Stocks of Interest

Best and Worst Performing Stocks in Best Performing Sectors

2011-01-17T21:18:00.001-08:00

Jubak: The 10 best stocks for a volatile '11

2011-01-17T13:49:00.000-08:00

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?
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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

2011-01-17T13:46:00.001-08:00

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%.

And, finally, here are my five adds for this year's list:

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.

Profit from Soaring Food Prices

2011-01-16T22:00:00.000-08:00

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.

I’m Upping the Stakes on Goldcorp

2011-01-16T21:58:00.001-08:00

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

Nvidia: Looking Ahead to January 2011 Quarterly Results

2011-01-16T21:41:00.001-08:00

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.

Raymond James Best Stock Picks for 2011

2011-01-16T21:38:00.001-08:00

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:

2010's biggest tech gainers

2011-01-16T21:30:00.001-08:00

Range Resource (RRC) and SouthWestern Energy

2011-01-16T21:18:00.000-08:00

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.

DuPont - From Gunpowder To Plastics To Yogurt

2011-01-16T21:14:00.000-08:00

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.

John Paulson's Top Picks

2011-01-16T21:11:00.001-08:00

Paulson's HoldingsHere are a list of Paulson and Co's top holdings:

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

2011-01-16T21:09:00.000-08:00

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.)

Potash Continues To Surge

2011-01-16T21:07:00.000-08:00

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

IBio Headed for $10 Level?

2011-01-16T20:47:00.001-08:00

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.

Neoprobe Looks to Become a Major Player in Oncology

2011-01-16T20:44:00.001-08:00

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:

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.

Application For Listing On The AMEX
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

A Stable Long-Term Winner
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)

Goldman Sachs sees 21% S&P 500 return in 2011

2011-01-15T17:47:00.001-08:00

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.

Credit Suisse's 18 Best Stock Picks for 2011

2011-01-15T17:46:00.001-08:00

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

2011-01-15T17:08:00.001-08:00

Tony Spencer, Financial Post · Thursday, Dec. 9, 2010

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.

A Strategic Play In Strategic Minerals

2011-01-15T17:07:00.000-08:00

As investors have become more sophisticated in their approach to portfolio construction, many have moved passed just holding stocks and bonds. Commodities have become portfolio staples, and interest in the asset class has surged as inflation expectations remain high. While most investors now maintain positions in funds like the iPath DJ-UBS Commodity ETN (NYSE:DJP), which holds standard commodities including oil, gold and wheat. Many are missing out on a great long term opportunities in the strategic metals sector. (To learn about metals, see A Beginner's Guide To Precious Metals.) IN PICTURES: What Is Your Risk Tolerance?
Why Rare Earths?Neodymium, Uranium, Lithium, Thorium - don't exactly roll off the tongue, do they. However, these minerals are becoming an ever increasing important part of the global economy. These elements are critical components of many electronic devices such as cell phones, flat panel TVs, electric cars and hard drives. Terbium is one of the key ingredients in low-energy CFL light bulbs and it takes roughly one ton of neodymium for every megawatt of generating capacity a wind turbine has. As world's population continues to grow, so will the demand for these materials. The market value for strategic metals is expected to reach 200,000 tons by 2014, or roughly valued at $2 to $3 billion. Chinese requirements of rare earths are forecasted to exceed supply by 2012. A recent report from the Department of Energy also highlights the supply/demand concerns. As rare earths find their way into more electric vehicles, solar panels and energy efficient lighting, a potential roadblock is brewing. Mostly due to its incredibly lax environmental policies, China currently produces more than 95% of global supply of rare earths. China has stated that it would not use its dominance of these materials as a bargaining tool or bully other nations. However, it has recently cut exports of the minerals on environmental grounds.

In spite of this, the global market of rare earths remains robust. While it controls most of the refined supply, China only holds 37% of the world's reserves of strategic minerals. The United States has 14 million metric tons of rare earths and India holds approximately 1.3 million metric tons. Both Chile and Bolivia are estimated to hold nearly 77% of the world's supply of lithium.
A Strategic Portfolio PositionDemand for strategic minerals like lithium and europium will continue to increase as they critical components of a variety of new technologies. Energy efficiency measures, consumer electronics, new infrastructure and green renewable energy will all play a major role in this demand escalation. Some of the major mining firms have exposure to these "other" minerals. Anglo American (OTCBB: AAUKY) operates just one of three worldwide mines devoted to niobium, and Freeport-McMoRan Copper & Gold (NYSE:FCX) has its hands in molybdenum production. This rare earth production only accounts for a small percentage of their overall mining pie.
For a pure U.S. rare earth play, Molycorp (NYSE:MCP) is the only rare earth oxide producer in the Western Hemisphere. The company recently secured the final permits to break ground on its Californian facility, with full production by in 2012. Shares of the company have more than doubled from their $14 initial public offering price in July as interest in strategic metals has risen. For a more diverse way to play the sector, the recently launched Market Vectors Rare Earth/Strategic Metals ETF (Nasdaq:REMX) follows 26 different companies engaged in the mining of the 49 strategic elements. This includes investment in Molycorp, as well as Titanium Metals Corporation (NYSE:TIE) and various producers of tungsten and manganese.
As a way to play a cleantech boom investors may also want to take a look at the Global X Lithium ETF (NYSE:LIT). The fund tracks a variety of battery makers as well as Chemical & Mining Co. of Chile Inc. (NYSE:SQM), the largest lithium producer. Also from Global X is the Global X Uranium ETF (NYSE:URA) which can used to track nuclear powers growth and the need for more uranium.
The Bottom Line Commodities such as gold and oil get all the attention, but the biggest long term bull market may be in the strategic minerals. The increases in demand and supply restrictions from China could have detrimental effects on their pricing. Investors with long enough timelines may want to allocate some capital to the sector either through the REMX or LIT.

Mosaic CEO: Keeping Up With Demand Will Be 'Challenging'

2011-01-15T17:05:00.001-08:00

In a First on CNBC interview, Mosaic CEO James Prokopanko on Wednesday said his fertilizer company has a strong outlook for 2011.

"World supply is growing about inline with world demand. We have not seen any phosphate production facilities come online in the past couple years, other than some facilities in China.

"Beyond that, we haven't seen any expansions and it's not sure when these new facilities are going to come online," said Prokopanko. "World demand is growing at 2.5 [percent] a year. That's a 1.5 tons a year and new production is going to be challenged to keep up with that growing demand."

MOSAIC COMPANY (THE...

(MOS)

82.97 2.28 (+2.83%%)
NYSE

Prokopanko acknowledged that his Plymouth, Minn.-based company [MOS 82.97 2.28 (+2.83%) ] is often mentioned as a possible takeover target. He said the increased mergers and acquisitions activity is reflective of how attractive the agricultural chemicals space is right now.

Patty Edwards, chief investment officer at Trutina Financial, agreed. She feared she was a little late to the trade, but recently bought shares of Potash [POT 171.90 1.77 (+1.04%) ] anyway because of growing demand for food production.

The Great Food Crisis of 2011

2011-01-15T17:04:00.001-08:00

BY LESTER BROWN | JANUARY 10, 2011

As the new year begins, the price of wheat is setting an all-time high in the United Kingdom. Food riots are spreading across Algeria. Russia is importing grain to sustain its cattle herds until spring grazing begins. India is wrestling with an 18-percent annual food inflation rate, sparking protests. China is looking abroad for potentially massive quantities of wheat and corn. The Mexican government is buying corn futures to avoid unmanageable tortilla price rises. And on January 5, the U.N. Food and Agricultural organization announced that its food price index for December hit an all-time high.

But whereas in years past, it's been weather that has caused a spike in commodities prices, now it's trends on both sides of the food supply/demand equation that are driving up prices. On the demand side, the culprits are population growth, rising affluence, and the use of grain to fuel cars. On the supply side: soil erosion, aquifer depletion, the loss of cropland to nonfarm uses, the diversion of irrigation water to cities, the plateauing of crop yields in agriculturally advanced countries, and -- due to climate change -- crop-withering heat waves and melting mountain glaciers and ice sheets. These climate-related trends seem destined to take a far greater toll in the future.
There's at least a glimmer of good news on the demand side: World population growth, which peaked at 2 percent per year around 1970, dropped below 1.2 percent per year in 2010. But because the world population has nearly doubled since 1970, we are still adding 80 million people each year. Tonight, there will be 219,000 additional mouths to feed at the dinner table, and many of them will be greeted with empty plates. Another 219,000 will join us tomorrow night. At some point, this relentless growth begins to tax both the skills of farmers and the limits of the earth's land and water resources.
Beyond population growth, there are now some 3 billion people moving up the food chain, eating greater quantities of grain-intensive livestock and poultry products. The rise in meat, milk, and egg consumption in fast-growing developing countries has no precedent. Total meat consumption in China today is already nearly double that in the United States.
The third major source of demand growth is the use of crops to produce fuel for cars. In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That's enough to feed 350 million people for a year. The massive U.S. investment in ethanol distilleries sets the stage for direct competition between cars and people for the world grain harvest. In Europe, where much of the auto fleet runs on diesel fuel, there is growing demand for plant-based diesel oil, principally from rapeseed and palm oil. This demand for oil-bearing crops is not only reducing the land available to produce food crops in Europe, it is also driving the clearing of rainforests in Indonesia and Malaysia for palm oil plantations.

The combined effect of these three growing demands is stunning: a doubling in the annual growth in world grain consumption from an average of 21 million tons per year in 1990-2005 to 41 million tons per year in 2005-2010. Most of this huge jump is attributable to the orgy of investment in ethanol distilleries in the United States in 2006-2008.
While the annual demand growth for grain was doubling, new constraints were emerging on the supply side, even as longstanding ones such as soil erosion intensified. An estimated one third of the world's cropland is losing topsoil faster than new soil is forming through natural processes -- and thus is losing its inherent productivity. Two huge dust bowls are forming, one across northwest China, western Mongolia, and central Asia; the other in central Africa. Each of these dwarfs the U.S. dust bowl of the 1930s.
Satellite images show a steady flow of dust storms leaving these regions, each one typically carrying millions of tons of precious topsoil. In North China, some 24,000 rural villages have been abandoned or partly depopulated as grasslands have been destroyed by overgrazing and as croplands have been inundated by migrating sand dunes.
In countries with severe soil erosion, such as Mongolia and Lesotho, grain harvests are shrinking as erosion lowers yields and eventually leads to cropland abandonment. The result is spreading hunger and growing dependence on imports. Haiti and North Korea, two countries with severely eroded soils, are chronically dependent on food aid from abroad.
Meanwhile aquifer depletion is fast shrinking the amount of irrigated area in many parts of the world; this relatively recent phenomenon is driven by the large-scale use of mechanical pumps to exploit underground water. Today, half the world's people live in countries where water tables are falling as overpumping depletes aquifers. Once an aquifer is depleted, pumping is necessarily reduced to the rate of recharge unless it is a fossil (nonreplenishable) aquifer, in which case pumping ends altogether. But sooner or later, falling water tables translate into rising food prices.

Irrigated area is shrinking in the Middle East, notably in Saudi Arabia, Syria, Iraq, and possibly Yemen. In Saudi Arabia, which was totally dependent on a now-depleted fossil aquifer for its wheat self-sufficiency, production is in a freefall. From 2007 to 2010, Saudi wheat production fell by more than two thirds. By 2012, wheat production will likely end entirely, leaving the country totally dependent on imported grain.
The Arab Middle East is the first geographic region where spreading water shortages are shrinking the grain harvest. But the really big water deficits are in India, where the World Bank numbers indicate that 175 million people are being fed with grain that is produced by overpumping. In China, overpumping provides food for some 130 million people. In the United States, the world's other leading grain producer, irrigated area is shrinking in key agricultural states such as California and Texas.
The last decade has witnessed the emergence of yet another constraint on growth in global agricultural productivity: the shrinking backlog of untapped technologies. In some agriculturally advanced countries, farmers are using all available technologies to raise yields. In Japan, the first country to see a sustained rise in grain yield per acre, rice yields have been flat now for 14 years. Rice yields in South Korea and China are now approaching those in Japan. Assuming that farmers in these two countries will face the same constraints as those in Japan, more than a third of the world rice harvest will soon be produced in countries with little potential for further raising rice yields.
A similar situation is emerging with wheat yields in Europe. In France, Germany, and the United Kingdom, wheat yields are no longer rising at all. These three countries together account for roughly one-eighth of the world wheat harvest. Another trend slowing the growth in the world grain harvest is the conversion of cropland to nonfarm uses. Suburban sprawl, industrial construction, and the paving of land for roads, highways, and parking lots are claiming cropland in the Central Valley of California, the Nile River basin in Egypt, and in densely populated countries that are rapidly industrializing, such as China and India. In 2011, new car sales in China are projected to reach 20 million -- a record for any country. The U.S. rule of thumb is that for every 5 million cars added to a country's fleet, roughly 1 million acres must be paved to accommodate them. And cropland is often the loser.

