prudent Energy president Tim Hennessy: "Our vanadium redox battery energy storage systems are unique in their ability to repeatedly deep cycle and rapidly recharge with little or no capacity change. Our units have been independently tested, and the field results over the last three years have shown a performance way in excess of any other technology currently in the field."
Prudent Energy has installed VRFB systems all around the world and, unlike other flow battery systems, the energy-holding electrolyte in their systems operates at room temperature and never wears out.
Meanwhile, in Europe, the recent acquisition of Cellstrom GmbH, another VRFB manufacturer based in Austria, by German conglomerate Gildemeister GmbH, underlines the recognition by global corporations of the growing importance of energy storage. Since 2008, Cellstrom has successfully marketed VRFBs throughout Europe and most recently in India, where they are installed as back-up systems for factories in regions frequently hit by power outages.
The U.S. Department of Energy (DoE) has identified VRFBs as a leading solution for storing renewable energy. They are currently conducting a smart grid regional demonstration program with field research for the VRFB in the city of Painesville, Ohio, in conjunction with state and local power authorities. "This project will help ensure that residents and businesses in Painesville have access to a safe, secure and stable power supply," Ohio Gov. Ted Strickland said.
Vanadium is also proving to be a highly effective additive to existing batteries in small-scale applications. In the case of electric cars, vanadium is being combined with lithium to act as a "supercharger" that increases the battery's energy density and, hence, the distance a car can travel.
Clean technologies and materials analyst, Jon Hykawy of Byron Capital Markets, sees a new fork in the road: "Vanadium is the best cathode material that can be used in these automobiles. And we're starting to see that conjecture being borne out by the battery industry, which is looking at lithium-vanadium-phosphate cathodes as one of the more important drivers for a higher-power, and, potentially, a much less expensive battery for the automotive industry."
Germany's DBM Energy recently made headlines with its testing of a lithium-vanadium polymer battery. Refitted into an Audi A2 electric car, the result was the setting of a new distance world record, with the car driving over 600 km on a single charge. Even more impressive, DBM Energy says the battery shows 97% efficiency and can be recharged in as fast as six minutes using any standard electrical socket.
By comparison, the 2011 Chevy Volt can only travel 56 km on its lithium-ion battery alone until its range extender kicks in, with a 10-hour recharge cycle. Along with DBM, a host of other companies including China's BYD Auto Co., Japan's GS Yuasa Corp., Japan's Subaru and U.S.A.'s Valence Technologies, have vanadium-based batteries either in development or in plans for production.
The question is with growing acceptance for vanadium usage in cars and energy storage solutions, what is holding the technology back from mass adoption?
Martha Schreiber, chief operating officer of Cellstrom GmbH, pins it down to a combination of price and legal issues: "The highly volatile price of vanadium makes it very difficult to calculate stable price conditions, not only for manufacturers but for the end consumer as well. Moreover, this leads to a very conservative pricing policy by manufacturers to the detriment of mass-market penetration. The technology for VRFBs has also been blocked by original patents dating back to 1987. It has only been since their expiry in 2007 that has allowed companies to openly develop the technology."
These emerging energy storage technologies require a high-purity form of vanadium called V2O5 (vanadium pentoxide). And the amount a single VRFB requires is massive: anywhere from one to five tonnes each. Today, the current value of steel-grade V2O5 is around $7 per pound and expected to increase, while battery manufacturers are paying anywhere between $10 to $30 per pound for battery-grade V2O5.
On the strength of the steel industry alone, vanadium demand is growing at 7% annually and predicted to outpace global supplies by 2012. Analysts firmly believe that vanadium demand will significantly increase over the coming years but they are less able to confidently predict that supply can keep up with demand. China is currently the world's largest exporter and consumer of vanadium, followed by South Africa and Russia.
With very few primary mines coming on line in the next decade, this leads to a delicate balancing act where supply can keep pace only if all junior projects reach market and none are delayed.
The crux is that the VRFB can only be developed to its full potential once the global supply and pricing of V2O5 is stabilized.
One project is set to accomplish just that: The aptly named Green Giant vanadium project in Madagascar is an initiative of Toronto-based mining companyEnergizerResources( TSX. V: EGZ) and is singularly positioned to supply battery-grade V2O5 in sufficient quantity to meet the surge in demand.
The Green Giant vanadium deposit is a sedimentary-hosted deposit, allowing for relatively easy extraction, which makes it unique among the world's known deposits. The company just released an updated and expanded National Instrument 43-101 compliant resource estimate of 59 million tonnes, making it the third largest known vanadium deposit in the world. And the resource has excellent potential to expand even further: 75% of its 21-km (18-mile) vanadium trend remains open for drilling.
Energizer Resources has assembled a management team with the necessary experience and networks to develop the Green Giant project. Led by president and chief operating officer, Julie Lee Harrs, a seasoned mining executive formerly with Vale Inco and Sherritt International, Energizer is at the cusp of playing an integral part in renewable energy's storage solution. Ms. Lee Harrs recognizes the scale of the opportunity: "Energizer is positioning itself to be the largest supplier of battery-grade V2O5 in the world -- while at the same time being able to accommodate the growing demand from the steel market. The Green Giant has incredible scalability to be able to meet the demands of both industries and ramp up as necessary."
Energizer Resources is further supported by an impressive group of directors and consultants including Richard Quesnel, Brian Tobin, Peter Harder and Howard Balloch, who offer extensive mining, political and governmental experience. Not to mention DRA Mineral Projects, a leading mine engineering and construction company based in South Africa, who will lead the development of the Green Giant project.
Energizer's Green Giant is positioned to be the only mining operation capable of economically supplying battery-grade V2O5, while at the same time bringing the necessary stability of supply and price to the vanadium market.
When Piper Jaffray projects a $600-billion market for energy storage solutions, there's little doubt the future will be battery powered. Energy industry analyst Nick Hodge agrees: "With that kind of anticipated spending, you should seriously start thinking about allocating a portion of your portfolio to energy storage companies."
In the race to build a better battery, it makes equal sense to consider investing in the resource companies that will provide the raw materials for these energy storage manufacturers.
In that respect, it's hard not to go with a company like Energizer Resources -- because when it comes to vanadium and the power to release its massive energy potential, Energizer holds the key.
To learn more about vanadium and the Green Giant project, visit Energizer Resources at www.energizerresources.com sor call 1-800-818-5442.
Read more: http://www.nationalpost.com/todays-paper/Vanadium+Energy+Holy+Grail/3949307/story.html#ixzz1B9kCWSqD
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