Fast-growing cities are also competing with farmers for irrigation water. In areas where all water is being spoken for, such as most countries in the Middle East, northern China, the southwestern United States, and most of India, diverting water to cities means less irrigation water available for food production. California has lost perhaps a million acres of irrigated land in recent years as farmers have sold huge amounts of water to the thirsty millions in Los Angeles and San Diego.
The rising temperature is also making it more difficult to expand the world grain harvest fast enough to keep up with the record pace of demand. Crop ecologists have their own rule of thumb: For each 1 degree Celsius rise in temperature above the optimum during the growing season, we can expect a 10 percent decline in grain yields. This temperature effect on yields was all too visible in western Russia during the summer of 2010 as the harvest was decimated when temperatures soared far above the norm.
Another emerging trend that threatens food security is the melting of mountain glaciers. This is of particular concern in the Himalayas and on the Tibetan plateau, where the ice melt from glaciers helps sustain not only the major rivers of Asia during the dry season, such as the Indus, Ganges, Mekong, Yangtze, and Yellow rivers, but also the irrigation systems dependent on these rivers. Without this ice melt, the grain harvest would drop precipitously and prices would rise accordingly.
And finally, over the longer term, melting ice sheets in Greenland and West Antarctica, combined with thermal expansion of the oceans, threaten to raise the sea level by up to six feet during this century. Even a three-foot rise would inundate half of the riceland in Bangladesh. It would also put under water much of the Mekong Delta that produces half the rice in Vietnam, the world's number two rice exporter. Altogether there are some 19 other rice-growing river deltas in Asia where harvests would be substantially reduced by a rising sea level.
The current surge in world grain and soybean prices, and in food prices more broadly, is not a temporary phenomenon. We can no longer expect that things will soon return to normal, because in a world with a rapidly changing climate system there is no norm to return to.
The unrest of these past few weeks is just the beginning. It is no longer conflict between heavily armed superpowers, but rather spreading food shortages and rising food prices -- and the political turmoil this would lead to -- that threatens our global future. Unless governments quickly redefine security and shift expenditures from military uses to investing in climate change mitigation, water efficiency, soil conservation, and population stabilization, the world will in all likelihood be facing a future with both more climate instability and food price volatility. If business as usual continues, food prices will only trend upward.

China Boss in Peru on $50 Billion Peak Bought for $810 Million

2011-01-15T17:02:00.001-08:00

The Chinese entrepreneur and the Peruvian shopkeeper have never met. Yet Li Shiping’s dream of riches and success in China is uprooting Victor Raul Ancieta’s village 18,000 kilometers (11,000 miles) away in the Andes.
Their lives are joined by a thread of copper stretching from Dao County in southern Hunan province to a $50 billion deposit of ore underneath the 103-year-old mining town in Peru.
Li, 47, owns a smelting company that is about to fire up a new electric furnace made with 110 tons of copper, one of thousands of industrial projects in China’s developing interior. To stoke them, a Chinese state-owned mining company will tear down the peak in Peru and ship home the copper. It plans to relocate the town of Morococha, population 5,397. Many, including Ancieta, don’t want to leave.
The project is part of $11 billion in Chinese mining investments planned for Peru, a quarter of the country’s total, according to Fernando Gala, the Peruvian vice minister of mines. China is prospecting for mineral treasures around the world as it develops faster than any major economy in history. Its copper use is growing so quickly that by 2035 global demand for the metal may outstrip supply by 11 million tons, according to CRU, a London-based mining and metals consulting firm.
That’s equal to 55 times the planned annual output in Morococha, where a crater 800 meters (2,600 feet) deep and a third larger than New York City’s Central Park will be left behind. The copper supply gap is driving up prices and foreshadows more conflicts in places like the mountain village.
‘Wealth and Power’
“What China wants is wealth and power,” says Stapleton Roy, U.S. ambassador to China from 1991 to 1995. “What we have to fear from China is that as it gets stronger and wealthier, it does not develop a commensurate sense of responsibility to the global system.” Roy, 75, was born in China and witnessed the Communist revolution. He heads the Kissinger Institute on China and the United States in Washington.
Great powers have always reached beyond their borders for wealth and resources, including the U.S. as it built the world’s largest economy. Today, China’s purchases of copper, iron, oil and other materials pour cash into resource-producing countries like Peru, while its exports hold down prices for consumers around the world.
“A lot of countries are benefiting” from China’s demand, says Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington and an author of the 2008 book, “China’s Rise: Challenges and Opportunities.” “You don’t hear so many complaints from the countries that are the recipients of the Chinese investment.”
50,000 Skyscrapers
More than half of China’s 1.3 billion people live in rural areas. Over the next 15 years, the country will need 50,000 skyscrapers, 170 mass transit systems and urban housing for 350 million people as it develops the interior, according to a 2009 study by the McKinsey Global Institute, a research arm of New York-based McKinsey & Co. That represents a potential doubling of the domestic market for autos, appliances, televisions and other consumer goods.
Copper -- first smelted over wood fires 10,000 years ago -- is at the center of it all, conveying the country’s electrical pulse and providing the nervous system for the computers, dishwashers and microwaves China makes for the world.
Beijing-based Aluminum Corp. of China, known as Chinalco, bought the mineral rights in 2007 to the mountain in central Peru called Toromocho -- Spanish for bull without horns -- one of the world’s richest copper claims. Chinalco plans to begin mining in 2013, subject to federal environmental approval.
Afghanistan to Zambia
The $810 million purchase is part of about $5 billion that Chinese companies have spent buying more than a dozen copper mines and deposits from Afghanistan to Zambia in the past four years, according to securities filings and company statements. The foreign acquisitions line up about 1.6 million tons of potential annual supply, based on data compiled by Bloomberg. China would absorb that amount by the end of 2014 at its present growth rate, according to CRU’s forecast.
Former Chinese leader Jiang Zemin began articulating a “going out” strategy of buying resources abroad in 2000. It is one of China’s greatest foreign adventures since the 15th century, when the admiral Zheng He led seven trade missions as far as Africa. Jiang’s successor, Hu Jintao, advanced the policy, and Chinalco is helping execute it.
Peru, on South America’s Pacific coast, is the world’s fastest-growing copper producing country. Exports of iron and copper to China helped its economy expand almost 12 percent in the year through June, the strongest on the continent.
Clash With Villagers
China’s global ambitions are clashing with villagers’ concerns in Morococha, perched at 4,600 meters. Ancieta and other landowners whose families have lived there for generations say they object to being displaced without adequate compensation for their homes, stores and land.
“We’re not opposed to foreign investment,” says Ancieta, 60, standing in the gloom of his family’s 70-year-old general store, crammed with cooking pans, wrenches, soccer balls and beer. “We’re opposed to investment that doesn’t change the quality of our lives.”
Chinalco hopes that differences with the villagers can be resolved through “mutual efforts,” says Peng Huaisheng, vice president of Chinalco’s copper division in Beijing and chairman of the company’s Peruvian subsidiary. In a report to Peru authorities last year, Chinalco projected its mine would create 2,400 jobs and produce $1.5 billion in payments to local and regional governments over 30 years.
Mining waste will cover an area twice as big as the crater, according to the company’s environmental impact assessment.
Tectonic Shift
The colliding interests on Toromocho are part of a tectonic shift in the global economy. Over the next 20 years, China and the rest of Asia will trade places with the U.S. and Europe for leadership, says Peter Petri, a professor of international finance at Brandeis University in Waltham, Massachusetts.
By 2030, Asia’s equity markets and foreign trade will be 20 percent larger than the West’s and will consume 40 percent more energy while emitting twice as much carbon dioxide, Petri says.
How China wields influence will determine the way its investments are received, says Daniel Rosen, a principal of Rhodium Group, a New York-based economic advisory firm. China’s dominant market position in the production of rare earth metals is producing a backlash for the country, he says. Its 40 percent reduction in this year’s export quotas on the materials used in laptop computers, hybrid cars and smart bombs “made it impossible for anybody to tell a benign story about China’s intentions once it has market power,” Rosen says.
Copper Surges
China’s annual needs for copper will almost triple to 20 million tons by 2035, CRU projects. In 2010, it will consume 6.8 million tons, 38 percent of global production, after more than doubling its share of world purchases this decade, CRU says.
As a result, copper has almost tripled on the London Metal Exchange since December 2008 despite the global recession. The metal closed at $8,200 a metric ton on Oct. 29. Jeremy Gray, global head of resources at Standard Chartered Plc in Hong Kong, calls copper “red gold.” He says the price may rise almost 50 percent more to $12,000 in six to 12 months.
As China’s companies circle the globe, they are moving into more remote and dangerous corners. In Morococha, helmeted riot police fired teargas in January to disperse a rock-throwing crowd protesting the mining project. The shopkeeper Ancieta’s niece was one of those arrested.
Guards hired by another Chinese company, Fujian province- based Zijin Mining Group Co., repelled an attack at its Rio Blanco copper claim in a Peruvian cloud forest last November. Two employees died. In Afghanistan, two Chinese companies were clearing military explosives to develop the Aynak copper deposit 35 kilometers southeast of Kabul.
Toxic Waste
The villagers in Morococha may ultimately be better off with Chinalco, says the Reverend Joseph Deardorff, a 54-year- old, white-haired American priest at the local Catholic church. The town sits on toxic waste from a century of small-scale mining. Households lack running water and almost half have no electricity, according to government data in Chinalco’s environmental impact assessment. Open sewers flow down the streets. Respiratory infections cause 40 percent of deaths, the government reports.
“A majority of the children have parasites,” Deardorff says after leading a service. Outside the church, a memorial depicts a miner kneeling before the Virgin Mary.
Chinalco is offering the villagers free houses and modern utilities in a new town it proposes to build. Ten kilometers down the road, the company bought 182 hectares (450 acres) of ranchland from the Hacienda Pucara, where it says it will erect a church, cemetery, health clinic, schools and market.
Jobs, Revenue
Migrant workers who rent houses or live in company camps, about two-thirds of the residents, embrace the offer of permanent jobs and free homes.
“We want to go,” says Estella Bedoya, whose husband is a miner. “Here we’re on contaminated land. I don’t like it. It’s not good for the children.”
China’s demand means new jobs and revenue for a generation. Peru and China signed a trade agreement in April 2009 in Beijing that became effective this March. Peru’s exports rose 31 percent through September, lifted by sales of copper, gold and fishmeal, according to Comexperu, a business trade group based in Lima. The U.S. and China each accounted for a sixth of those sales.
“In 30 or 40 years, this is not going to be the United States’ back patio anymore,” says Victor Miranda, head of communications in the Peruvian ministry of foreign investment. “It’s going to be a projection of China.”
Beckoning Treasure Seekers
Since the Spanish conquest, Peru has beckoned treasure- seeking foreigners. It is the world’s largest producer of silver, second-largest of copper and zinc and third-largest of tin. After Francisco Pizarro executed the Inca king Atahualpa in 1533, the Spanish shipped home tons of bullion in a 300-year stream of galleons laden with silver and gold.
In the 19th century, American and British businessmen snatched up Peru’s mineral wealth. One was George Hearst, father of newspaper magnate William Randolph Hearst. Henry Meiggs, builder of Fisherman’s Wharf in San Francisco, constructed a gravity-defying railroad past Toromocho in the 1870s to carry riches from the Andes. His workforce included 5,000 indentured Chinese workers known as coolies, one step shy of slaves.
Road to Morococha
The 142-kilometer road to Morococha starts at the Port of Callao. The route is marked by white crosses that commemorate fatal accidents along a rise of hairpin turns. Wild daisies grow amid banana trees, weeds, donkeys, sheep and turkeys. It is a hostile environment for the unaccustomed.
Oxygen deprivation at Morococha’s elevation -- three miles above sea level -- can reduce short-term memory by almost a quarter, attention span by a third and visual sensitivity by half before the body adjusts, according to John West and Anthony Readhead, California-based researchers on extreme altitudes.
Subsistence miners have carved a living out of the treeless mountains around Morococha for decades. Bore holes pock the hillside like termite holes in rotted wood. Steel beams and metal netting prop up collapsing slopes. Amid falling copper prices and nationalization of the country’s mines, the town had been in decline for two decades before the American explorer David Lowell, now 82, arrived in 2002.
Lowell surveyed the jagged peaks inhabited by condors, Andean cats and foxes. After six months, he concluded that Toromocho held a potential multibillion-dollar deposit, he said in an interview. In May 2003, he paid the Peruvian government $2 million for an option on the mineral rights. He rolled that stake into Peru Copper Inc. and sold the company to Chinalco four years later.
Chinalco’s Purchase
Formed in 2001 through the consolidation of 12 state companies, Chinalco employs 240,000 and owns 9 percent of London-based Rio Tinto Group, the world’s third-largest mining company by revenue. Xiao Yaqing, Chinalco’s former president, is a member of China’s cabinet and the Communist Party’s central committee.
China “has a relatively poor endowment of metal raw materials relative to its share in global consumption,” according to Michael Widmer, a London-based metals strategist for the Merrill Lynch unit of Bank of America Corp. It will produce just 10 percent of the world’s copper by the end of 2011, Widmer wrote in a Sept. 7 research note.
“They’re trying to lock down as much as they can, which no other government seems to be doing,” says Jeffrey L. Fiedler, a member of the U.S.-China Economic and Security Review Commission in Washington, which is appointed by Congress. “They seem not to trust the market or don’t want to depend on it.”
China’s National Development and Reform Commission, the Ministry of Commerce and Ministry of Land and Resources didn’t respond to requests for comment.
Li Shiping’s Rise
A decade ago, Li Shiping was teaching in a village school in Hunan province. To buy chicken and fish, he walked 10 kilometers on a dirt path to the nearest market, he says. His transformation into an entrepreneur began when he saw neighbors getting rich selling manganese ore from local mines.
Li borrowed 50,000 yuan ($7,500) from relatives and learned the metals trade. Within four years, he had acquired a mine and made 300,000 yuan, enough to rent a small smelting furnace. Two years later, he built his own, and his wealth grew.
In Dao County, 100 kilometers south of the village, then- Deputy Mayor Zhou Xinhui invited him in 2008 to invest in the rural area of 720,000 people. Zhou drove him down a muddy road to an abandoned weapons plant. He liked the site. Soon truckloads of steel began arriving and construction started.
Li’s Furnace
Zhou Shunzhu, a mother of two, has one of the 80 jobs he created, pushing handcarts loaded with coke. It was her first regular employment. She and her family couldn’t survive on their 1 mu of farmland (670 square meters, a sixth of an acre).
“Farming doesn’t feed us enough,” says Zhou, her hair tucked under a denim hat.
Li’s installation is part of the mosaic China is assembling to carry out its expansion. His operation makes alloys for steel used in building houses, factories and railroads.
He also embodies the transformation of Dao County. During Mao Zedong’s Cultural Revolution in 1967, the area was the scene of a 66-day killing spree whose targets included former land owners and wealthy farmers, according to a Dao almanac. More than 4,500 people died, a Hong Kong magazine reported in 2001.
Li’s furnace will burn 170 million kilowatt-hours of electricity annually, equal to a third of Dao’s projected usage this year, according to the local power bureau. To accommodate such demand, China plans to increase national electrical capacity 89 percent to 1,650 gigawatts in 2020 from 874 gigawatts last year, according to the China Electricity Council.
‘Making Money’
The rise in China’s copper consumption parallels the expansion of electrical capacity. Taking into account the central government’s planning cycles and time for the metal to be put to use, power-generating capacity lags behind copper consumption by about five years, based on data compiled by Bloomberg.
One sunny day in June, Li steps out of his black Chinese- made Buick LaCrosse and strides past piles of manganese to his furnace. The ore will be heated to almost 2,000 degrees Celsius (3,600 degrees Fahrenheit) during smelting. The plant will run around the clock. The trunk of his Buick is packed with bottles of Great Wall red wine, Gujing Chinese liquor and Furongwang cigarettes. These are local officials’ favorite brands, he says.
“As long as the government supports us, there is great opportunity,” Li says. “To be honest, making money is easy.”
Protest in Morococha
In a dingy yellow workers’ cafeteria in Morococha, Jhonny Egoavil Frias and 20 other property owners opposed to Chinalco huddle together on a rainy day in April. Throughout Peru, the company’s radio and television ads promote a bright future.
“Chinalco is building a new city of Morococha with an investment of $50 million,” according to the Spanish-language announcement. “First a new city. Then the initialization of operations. This is responsible mining. We’re Chinalco. We believe in Peru.”
The group led by Egoavil voices dismay at its inability to negotiate on the property owners’ terms.
“Chinalco utilizes mass advertising to associate itself with ‘responsible mining,’” Egoavil says. “To us Chinalco isn’t responsible mining. It’s irresponsible mining.”
Some property owners, who together make up about a third of the population, say Chinalco is offering a 10th of what they should get, and the values don’t reflect the copper or the disruption of ties to the land going back generations.
“The price they’re offering is rock bottom,” says Ancieta. “They’re paying billions of dollars for the mineral resource. Besides that, what value do you assign to the fact many of us were born here and now they want to move us out?”
Rocks, Teargas
Gerald Wolfe, 54, a Canadian who is president of Chinalco’s unit in Peru, says the company is offering “many times more than anybody else ever would have.”
The conflict boiled over at a Jan. 15 public meeting. Peruvian officials presented Chinalco’s several thousand-page impact study to the community, as required by law. In a school auditorium, 1,751 people gathered, many of them outsiders brought aboard 14 company buses, according to Mayor Marcial Salome Ponce. He strode to the podium demanding the meeting be suspended and stalked out when he was refused, he said.
Outside, national police with helmets, shields and guns confronted as many as 100 villagers. A woman heaved a pail of water at policemen and people behind her threw rocks, according to a Chinalco video and security photos. Police fired teargas.
“Chinalco is using force to win approval of its project,” Ancieta says. “There have been 100 years of mining exploitation in Morococha, and we remain mired in poverty.” As he spoke, dust streamed to the floor from a fight between two cats in the rafters of his shop.
‘Asymmetrical Relationship’
“The asymmetrical relationship doesn’t favor an equitable solution,” says Jose De Echave, head of CooperAccion, a mining watchdog group in Lima. “You have one powerful actor imposing conditions, and a local population without reinforcements.”
The townsfolk feel powerless because they have little say in the outcome, says Victor Torres, the Peruvian co-author of the book, “The Chinese Economy and Extractive Industries: Challenges for Peru.” Toromocho’s development has been largely a state-to-state negotiation, he says.
“When Peru has a difference with a Chinese firm, it won’t be with the firm that we negotiate, but with the government itself,” Torres said in an interview.
Li’s Ambition
Wearing a yellow T-shirt, Li Shiping meets with a business partner one evening at the Miluo Café in central Dao. County records value his smelter at 60 million yuan ($9 million). Li says he put 40 million yuan of his own money into the furnace and borrowed the rest.
He shares a metal-price quote from a message on his gold- colored Changhong mobile phone.
“I should expand production and keep the products in a stockpile,” Li says, speaking rapidly in a country accent.
He also wants to list his company, Yongzhou Dao County Yuanhua Smelter Co., on one of China’s stock exchanges and put its name on a hotel in Dao. Li already owns two homes and four cars, he says. His 28-year-old wife, Yang Junfeng, would be content to buy a row of shops and retire on the rental income, he says.
“But that’s not what I have in mind,” Li says. “I want to achieve something.”
--Elliot Blair Smith and Fan Wenxin, with assistance from Dune Lawrence and Wendy Soong in New York and Xiao Yu in Beijing. Editors: Robert L. Simison, Neil Western.
To contact the reporters on this story: Elliot Blair Smith in Morococha, Peru, at esmith29@bloomberg.net; Fan Wenxin in Shanghai at wfan19@bloomberg.net.

World food import bill may cross $1 trillion this year: FAO

2011-01-15T17:00:00.001-08:00

The food import bill of the global community could surpass the $1 trillion mark in 2010, with prices of most commodities going up sharply compared to the previous year, the Food and Agriculture Organisation has said.

In the latest edition of its ‘Food Outlook’ report, the U.N. agency asked the world community to be prepared for harder times ahead unless production of major food crops increases significantly in 2011.

The food import bills of the world’s poorest countries are predicted to rise by 11 per cent in 2010, the U.N. body said, adding that low-income, food-deficit countries would witness a 20 per cent jump in their food import bills.

By crossing the $1 trillion mark, the world food import bill this year will be higher than the peak achieved in 2008.

In its report, the FAO said that contrary to earlier predictions, world cereal production is now forecast to contract by 2 per cent in June, in contrast to its earlier prediction of 1.2 per cent expansion during the month. Unexpected supply shortfalls due to unfavourable weather events are responsible for the revision, the statement added.

Global cereal stocks are forecast to decline sharply and the FAO made a strong call for production to be stepped up to replenish inventories. World cereals stocks are anticipated to shrink by 7 per cent according to FAO, with barley reserves plunging by 35 per cent, maize by 12 per cent and wheat by 10 per cent. Only rice reserves are forecast to increase by 6 per cent, according to the report.

Sugar was an important factor contributing to the rise in the price of the global food basket in recent months.

According to the FAO, sugar prices, which recently surged to new 30-year highs, remain elevated and extremely volatile.

The price increases seen by most agricultural commodities over the past six months are the result of a combination of factors, especially unexpected supply shortfalls due to unfavourable weather events, policy responses by some exporting countries and fluctuation in currency markets, the report said.

International prices could rise even more if production does not increase significantly next year, especially of maize, soybean and wheat, it added.

ANW - Buyout, World Trade Pickup Spell Growth For Floating Gas Stations

2010-02-05T20:48:00.000-08:00

When oil tankers and other seagoing vessels fuel up in distant ports like Gibraltar and Singapore, they rely on smaller boats, called bunkers, to do the job.
Bunkering is a highly fragmented industry with lots of mom-and-pop operations competing to fuel up ships and tankers in local markets.
With international trade slumping in the recent recession and credit hard to come by, many of these smaller operations have run into trouble.
This has meant opportunity for Piraeus, Greece-based Aegean Marine Petroleum Network (NYSE:ANW - News), said to be the only publicly traded bunkering pure-play on a U.S. market.
With supple bank credit lines and a secondary share offering providing capital, Aegean is moving to expand its presence in ports around the world.
Key Acquisition
In early January, it announced it would acquire Verbeke Bunkering, a leading supplier of marine fuel in the busy Low Countries ports of Antwerp, Belgium, and Rotterdam and Amsterdam, Holland. A secondary offering this week raised just under $140 million, some of which will pay for the deal. More deals could follow.
"The global credit downturn has stressed a lot of mom and pops," noted Craigh Cepukenas, co-manager of Artisan Small Cap Value fund. The Artisan fund holds more than 500,000 Aegean shares. Cepukenas says the Greek firm has "an ongoing opportunity to acquire assets at a bargain price."
Access to credit is an even bigger concern for small firms when oil prices rise, as they have generally done in recent months. These firms must hold fuel inventories. "They have high working capital requirements," noted Stephen Williams, a London-based analyst with Simmons & Co.
As the price of fuel climbs, so do their working capital costs, he adds. If firms have cash flow problems, as well as limited credit access, they could wind up selling assets at a discount.
But it's not just the availability of assets that is helping Aegean now. It's also the quality of Aegean assets that has impressed some investors.
Because of concerns over potential oil spills, many ports are pushing a shift to double-hulled bunkering vessels.
"The idea is that with a double hull, if there's a collision, the outer hull might be pierced but the inner hull would protect the liquid," explained Williams.
Aegean has been building up its fleet of double-hulled vessels. The Verbeke buyout will add 18 double-hulled bunkering vessels to the nine it already has, wrote Douglas Mavrinac, head of the maritime group at Jefferies & Co., in a January report.
"They will have the largest fleet of double-hulled bunkering vessels once the deal is done," said Artisan portfolio manager Cepukenas. And it will be a fleet of relatively new vessels.
Cepukenas estimates that with the new vessels, the fleet will have an average age of "seven to eight years."
Of course, those ships will do Aegean little good if they sit idle. The key to profitability is capacity utilization. World trade seems to be picking up after slumping during the global recession, so that's a positive.
"The world is back in growth mode, and they're beneficiaries," said Williams.
But with new boats on order and others coming via the Verbeke deal, Aegean may have to find new ports to play in. This is not as simple as it sounds. To get into new ports where rivals are already entrenched, Aegean "must deal with local authorities," noted Williams. This can be costly.
Aegean has been expanding its presence in ports, adding nine since its December 2006 IPO, Aegean President E. Nikolas Tavlarios told analysts last fall. Tangiers, he added, was the most recent addition.
One potential growth area is South America, where Aegean currently has little presence.
The alternative to gaining entry to new ports is for Aegean to deploy more vessels in ports where it already has presence. But in so doing, Aegean runs the risk of "cannibalizing" its existing business in those ports, said Williams.
Williams sees risk to Aegean if it cannot "efficiently deploy" its new vessels. He is a bit cautious on the stock. "I like the company. The business model is good. I do think sometimes the stock price is a little rich," said Williams.
But some large investors see substantial upside for Aegean.
"We think the latest acquisition will be accretive pretty quickly," said Don Hodges, co-manager of the multi-cap Hodges Fund, which owns more than 500,000 shares. He sees a chance for Aegean to build on its recent strong results.
New Markets
In its third quarter, Aegean leveraged sales growth in Gibraltar, Greece and the United Arab Emirates to post net income of just over $14 million. At 33 cents a share, earnings were up a tidy 32% over the 25 cents reported for the third quarter of 2008.
Cepukenas notes that many analysts expect earnings of roughly $1.90 in 2010. But he is more optimistic. "I think it could go as high as $2.20," he said.
More optimistic still is Hodges. With Verbeke, he reasons, Aegean will be an even bigger buyer of marine fuel. This should translate into lower costs.
"They'll be able to buy product more cheaply," said Hodges. He also expects further pickup in international trade. Hodges expects robust earnings growth. "We think they have earnings potential of $4 a share by 2011-2012," he said. "We're in it for the longer pull."

Shorting the Economic Recovery - SH or SPY

2010-01-05T22:50:00.000-08:00

PERHAPS ONE OF THE greatest failings in the run-up to the financial meltdown was a lack of perspective — an inability by many market participants to see the big picture. Not so with Kevin Duffy and Bill Laggner, principals of the Dallas-based hedge fund Bearing Asset Management. With the help of their proprietary credit-bubble index, developed in 2004, the managers sounded early warnings on housing and credit excesses, and capitalized handsomely on their forecasts by shorting Fannie Mae, Freddie Mac, money-center banks and brokers, builders, mortgage insurers and the like.

Students of the Austrian school of economics, which espouses a free-market philosophy that ascribes business-cycle booms and busts to government meddling with interest rates, the pair is solidly in the contrarian camp, believing that the worst for the markets may be yet to come.

The two established Bearing in June 2002 after running their own money and, before that, a stint by Duffy at Lighthouse Capital Management and by Laggner at Fidelity. Bearing now has about $60 million under management, and they have returned on average an impressive 18.28% annually since setting up shop. They hold refreshingly against-the-grain views on what's ahead.

Barron's: You've said that perhaps the most redeeming feature of capitalism is failure. Please explain.

Duffy: Any healthy system needs a way to correct error and remove waste. Nature has extinction, the economy has loss, bankruptcy, liquidation. Interfering in this process lengthens feedback loops. Error and waste are allowed to accumulate, and you ultimately get a massive collapse.

Capitalism is primarily attacked by two groups: utopians who wish to impose a more "compassionate" system, and political capitalists who want to enjoy the fruits of success without bearing the pain of failure. They use the coercion of the state to gain privileges, at the expense of everyone else.

As a country we've become less tolerant of economic failure. The result has been a series of interventions, such as meddling in the credit markets, promoting homeownership and creating a variety of safety nets for investors. Each crisis leads to an even greater crisis. The solution is always greater doses of intervention. So the system becomes increasingly unstable. The interventionists never see the bust coming, then blame it on "capitalism."

Do you see the S&P 500 retesting its lows of this year?

Duffy: It's difficult to know. It depends on how much money gets printed. In real terms, can we get cut in half from here? We think so. S&P earnings are distorted because of accounting changes for banks and brokers; if banks were marked to market, S&P earnings next year could fall to $45 a share. Bullish sentiment is rivaling the 2007 top, and volatility has fallen dramatically. We like the VXX, an exchange-traded note that's based on S&P 500 short-term volatility as measured by the VIX index. It's down 67% this year, and fits into the whole idea that complacency is very high.

Indeed. Are there any sectors of the market that you do find attractive?

Duffy: We are long consumer staples, discount retailers and pharmaceuticals. One way to participate is through the Gabelli Healthcare & Wellness Trust

What are your other themes?

Laggner: We are heavily short Japanese and U.S. government long-term bonds. Greece's deficit to GDP is approaching 15%. If you look at the proposed debt-ceiling increase in the U.S. [the Senate voted Thursday on a near-term increase to $12.4 trillion from $12.1 trillion] and at the current administration's planned spending, we are probably going to be at roughly 13% deficit to GDP this fiscal year, so basically we are Greece, where 10-year-bond yields rose 160, 170 basis points. [A basis point is a hundredth of a percentage point.] U.S. bonds are down about 20% this year, so we see a process in which creditors just shy away from funding our long-term obligations, and long-term rates keep creeping higher.

The Fed has controlled the long end by monetizing Treasuries and mortgage-backed securities. If they see the long end getting away and decide to come back into the market and buy, that will result in a much lower dollar and higher gold prices. Gold is reflecting not just inflation but instability around the world related to these business models that have been adopted by governments.

What about the big banks? When do we see the denouement?

Laggner: There is some deleveraging in the consumer space, but little or none in the professional-speculator space, the bank money-center space. Credit Suisse is apparently allowing its hedge-fund clients to return nearly to the leverage levels at the peak, in '07. Assuming financial-accounting regulators reinstate off-balance-sheet rules on securitizations early next year, Barclays estimates it will bring roughly $500 billion in off-balance-sheet assets back onto bank balance sheets in 2010. That is going to force the banks to raise capital. A lot of structured finance is carried on the books of banks at close to par.

The FDIC [Federal Deposit Insurance Corp.] took over Corus Bank and Guaranty Bank and liquidated their books, and that debt is going for anywhere from 33 to 37 cents on the dollar. Until the regulators force banks to realize these losses, it's like the entire financial sphere is in suspended animation. A large chunk of CMBS [commercial-mortgage-backed securities] aren't being serviced. The same with residential mortgages, whether in the loan-modification-market program or not: Banks are able to carry a lot of these loans as performing loans, even though they are not performing. Japan tried the same thing, and it just lengthened the process. And we are going down that Japanese road.

Goldman Sachs Lifts Price Targets On Chemical Stocks

2010-01-05T06:09:00.000-08:00

Goldman Sachs is making positive comments on the specialty and diversified chemical sector today, saying its compelling exposure to cyclical end markets could fuel a powerful earnings rebound in 2010-2011.

The firm updated estimates and price targets for a number of stocks in the sector.

Top stock ideas in the sector for 2010 are Dow Chemical (NYSE: DOW) and Albemarle (NYSE: ALB), both are Conviction Buy List rated.

Price Target Changes:
EI DuPont de Nemours & Co. (NYSE: DD) (Neutral): Price target from $35 to $41
Dow Chemical (NYSE: DOW) (CL-Buy): Price target from $37 to $38
Praxair Inc. (NYSE: PX) (Buy): Price target from $97 to $105
Air Products & Chemicals Inc. (NYSE: APD) (Buy): Price target from $97 to $107
PPG Industries Inc. (NYSE: PPG) (Neutral) Price target from $62 to $71
Monsanto Co. (NYSE: MON) (Neutral) Price target from $81 to $88
Eastman Chemical Co. (NYSE: EMN) (Buy) Price target from $72 to $77
Ecolab Inc. (NYSE: ECL) (Neutral) Price target from $51 to $56
Sigma-Aldrich Corporation (Nasdaq: SIAL) (Neutral) Price target from $59 to $63
Celanese Corp. (NYSE: CE) (Neutral) Price target from $30 to $35
Sherwin-Williams Co. (NYSE: SHW) (Neutral) Price target from $62 to $70
Nalco Holding Co. (NYSE: NLC) (Neutral) Price target from $28 to $30
Valspar Corp. (NYSE: VAL) (Buy) Price target from $32 to $36
Cytec Industries Inc. (NYSE: CYT) (CL Sell) Price target from $31 to $39
Airgas Inc. (NYSE: ARG) (Neutral) Price target from $55 to $60
Westlake Chemical Corp. (NYSE: WLK) (Sell) Price target from $23 to $26
Albemarle Corp. (NYSE: ALB) (CL Buy) Price target from $42 to $50
Rockwood Holdings Inc. (NYSE: ROC) (Neutral) Price target from $28 to $29
Compass Minerals International Inc. (NYSE: CMP) (Neutral) Price target from $80 to $82

Winning Commodity Plays in 2010: Market Pros

2009-12-25T04:05:00.000-08:00

Holmes expects the next hot trends in the commodities sector to be lithium, uranium and natural gas.

There’s a lot of interest for lithium batteries and I think there’s major car companies and battery companies that are looking for deposits,” he said.

“This time last year the worst performing was lead, and this year lead was one of the best performing commodities—so it’s important to take a look at the bottom and scraping along the bottom, uranium looks attractive."

"And [natural] gas," Holmes added.

In the meantime, Hansen said although there is no reason for investment demand for gold to change, he is in favor of the agricultural commodities.

“I see opportunity in corn, wheat and soybeans because the agricultural commodities have been overlooked this year,” he said.

“So investors have focused on precious metals and energy, but the major agricultural markets which are very important for day to day use have not participated because investors overlooked them. So we may see some improvement in the ag markets which have been overlooked.”

Large Gas Find to Boost Three Explorers - PXP, MMR

2009-12-22T03:39:00.000-08:00

A POTENTIALLY MATERIAL "Blueberry Hill" gas discovery announcement should move share prices for McMoRan Exploration (ticker: MMR) and Plains Exploration & Production (PXP), and may also support Energy XXI (EXXI) shares.

McMoRan Exploration announced success at its Blueberry Hill deep gas exploratory sidetrack offshore Louisiana, which has been suggested in the past as having 500 billion cubic feet (bcf) of gas reserves potential.

Unlike the well known "Blackbeard" prospect being assessed by McMoRan, Plains Exploration, and Energy XXI, Blueberry Hill is shallower, and there shouldn't be any delays to acquire exotic production or testing equipment. We imagine Blueberry Hill may be put on production by the end of the year, and based on the comments in McMoRan's press release, would not be surprised by a 30 million to 50 million cubic-feet-per-day (mmcfd) production rate from the initial well.

The well was a deeper offset to the Mound Point field, drilled in shallow water to target deeper zones that have been found productive at McMoRan's Flatrock discovery about 11 miles away. At Flatrock, six wells have the ability to produce at a rate of around 300 mmcfd, world class rates that are the target of McMoRan's shallow-water gas program in the Gulf.

The news is tempered in the near term by mechanical issues with the well, which has not yet been logged due to equipment stuck downhole. This type of problem is typically resolved in a short timeframe.

This positive news should have an impact on Plains and especially McMoRan shares, as well as Energy XXI. While Energy XXI is not involved in the well, the concept behind the discovery is similar to what is being pursued in the area of mutual interest shared by McMoRan, Plains, and Energy XXI.

While unlikely to have immediate impact on share prices at this scale, using $15 per barrel of oil equivalent as a scoping value of potential reserves, the discovery could support around $3 per share of Plains' share price, and $4 per share of McMoRan's share price if the reserves are booked and developed at the suggested volume. Further well logging and development plans are likely to be announced over coming weeks, which could be material catalysts

The concept behind McMoRan's shallow-water gas-drilling program is that at great depth, specific sands still have excellent productivity, retaining good porosity and permeability, and benefitting from the extra pressure created at depth. McMoRan's most successful discovery of this play type is the Flatrock Field, where individual well tests have measured rates at over 100 mmcfd per well, world class, and encouraging McMoRan to look for more Flatrock-type fields.

It is premature for McMoRan to cite a discovery volume for the Blueberry Hill effort. However, in prior presentations, McMoRan scoped out the prospect as having the potential to be a 500 bcf type of discovery.

Plains is partnered in the Blueberry Hill project. Our $43 target for Plains is supported by reserve adds from its portfolio of exploration projects, and the Blueberry Hill project on its own might add 10% to Plains' current reserves base.

We expect the discovery to have a positive impact on both McMoRan and Plains securities, but also to be positive for Energy XXI, which is partnered with McMoRan and Plains in an area of mutual interest targeting large gas accumulations in shallow water.

EZCorp one of my larger positions

2009-11-10T17:53:00.001-08:00

It still has a P/E of 12 which is about 20% below the market average. To me a company that is expanding as fast as it is and only has a P/S and a P/B hovering around 1.4, combined with an ROA, ROE, and ROIC all around 20%, almost no debt and with increasing profits and cash-flow is still mispriced by the market today.

The only thing EZPW does not have going for it is a dividend. However, this is truly a growth story, as it cleans up a traditionally seedy business, expanding as fast as any franchise I know of, both organically and by acquisition, without having to invent anything.

Commodities Cycle Won't Be Over for Years and Food Crisis Looms, Rogers Says

2009-10-17T11:49:00.001-07:00

im Rogers, famed investor and best-selling author, announced the start of a global commodities rally in 1999. It turned out to be a heck of call: Since then, commodities have dramatically outperformed stocks.

Just this year, gold has hit record highs above $1000 per ounce, copper has nearly doubled and oil has rallied sharply off its March lows. So does Robers still believe in the commodity boom?

You bet. "The story is not over, not for a while," he tells Tech Ticker in this video clip. "I don't see any reason it's going to be over for a few years because no one is bringing new supply on stream."

The chairman of Rogers Holdings still owns gold though it's not his favorite metal. "Gold is mystical to many people. I think I'll make money in other commodities that are more useful."

Rogers is far more bullish on agricultural commodities. As he sees it, "most agricultural products are still depressed on a historic basis."

The lack of supply Rogers sees is especially concerning when it comes to agricultural products. "A catastrophe is looming," he says. "The world is going to have a period when we cannot get food at any price in some parts of the world.”

A potential food crisis transcends money, but Rogers warning may still prove to be another great investment lesson. As he told us in parting, "instead of getting an MBA, get yourself a farming degree. You'll make a lot more money."

Nickel is the metal of the future, analyst

2009-10-15T22:01:00.000-07:00

The long-term nickel floor price has ‘turned the corner’ and will continue to rise over coming decades, according to resources adviser Martin Pyle, Principal of Perth-based Martin Pyle Consulting.

The forecast was made at the first day of the Paydirt 2009 Australian Nickel Conference, currently being held in Perth.

“It is clear the global financial crisis impacted construction and transport, major factors in the associated reduction in stainless steel demand and therefore nickel in the short- term,” Pyle said.

Click here to learn more! “Forecasts of 500,000 tonnes a year in new nickel demand by 2020 now look conservative.

Aruba could be next big sale

2009-10-14T17:37:00.000-07:00

Aruba Networks Inc. could be the next big networking acquisition, according to analyst Avi Cohen at Avian Securities.

Barron's Tech trader Daily blog quotes Cohen as saying that the Sunnyvale-based company's (NASDAQ:ARUN) $800 million market cap could be just the right size for potential suitors. He includes Juniper Networks Inc. (NASDAQ:JNPR), IBM Corp. (NYSE:IBM), Alcatel-Lucent (NYSE:ALU) and Siemens in that group.

Cohen said that with 10 percent of the market Aruba trails Cisco Systems Inc. (NASDAQ:CSCO) in its market.

Clean Coal in China Said to Face ‘Staggering’ Costs

2009-09-06T14:32:00.000-07:00

Sept. 4 (Bloomberg) -- Western governments pushing China to use clean-coal technology may need to lower their expectations for the world’s largest producer of greenhouse gases.

Costs will total as much as $400 billion over 30 years to install systems to capture carbon dioxide from power plant smokestacks in China and bury it underground, said Richard Morse, a Stanford University research associate and author of a study on the technology. China has little incentive to use carbon capture because it will raise power prices and it’s unclear if wealthier nations will pick up the bill, Morse said in an interview.

Potash (POT): Long-term growth in fertilizers

2009-09-01T21:47:00.000-07:00

"Investing in the fertilizer business may not sound sexy, but the dynamics and fundamentals of the food business will turn it into one of the most profitable sectors you could find.," explains global expert Tony Sagami.

In his The Asia Stock Alert he suggests, "Every farmer needs to use fertilizer -- and the most used and most important fertilizer is potash. And Potash Corporation of Saskatchewan (NYSE: POT) is set to make a bundle supplying potash to the world."

"There are approximately 6.6 billion people on our planet today, but that number is expected to grow to 8.2 billion by 2030. That's a lot of mouths to feed. Plus, the amount of food each mouth is eating is also increasing.

" The world's population isn't the only thing that's growing. So are incomes in most parts of the world, especially China. What's the first thing you would buy if your income went from subsistence to middle class? A Mercedes? A Rolex? Probably not. For most people, it's better food ... and more of it.

"And that's exactly what's happening in China. The country's rising income is causing a dramatic change in Chinese eating habits. Since 1980, per-capita meat consumption in China has nearly tripled. In short, the wealthier a nation becomes, the more calories its citizens consume - and that translates into more fertilizer demand to produce all that food.

"China's agriculture technology is also far behind that of the U.S. - and one of the keys to improving its agricultural productivity is to use more fertilizer. That's because potash helps Chinese farmers grow more and better food ... which, in turn, makes it possible to supply more food to Chinese consumers.

"China is the largest consumer of potash in the world. And Postash Corp. is by far the world's largest potash producer. The company currently gets 12% of its sales from China, but here too, that number is going to grow, grow, grow.

"Recently, the company agreed to sell potash to India for $460 a ton. Now, that bothered the Wall Street crowd because it is 26% below last year's price. But what they don't understand is that it's still 40% higher than early 2007 prices.

"In fact, last year saw the price of potash peak at $650 a ton. But I can easily see prices rebounding to new highs in the next 12 to 18 months, and ultimately surpassing $1,000 a ton within five years. When that happens, the company's profits will skyrocket."

Steven Halpern's TheStockAdvisors.com offers a free daily

Potash won't recover until 2011, analyst warns

2009-09-01T20:09:00.001-07:00

By Steve Ladurantaye
Globe and Mail Update

Bumper crop projected in U.S., China, puts pressure on demand

The potash market won't recover until 2011, CIBC World Markets warned on Tuesday as it cut its price target on Potash Corp. of Saskatchewan POT-T - the industry's largest producer of the fertilizer component.

"We continue to see pressure on potash demand given the bumper crop being projected in the U.S. and China," analyst Jacob Bout wrote in a morning note to clients. "Grain pricing and weather will be the key determinants of potash demand but there has been no strong relationship between the lack of potash application and 2009 crop production."

Analysts have been suggesting that demand would return in 2010, because farmers can skip a year and still get strong yields from their fields. But with a bumper crop this year, Mr. Bout said they may be inclined to go another season without the nutrient. Prices have come down from about $1,000 (U.S.) a tonne last year to closer to $650 this year.

He left his price target and rating unchanged for Agrium Inc. AGU-T unchanged at $60 and "sector outperform," saying the company's retail operations help to shield it from potash price fluctuations.

For Potash Corp., he lowered his target by $10 to $110, while leaving his "sector outperform" rating in place. He said the possibility of a takeover should help the company's shares retain their value.

"Potash's valuation should benefit from a takeover premium with diversified mining and various entities looking to enter the potash industry," he said. "Potash is the crown jewel of the industry due to its collection of potash assets in a politically stable environment."

Bank Earnings to Spike 300-500%: Bove

2009-08-31T21:08:00.000-07:00

Bank Earnings to Spike 300-500%: Bove

August 31

By: CNBC.com

Earnings and US banks will likely growth by 300 percent to 500 percent from 2011 to 2015, Rochdale Securities Banking Analyst Richard Bove said in a research note, Reuters reported Monday.

Liquidity and capital will be the base for the significant earnings growth, Bove said.

Bank earnings will likely be dismal for the remainder of 2009, he said.

US regional banks will continue to lose money into early 2010, he added.

Citi 'too big to fail', will hit $12 a share: Richard Bove

2009-08-31T21:06:00.000-07:00

By Ryan Williams, MarketWatch

NEW YORK (MarketWatch) -- Rochdale Securities analyst Richard Bove initiated coverage on Citigroup Inc. Friday, issuing a buy recommendation on the beleaguered bank, and valued its shares 27% above their current price.

In a report to clients, Bove issued a price target of $4 a share for Citi and estimated its stock to be worth $12 a share when earnings "normalize," he wrote.

The company's shares closed Thursday at $3.13 a share, and rose as much as 8.5% in pre-market trade Friday before pulling-back to $3.16, up 1.3% on the day.

"Citigroup is an unusually controversial company because its loan losses are at a level that suggests that the company would have difficulty surviving without government assistance," wrote Bove.

Because of this, the firm was deemed "too big to fail," according to Bove.

Consequently, "some companies have developed such unique positions that their elimination would cause harm to others," he wrote. "I believe Citigroup is such an organization."

Bove argues that the government will support the firm while it sells or suns off bad assets, and that the resulting firm should be profitable, and, more importantly, worth more to investors than it is now.

To recover, he said, Citi needs to return the company to its core operating strengths, build a new management structure, improve the balance sheet so it can borrow without government help, and shed bad loans from its books.

In order to restructure its business, Citi must fall-back on its core businesses, which include: taking deposits worldwide, diversifying its loan book, act as a facilitator for cross-border fund flows, and continue its global capital market services, wrote Bove.

Moving on, the company needs to strengthen management, according to Bove, so as to "completely wipe out" its destructive corporate culture. "The revolving door continues to be the only management program at Citigroup." he wrote.

To shore-up its balance sheet, according to Bove, Citi needs to continue on its current trajectory. The bank increased its cash position by 90% to $190 billion, reduced its trading book by $243 billion, beefed-up its reserves by $13.5 billion or 73.6%, and removed the special investment vehicles since its near collapse.

"This data suggests that Citigroup's balance sheet is now more liquid and more equity- based than at any time this decade," wrote Bove. When the economy improves, "this liquidity and equity will be put to work in building the bank's earnings."

Bove said the bank's core problem is its loan portfolio. "It is clearly one of the poorest ever written," he wrote. This may be due to the extension of sub-prime loans, the failure to underwrite small and mid-sized loans properly, and the acquisition of a private label credit card business, according to the report.

Normally, a loan loss provision equaling 6% of its outstanding loans, Bove wrote, would drive a bank out of business, but since the government deemed Citi "too big to fail," it was able to avoid this fate and possibly rebound down the line.http://www.blogger.com/post-create.g?blogID=7295935363313254524

"Thus, even though the loan loss problems at the firm are unlikely to dissipate for some time, in fact, they may get worse before they improve, the company will prevail," wrote Bove.

Why I Fired My Broker

2009-05-12T09:06:00.001-07:00

http://www.theatlantic.com/doc/print/200905/goldberg-economy

With his 401(k) in ruins, our correspondent visits investment gurus, hedge fund managers, and a freakish Arizona survivalist with one question in mind: How can the ordinary investor recover?

by Jeffrey Goldberg

Jeffrey Goldberg tells Bob Cohn why he bought gold, stocked up on lanterns, consulted a survivalist—and finally fired his broker.

For most of our adult lives, my wife and I have behaved in the way responsible cogs of capitalism are supposed to behave—we invested in a carefully calibrated mix of equities and bonds; we bought and held; we didn’t overextend on real estate; we put the maximum in our 401(k) accounts; we gave to charity; and we saved, but we also spent: mainly on gasoline, food, and magazines. In retrospect, we didn’t have the proper appreciation for risk, but who did? We were children of the bull market. Even at its top, my investment portfolio was never anything to write home about. Its saving grace was that it was mine. And I imagined that when we did cash out, at 60 or 65, I would pass my time buying my wife semisubstantial pieces of jewelry and going bass fishing like the men in Flomax commercials.

Well, goodbye to all that. I took a random walk down Wall Street and got hit by a bus.

How am I sure it’s goodbye? The signs are rampant, but one has become stuck in my mind: a video of Richard Bernstein, the chief investment strategist for Merrill Lynch (sorry, I mean the Merrill Lynch division of Bank of America, which, by the time you read this, may be the Bank of America division of the United States Government), advising Merrill clients such as myself that one of the best financial strategies to adopt now would be to extend my “investment time horizon.”

“If one were to trade the S&P 500 for one day, the probability of losing money is about 46 percent,” Bernstein states. “However, as one extends that time horizon from one day to one month to one quarter to one year to 10 years, the probability of losing money decreases as the time horizon lengthens.”

To which I would add this observation from Keynes: “In the long run, we are all dead.”

This is what I heard Bernstein say: give up. You’re not going to make money on your investments in the next 10 years, or 15, or 20, so you should stop worrying about your portfolio and go to the movies like everyone else.

I called Bernstein and asked him if he was, in fact, advocating a form of Stoicism. He said I was misinterpreting his views. “This is not some sort of psychological compensation device. What I’m saying is that in looking for investment ideas, we should be looking over a five-, six-, seven-year time period. You have to give an investment strategy time to reach gestation.”

But my investment strategy gestated for 15 years. And then it died.

As I write this, the markets are back down to 1997 levels. In Japan, they’ve sunk to 1983 levels. I pointed out to Bernstein that 1983 was 26 years ago. The investor who bought Japanese equities in 1983 and held on to them has stayed absolutely flat. “That’s not correct,” Bernstein said. “That doesn’t take into account dividend payments.”

Even with all those munificent dividend payments, my net worth has dropped by a third, and new vistas of worry open up for me each day.

I’m not complaining, by the way, and not only because I have no right to complain. I make more money than most Americans. I will ungrudgingly pay more taxes if it means keeping people in their homes—even the schmucks in overleveraged McMansions. My wife and I are lucky. We have substantial equity in a small but perfectly nice house in Washington, D.C., a city that is now, among other things, America’s financial-services capital, which should help keep real-estate prices steady. I have a late-model minivan. Most important, I have a job (and in the thriving magazine industry, no less!). If I lose my job, then I’ll complain (at which point, of course, I’ll no longer have a public venue for my complaints). But for now, no whining: just confusion and bemusement and fear, along with an uncharacteristic sense of paralysis. In the past six months, I’ve bought and sold virtually no equities. And I rarely take the pulse of my 401(k).

I called a psychologist to find out what could explain this weird passivity. Daniel Kahneman is a Nobel Prize–winning innovator in the field of behavioral economics. He explained that my feelings of paralysis were to be expected.

“You no longer know the world you live in,” he said. “You played by the rules, the rules benefited you. The world functioned according to some regularities. Right now, it’s unclear what rules apply. There is a new regime. What seemed prudent earlier has disappeared. I’m surprised Americans aren’t more panicked. Americans seem to accept a level of insecurity in their lives that Europeans wouldn’t tolerate. Paralysis is one response to this level of insecurity.”

This might explain why my wife and I have taken no action to fix our finances. Although it’s also the case that we haven’t heard from our Merrill broker in nine months. The last time he called was well before the day in September when the government encouraged the shotgun sale of Merrill to Bank of America, to keep Merrill from collapsing.

I should have seen the signs of dysfunction much earlier. It was more than a decade ago that our first Merrill Lynch adviser put us in a company called Boston Chicken. A Merrill analyst described it as “the restaurant concept of the ’90s.” It went bankrupt in 1998. Only later did I learn that Merrill had underwritten the initial public offering for Boston Chicken stock, and so had an interest in selling the company to its customers. There were other brilliant pieces of advice—long-term “buy and hold” recommendations that emerged from the Merrill analysis factory: Qualcomm; Sun Microsystems; Nokia; and Citibank, of course, which has recently dipped as low as a dollar a share. The full-service trading fees at Merrill—$80, $100, $130, for modest chunks of stock—were high, but we were told that we were paying a premium for quality research.

In many cases, we were. Bernstein, the chief strategist, has actually been bearish for much of the past decade. Given his recent disposition toward market pessimism, I asked him why he didn’t tell Merrill’s clients to dump their equities seven months ago. “I said it as best as I could within reasonable professional standards,” he said. “I’m not going to yell ‘Sell, sell, sell!’ I’m not going to go out and be irresponsible.”

I imagine that many of Merrill’s clients are now wishing that Bernstein had been more irresponsible. Of course, even if he had said something, my financial adviser might not have relayed the message.

I haven’t depended solely on Merrill Lynch for advice. I believed I could find investments for myself. I stayed away from mutual funds because I couldn’t figure out who ran them. And I applied Warren Buffett’s famous dictum—Don’t buy something you don’t understand—to my trading, so I bought, in our Merrill Lynch account, such companies as Johnson & Johnson and Procter & Gamble and Illinois Tool Works and Caterpillar, and these have been kind to us, until now. (I also bought the Internet company Ariba, because I heard about it from a guy who heard about it from a guy. It went up to about $1,000; I didn’t sell, of course, and now it’s at $8.) And every so often, I would follow the recommendations of the financial magazines, SmartMoney in particular, because for a long while I was an ardent consumer of financial pornography. No more. In the harsh light of recession, I find it hard to believe I listened to a magazine that, in August 2007, recommended American Express at $63 a share (a “conservative way to make hay from global credit-card growth”), which as I write this is selling for $13 a share; Wynn Resorts, $94 then, $20 now; HSBC, $93 then, $25 now; Washington Mutual, $36 at the time, seized by the government last September—rendering the stock worthless.

It turns out that my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart. Or so say the extremely smart—and wealthy—people I asked to help me figure a way out of my paralysis. One of these people was Robert Soros, the deputy chairman of the fund started by his father, George. I went to see him at his office, where he spent two hours performing an autopsy on my assumptions.

“You think a brokerage should be a place you go to pay commissions for fair and unbiased advice, right?” he asked.

“Yes,” I said.

“It’s not. It never has been.” He then cited another saying of Buffett’s: “‘Wall Street is a place where whatever can be sold will be sold.’ You are the consumer of their dreck. What they can sell to you, they will sell to you.”

“But they told us—”

“They lied.”

He went on: “You should be disheartened and disappointed. But don’t kid yourself. You’re a naive capitalist. They were never your advisers. Do not for a moment think that a brokerage firm is your friend.”

“So who’s my friend?”

“You don’t have one. This is the market.”

“Okay, that’s Merrill Lynch. What about the others?”

“They’re not your friends,” Soros said patiently.

“What about Chuck Schwab?”

“All brokers move products based on volume and commission,” he said.

I had a benevolent, advertising-induced understanding of Schwab. It was the billboards: “I’ve got a lot less money. And a lot more questions. Talk to Chuck.” And: “It’s not just money. It’s my money. Talk to Chuck.”

I thought that perhaps Schwab, a discount broker, might be able to answer the question Soros could not: Why had my full-service financial adviser stopped calling me?

I did what I was told, and called Chuck. His spokesman intercepted the call. I explained that I was trying to understand the role financial advisers play in the life of the small investor, but the spokesman, Greg Gable, said that Chuck would not, in fact, talk.

“We’re not going to be able to help you out,” he said.

Finally, I went to another highly successful financial adviser, named Larry Gellman, who is an iconoclast and a critic of his industry. He came up with a plausible reason why Merrill did not actually seem to care about my financial future, or the financial future of my children.

“Throughout the late 1990s, investors were firing their brokers and money managers because they didn’t own enough tech and Internet stocks, so everybody got loaded up at the tech party right before the cops came,” Gellman said. “Most of them were busted and never even got a drink. Some of them got lawyers and came after their brokers. So the brokerage firms all came away saying, ‘Never again.’

“If the head of Merrill Lynch and every other investment firm had their way,” he continued, “no individual broker would ever recommend an individual stock or bond to a retail client again. They have essentially gotten out of the brokering-and-advising business and gone all in on the ‘wealth management’ business. The new model is to gather assets from wealthy people and then place those assets with a whole bunch of managers who will manage different pieces of it in diversified styles so you don’t lose it all at once. And by the way, people with less than $10 million need not apply.

“People like you are in a sort of purgatory because no one would ever come out and tell you that he doesn’t want your business anymore,” he said. “You had to figure that out by yourself.”

There’s quite a bit I have to figure out by myself now, which was one reason why, on a cold night in February, I turned up at the apartment of my friend Boaz Weinstein, who was hosting a gathering to talk about charity in a time of financial cataclysm. Weinstein lives in a not-overly-luxurious-but-luxurious-enough building on Fifth Avenue. It is not the sort of building I could ever afford, but I tell myself I am not inclined to live on Fifth Avenue anyway; long-term exposure to liveried elevator operators would eventually bring me to Marxism.

“Do you like this job?” I asked the operator in Weinstein’s building. He was a sagging man of 65 or 70; his eyes were rheumy and his nose spider-webbed with disintegrating capillaries.

“It’s a job,” he said. He paused. “I’m retired.”

“But you’re working,” I said.

“Yeah. I’m working.”

The coatrack in the hallway outside Weinstein’s apartment was crowded with sensible coats. The passed canapés inside were utilitarian, as passed canapés go. These were my kind of rich people, I thought, not the piggy kind, no John Thains or Stephen Schwarzmans in the bunch, certainly no Bernard Madoffs. (I met Madoff once. He wasn’t very nice. I think he judged me too poor to bother robbing.) We had gotten together to talk about charity, but I was hoping to learn about my own economic future. These were people who were calculating present values as 10-year-olds; people who had actual Swiss bank accounts; people who short Treasuries on their BlackBerrys; and one person, Weinstein himself, who won a Maserati in a poker tournament.

The writer Jonathan Rosen has described New York now as having a posthumous feel, but this was not entirely the case in Weinstein’s apartment, which was vibrating with superficial good cheer. Economic disintegration provokes in some people strange feelings of lightness. Of course, some of the people gathered there—say, those who spent the past year short-selling bank stocks—were experiencing the strange feeling of lightness that comes from acquiring huge, stinking piles of money. But on the whole, anxiety lurked beneath the bonhomie. Within 10 minutes of my arrival, two friends separately and quietly suggested I buy gold, and right now.

“You have to guard against the massive debasement of the dollar,” one said. I explained to him my theory of market peaks—that the moment I buy a stock or a commodity is the moment it peaks. In any case, I would need substantially more of those soon-to-be-debased dollars to buy gold. But his arguments seemed sound.

Then another friend approached. “You don’t want to be long gold. The dollar is the currency of last resort for the entire world. There’s little chance of debasement.” His argument also seemed sound. Everyone seemed to be in possession of sound arguments. Even people on CNBC sometimes seem to be in possession of sound arguments.

Weinstein stood up to make introductions. He was one of the early innovators in the field of credit-default swaps, and he earned billions of dollars for his former employer, Deutsche Bank—and tens of millions for himself—until last year, when his trades cost the bank $1.8 billion (though some of the bank’s positions rebounded by $600 million). I am in no position to judge what happened; Weinstein’s attempts to explain to me the workings of credit-default swaps have not borne the fruit of enlightenment.

Bill Ackman, the founder of Pershing Square Capital, was to lead the discussion. Ackman is tall, prematurely gray, and immoderately self-assured, the sort of winning figure who could be elected to the Senate one day, if the country ever decides to stop hating hedge-fund managers. Weinstein introduced Ackman as a perspicacious investor, which he is, generally. Early in the current crisis, he suggested publicly that the decision of the bond-insurance company MBIA to guarantee billions of dollars of complicated mortgage investments would come to no good. But, like Weinstein, Ackman was not having the best year; one of his funds was betting solely on the resurgence of the Target corporation’s stock, and Target’s performance was not covering Ackman in glory.

“I thought this was a perfect time to talk about philanthropy and investing, because they’ve merged; they’re both tax-deductible at this point,” Ackman said, opening his talk. He spoke mainly of the psychic rewards of charitable giving, and of specific projects he supported. He asked for questions, which mainly concerned his prodigious charitable giving. Then someone asked a question about Ackman’s reputation:

“It used to be that in America, if you were a successful businessman, you were well-regarded. Now it seems that you are an evildoer if you’re successful, particularly in the financial world. Your profile is getting bigger. Do you think that’s good, or do people say, ‘He should be spending more time in the office and not so much out there’?”

Ackman responded: “A lot of hedge-fund managers I know are incredibly charitable and also fundamentally great people. But the press—first of all, you don’t make that much money working for the press. Take The New York Times. The New York Times doesn’t make that much money, and the people who work there don’t make that much money. So you think about people who work for the press—generally, they resent people who have financial success. A combination of that, plus some bad actors in the business, is a negative. Why did I go on Charlie Rose? Why have I been a little more public? Part of that is to blunt some of the negative associations with our industry.”

Hmmm. Yes, well.

It only seemed right for me to stick up for my fellow ink-stained proles, so I decided to make an intervention. But then I thought, This is Bill Ackman standing before me. He’s a great investor. Maybe he can give me some advice.

So this is what came out of my mouth: “What do you tell the ordinary mortal—say, the person who works in the press that you talked about—what do you say to the person who has $20,000, $50,000, $100,000, or $200,000, maybe, parked somewhere doing nothing? What is your advice right now for that person?”

I looked around. The wizards in the room were having difficulty calculating figures of such humble size. I had thought $200,000 sounded like a large and unembarrassing number. But the room reacted as if I had asked, “Bill, I have 75 cents in my pocket. Do you think I should buy Twizzlers or a big red gumball?”

Ackman answered: “First, it depends on when you’re going to need the money. I’ve always said that if you want to take risk—any risk—you have to be prepared to put your money away for five years or more. If it’s that kind of money, I would give someone a couple of alternatives. Do you have enough money in the bank that if you were to lose your job, you’ve got a good window to get reemployed? You’ve got to make sure you have a safety net. Buy a house. I think it’s a great time to buy a house. But put a 20 percent down payment, get a good mortgage from Fannie and Freddie … It’s one of the best investments you could make. The rest of the money, either invest in a very broad index fund—a Wilshire 5000 type of index fund—or if you want to do a bit of homework, I’d invest in a few great unlevered businesses that earn attractive returns. In my opinion, McDonald’s, Visa, maybe Berkshire Hathaway.”

I think Ackman might not have been accustomed to talking to people like me, which would help explain why he sounded suspiciously like … a Merrill Lynch financial adviser.

He was, however, infinitely more compelling on the macro questions, and this was where the evening took a dark turn. “One of the things that’s interesting about the last year is that you realize how much of our capital system is based on confidence—business confidence,” he said. “If I’m confident I can refinance my debts when they come due, I’ll spend money. If I’m not confident I can refinance my debts when they come due, I’m not spending any more money. So if I can’t renew my home-equity loan and I’m not sure I can keep my job, I can’t spend. And you get into this death spiral.”

I asked him, “What’s the chance we’re going into that death spiral?”

“We’re in it!” he said. “Whether we’re going to die or not is another question.”

“What’s the percentage chance we’re going to move to a barter economy?” I asked.

“I think it’s small,” Ackman said.

“Small”? I had been hoping for “Zero.” “Zero” would have been a fine answer, and not because I have nothing to barter except for a stack of old SmartMoney magazines, but “Zero” because, by the time my 12-year-old turns 18, I would like to be able to use my portfolio of stocks and bonds as a flotation device, and not as kindling.

THE WAY I SEE IT, it’s all a con game,” Cody Lundin was saying. “What I mean is that Wall Street has always been an illusion. Now it’s an illusion that’s crumbling. Wall Street is like someone who’s having heart trouble. It’s in constant need of resuscitation, but after a while, it just doesn’t work anymore. People think that Bernard Madoff was unique, that he was an illusion, but he’s just an extension of the same illusion, the same con game. This is one of the reasons I don’t like to have any debt. When you have debt, you become part of this illusion, and sometimes you get trapped by it.”

We were standing outside in a foot of snow in the mountains above Prescott, Arizona. Lundin was arguing so cogently against the American culture of easy credit, in tones far more thoughtful than one hears on cable television, that I forgot for a moment that he wasn’t wearing shoes, or socks. He was standing in the snow barefoot. Also, in shorts.

“It’s all about regulating core body temperature.” For long hikes in the snow, he wears three pairs of socks, without shoes. He suggested I try this.

Other things Lundin asked me to try include making fire with sticks, eating mice—“a free source of protein in survival scenarios”—and living without electricity for a week to “see where it hurts.” Lundin himself eats mice and rats he traps at his off-the-grid passive-solar house in the wilderness, because “why waste free protein?”

Lundin is a freak; twin blond braids fall from his bandanna-covered head, giving him the appearance of a stoner Viking. But in the event that the economy crumbles, and civilization with it, I would appoint him my financial adviser. He is my favorite survivalist, the author of a book on getting by in the wilderness and another on urban preparedness, and a teacher of primitive-living skills. Survivalist, of course, has ugly political connotations. A long time ago, I visited a place called Elohim City, on the Oklahoma-Arkansas border, that was home to a group of white supremacists. Their racism was repulsive, and their anti-Semitism wasn’t too pleasant, either. But I was impressed with one aspect of their lifestyle. On a tour, they showed me a vast storeroom filled with beans. Pinto beans, lima beans, all sorts of beans, vacuum-packed in garbage-can-size vats. Three years of food, for when the revolution comes. I knew, of course, that I didn’t need three years of beans in my house, but I took the lesson: it’s not the worst thing in the world to have a couple of weeks of food and water on hand, just in case a natural or man-made emergency is more than FEMA can handle.

Lundin is not a racist; in fact, he’s an Obama supporter, and he resents the racist associations attached to survivalism. Nor does he wish for the grid to go down. He says he enjoys electricity and indoor plumbing. He tends to think, though, that civilization is a thin film, and that in times of economic distress, it’s smart to be prepared for the day when Safeway runs out of milk. “This isn’t something I hope for. But what if the illusion does really crumble, and we have to move as a society to something else?”

I asked Cody how he invests his money. “I don’t believe in the intangible economy; I believe in the tangible economy. When I have extra money, I buy tools, food, or land. I like to be able to see what I’m buying. And I really don’t like debt, so I’d rather not have certain things than be in debt to anyone. I just feel better knowing that I don’t owe money, and I feel good knowing that I can take care of myself. That’s the American way, to be able to be self-reliant.”

For the record, I don’t think the grid is buckling under the weight of consumer debt or the mistakes of AIG. But we’re in a strange moment in American history when a mouse-eating barefoot survivalist in the mountains of Arizona makes more sense than the chief investment strategist of Merrill Lynch.

“People need a plan, they need skills, and they need supplies. What would happen if the ATMs stopped working for a couple of days? People would panic. But you won’t panic if you’re prepared to ride out a disturbance.”

Even out West, he says, people in the cities are unequipped to go for more than a day or two on their own. The Mormons, who are strongly encouraged by their church to keep a year’s supply of food in their homes, are an exception. “I know some people who say that if things go to hell, they’re just going to go to some Mormon’s house and steal all his shit. But that’s not right.”

“Also, many Mormons keep guns.”

“Yeah, there’s that.”

The curious thing about listening to Cody Lundin is that in his ideas I heard echoes of ideas I’ve been hearing from people very much dependent on the financial grid. Bill Gross, the founder of Pimco, the world’s leading bond trader (and, according to a September 2008 ranking by Forbes, America’s 227th-richest person), suggested that thrift—not mouse-eating thrift, but more moderate forms of thrift—is quickly becoming the norm, as a result of society’s massive over-leveraging.

“Risk-taking went over the edge,” he told me. “We are inventing something new. We’re very afraid. We know from the Depression that people who lived through it didn’t change their mentality for the rest of their lives. They were sewing their socks. They refused to take a lot of chances. My sense is that it will take 10 or 20 years to find that spark of risk-taking in people again.”

When I told Seth Klarman, one of the country’s leading value investors, about my visit with Cody Lundin, he said, “It’s always smart to prepare for disaster. In investing, that means holding disaster insurance. In your personal life, it makes sense to have inexpensive disaster protection, so come what may, you’re ready for any eventuality. I like to store some extra bottled water in the basement, but my wife thinks it’s too much clutter. I told her I’d share my water with her anyway.”

While I’d choose Cody Lundin to serve as my off-the-grid adviser, I would choose Seth Klarman as my on-the-grid adviser, if only he were taking clients.

Klarman was hired out of Harvard Business School to manage a $27 million fund that, as of early this year, had grown to $14 billion. He is also the author of one of the more expensive books in the world, Margin of Safety. An out-of-print guide to value investing, it sells for as much as $2,500 per copy on the Web.

Klarman is an acolyte of Ben Graham, the original value investor. Value investors—Warren Buffett is the most famous—seek out distressed, underappreciated assets, buy them, and wait until the rest of the world realizes that they’re worth something.

“The overwhelming majority of people are comfortable with consensus, but successful investors tend to have a contrarian bent,” Klarman said over lunch one day in an empty Boston restaurant. “Successful investors like stocks better when they’re going down. When you go to a department store or a supermarket, you like to buy merchandise on sale, but it doesn’t work that way in the stock market. In the stock market, people panic when stocks are going down, so they like them less when they should like them more. When prices go down, you shouldn’t panic, but it’s hard to control your emotions when you’re overextended, when you see your net worth drop in half and you worry that you won’t have enough money to pay for your kids’ college.”

One theme of Margin of Safety is that people like me aren’t equipped to be investors. “No one knows what he’s doing unless he’s a full-time professional,” he said. “As in many professions, full-time experts have an enormous advantage. Investing is highly sophisticated and nuanced. The average person would have an incredibly hard time competing.”

I asked Klarman if he wasn’t working against his own financial interest by arguing that average people aren’t qualified to be investors.

“Most people on Wall Street do well enough,” he said. “It’s regrettable that anyone would want a client to take risks beyond what the client could handle.”

He agreed with Robert Soros that the financial-services industry treats the small investor not as a client but as a source of ready cash. “The average person can’t really trust anybody. They can’t trust a broker, because the broker is interested in churning commissions. They can’t trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them. And now it’s even worse because even the most sophisticated people have no idea what’s going on.”

After 15 years of pabulum, I was enjoying, in a perverse sort of way, receiving straight talk from masters of finance.

“Everybody these days is a just-in-time investor. People say, ‘I’m going to leave my money in the market as long as possible, and then pull it out of the market just before I have to write the tuition check.’ But I think we’re seeing that the day you need to pull it out of the market, the market might be down 50 percent. It’s critical not to be greedy. Avoid leverage and don’t invest money that you can’t stand to lose.”

“I haven’t leveraged myself,” I said.

He asked me if I had a mortgage. Yes. He then asked me if the amount of money I had invested in the stock market was greater than the amount I owed on my mortgage—could I liquidate what remained of my portfolio to pay off my mortgage? I could.

“So you are leveraged. Why are you keeping your money in the market?”

“Because—”

“It’s because you think you’re going to make more money in the market than you’re paying in interest on your mortgage.”

“Yup.”

“Well, are you?”

“Uhh, no. But I’m getting the mortgage-interest deduction.”

“Yes, the interest is deductible. But if you had capital gains in the market, you’d pay taxes on those. In the aftermath of this financial crisis, I think everyone needs to look deep within themselves and ask how they want to live their lives. Do they want to live close to the edge, or do they want stability? In my view, people should have a year or two of living expenses in cash if possible, and they shouldn’t use leverage anywhere in their lives.”

“But if I dump my portfolio now, I make my losses real.”

“How are you going to feel if the market drops another 50 percent?”

Klarman went on, “Here’s how to know if you have the makeup to be an investor. How would you handle the following situation? Let’s say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? If it falls in half, do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you’re an investor. If you don’t, you’re not an investor, you’re a speculator, and you shouldn’t be in the stock market in the first place.”

Several years ago, I went to a party at a hedge-fund manager’s loft in Lower Manhattan. The elevator opened directly into the loft, which was as big as Mussolini’s office. An Austin Powers bed was parked to one side.

I left the party with a friend of mine, David Segal, who is now a business reporter at The New York Times. As we walked to the subway, he said, “You know, we should get one of those hedge funds.”

“Absolutely,” I said. “Where do we get one?”

“I don’t know. Maybe we can find one on the street. But we need one.”

“Yes, we do.”

When I think back on that conversation, I realize that it represents for me the apex of hedge-fund mania. Which is to say, when two reporters realize they should get into the hedge-fund business, it might be somewhat late to get into the hedge-fund business.

Seth Klarman is right. I’m not an investor. Very few people in America actually are. I never had the knowledge or the time to master the stock market. I thought I knew how to manage the danger, which is why I invested to a disproportionate degree in the Dow 30. I’ve learned, however, that it’s quite possible to ride the Dow 30 a far way along the risk curve. And I’ve learned another thing: I once believed that a buy-and-hold strategy would make me rich. This was a mistaken belief. “The economy comes in cycles,” Robert Soros said. “If you believe that the economy is not cyclical, then buy-and-hold is for you.” He taught me a Wall Street expression: “An investment is a trade gone bad.”

Though the past six months of my financial life have been marked mainly by paralysis, I have, in fact, made a couple of decisions. I’ve decided to deplete the world’s supply of gold by two ounces. (Attention all Atlantic-reading burglars: it’s not in my house.) You’ll be pleased to know that the price of gold fell $70 the week after I bought.

And my wife and I have decided to fire our Merrill Lynch financial adviser. We’re not firing him because we realized that his company couldn’t manage its own money, much less ours, and we’re not firing him for his bad advice. I was the one, after all, who pulled the trigger on the purchase of 100 shares of AIG. (It would have been good of him to warn us about what was coming, but that would have necessitated him knowing what was coming.) We’re also not firing him because his research chief wants us to elongate our already too-long time horizon. And we’re not firing him because John Thain, his former CEO, spent the fees we paid his company on a $35,000 commode. We’re firing him mainly because he fired us. He never said he was firing us. He just stopped calling. Eventually, I stopped calling him. I got the message.

Our main job now is finding someone to advise us. This is a very difficult task.

I asked Bill Gross what he thought I should do. He was somewhat dyspeptic. “The system is rigged,” he said. “It’s difficult for the average investor to even conceptualize what we’re talking about. For this reason, I think financial advisers are still worthwhile, but the average investor can no longer pay them what they felt they were worth. You should find someone who isn’t overpromising or overcharging.”

This search is made more difficult because we don’t have enough money to make ourselves interesting to most of the best advisers, and the typical adviser is not sufficiently independent-minded to be effective.

“There’s enormous pressure to provide conventional advice,” Klarman explained, “and tremendous pressure against providing unconventional advice. Advisers only recommend what’s conventionally palatable. They tend to say 60 percent stocks, 40 percent bonds, and they’re not likely to move away from that, no matter how extreme valuations are. They’re not likely to move away from it when the market is really high, or really low. A big part of the problem is that there isn’t a perfect answer to any of this. No one can tell you how to allocate your assets 100 percent of the time. The average investor is not getting Warren Buffett to look at his portfolio; he’s getting a printout from a computer model.”

Unconventionality makes me nervous, but less so than conformity. I’m finished with conformity. In picking an adviser, I’m also looking for someone who is unleveraged; someone who is putting his own money into the investments he’s recommending; and someone who can explain to me in a few sentences, in language easily understood by earthlings, his philosophy of investing.

Despite everything, I’m not overly pessimistic. I’m long on America, as my friends on Wall Street might say. I believe that equities will grow in value. I expect the Dow to return to 9,000, or 10,000, if not sooner, then later. And when it does, if I’m not already out, I might just get out. I’m not enjoying this particular ride.

I no longer expect to get rich. It makes me happy to realize this. It also makes it easier to give more money to charity. In retrospect, I can’t imagine what led all of us to believe that we could regularly expect double-digit annual returns on our money, for doing no work. Maybe this attitude will cause me to miss the next great run-up. No matter. I’ll take 3 or 4 percent gains a year, or 1 or 2, if necessary. I’ll keep more cash on hand. I’ll keep a two-week supply of meals-ready-to-eat, bottled water, and lanterns in my basement. If things get bad, I’ll take my family and drive west, to find Cody Lundin. And if the bottom truly falls out, I’ll find a Mormon and ask him, politely, if he’ll share.

5 Reasons Investors Fail to Beat the Market

2009-05-12T08:51:00.003-07:00

May-8-2009

FACT: Since 1992 the average daily trading volume has increased by 1,900%.

FACT: Over the same time period the S&P 500 ONLY gained 150%.

Who's making all the money? The following are five reasons why most investors never beat the market, never get rich, and never have enough for retirement. Let's start with...

(1) Short Term Focused:

Anytime you want to "get rich quick" it's bond to bite you in the rear end. There are no short cuts in life. Yes, you may get lucky, but for most of us, hard work makes luck. At my online investment service - PigsGetRich.com - we've seen how being short term focused caused major pain for our clients. For instance, in 2002, when we started publishing our first reports, the very first stocks we highlighted went lower by 40% and 60% respectively. YET, they were our biggest winners to date. The same thing happened in 2008. In August we were ahead for the year by 40% and then it all came tumbling down... But, we didn't panic because a lot of the companies we owned were still very good businesses. So far in 2009 we’re up 25% total where as the S&P 500 is only up marginally. This isn’t a hype article for my publications, but it’s important to know that things are never as good or as bad as they seem.

So next time your stock is down 30% or 50% or even more, think of its long term prospects and if you have the cash, buy more! Dollar cost averaging works on the downside a lot more effectively than it does on the upside, in my opinion.

(2) Not Enough Liquidity

Think about all those real estate investors that are just sitting on their property right now! Imagine if they had been stock investors instead... They'd be out of their holdings and in cash immediately. This would serve the entire economy because they would be spending or investing their money eventually. However, now that we have millions just stuck in a home they either don't want anymore or cannot afford, the need for liquidity is great.

This is why I love investing in stocks. For one, I know how to evaluate a business much easier than I know what a piece of land or home is worth over and above its building materials. Of course, if we judged homes the same way we value stocks, they would only be worth the time, labor, and materials used to build them. They would actually have a pretty easy intrinsic value. Then again, would you value a home that is 20 years old less based on the depreciation of the materials? You see why I stick to what I know best?

Secondly, if I buy a stock Tuesday and by Friday my world falls apart, I can sell it immediately and collect my cash and go. Of course, the goal for investing is to make money long term. The market has been the best place to create wealth for over 100 years. We would not have the vast amounts of wealth in this country were it not for the publicly traded companies in it!

(3) Poor Investment Strategy

An investment strategy can be defined as a plan of asset allocation into an investment vehicle or multiple vehicles for the purpose of making money. Then why do so many people fail to make money? Well, they have a poor strategy. For one, many people look for the "get rich quick" schemes. These could be in the form of penny stocks or tips from the next broker that calls them today. These get rich quick schemes, though they may appear to be "risk free," are actually the riskiest of all. Also, for the majority of investors, advisors and money managers are the captains of their ship. Anytime, you hire someone else to manage your money for you, it's generally a bad idea. Let me explain.

Fool.com states that over 80% of mutual funds never even match the performance given by the overall market. Hedge funds fair better, but still over 50% of them fail. The reason is because of turnover and fees.

An average investor believes, or dare I say, has been brainwashed into believing that mutual funds and wide diversification is a way counter risk. This is complete garbage. Studies show that an investor with 20 stocks is just slightly less diverse than an investor with 200. The only difference is, you can track 20 on your own. This is why it's so important that investors take control of their own portfolios. Something I've preached for 7 years now.

Ok, back on track. Mutual funds and especially hedge funds create substantial volume in the market buying and selling stocks on a regular basis. Again, you think you're mutual fund or annuity is safe? NOT! The manager is probably buying and selling stocks in it right now! According to Morningstar, the average turnover for most funds is close to 100%, which means each year the manager has bought, sold, and replaced every single stock in the fund. (HMMM.... Something to think about before your next mutual fund purchase.)

And, what happens when a fund manager is buying and selling? FEES! Lots of fees are being generated. Fees are great, if you're the broker. But, since you're the investor, fees are your enemy. The more you rack up, the worse off you are.

All of these factors are apart of your investment strategy. Many people stay away from mutual funds because they know the "real deal" and yet they do the same thing the fund was doing for them... trade aggressively. Again, FEES ARE YOUR ENEMY, THE MORE YOU RACK UP THE WORSE OFF YOU ARE IN THE END.

(4) Poor Investment Choices

Poor investment strategy leads to guess what... Poor Investment Choices! Poor investment choices are less the effect of timing and more the effect of selection. Let me explain. Take for instance, the retail brokerage industry. I know this business very well, since I started my career selling stocks over the phone to business executives, wealthy retirees and the like. In retail stocks, the broker makes a commission based on the size of the transaction and like a lawyer will get paid whether you win or lose. At 21 I thought this was a fantastic idea. By 22, I was having a hard time sleeping at night. So, what does this have to do with poor choices? For one, hiring a retail broker is a poor choice. PERIOD. Hiring a money manager is a coin toss from being a poor choice. PERIOD. However, when you do it on your own, you might still make poor choices.

1. You could trade (or speculate) too often. Day trading is wonderful, for the 0.0001% of the investors that are good. I don't like those odds and neither should you.

2. You could pay too much for your advice. Generally speaking, this happens when you let someone else manage your money for you, regardless of performance, since so few actually do well. However, this could mean following the advice of a newsletter service, financial website, or television commentator. In the end, you should make your own judgments and take responsibility for them.

3. You could choose the wrong opportunities to invest in. There are over 10,000 stocks in the market and each has a story to tell and sell. Choosing the right ones out of the madness is your job. This is where investment coaching and certain financial publications can come in handy.

Bottom line – if you make better investment choices and you’ll make more money.

(5) The Wrong Psychology

Even the Oracle of Omaha himself, Warren Buffett states that you either take to his style of investing like a fish to water or you don't at all. This is why having the proper mindset is the most important thing to any investor.

It's the following the herd... or get rich quick mentality that keeps the majority of people poor. Sacrifice, hard work, and savings create wealth. Henry Ford said, and I'll paraphrase, that if a man cannot save, he cannot become wealthy.

When it comes to investing, it's not your fault that you feel the way you do... it's the brainwashing of the media, Wall Street, and your family and friends. For instance, looking at Beta and Alpha you might think that stocks were RISKY when the market was at 6,500 and FAIR VALUE when it was at 13,000. Is this really the truth in practice? NO, yet this is still taught in colleges around the country. How slow we are to change.

Many investors only get in after a stock has seen 100% in a short period of time and wonder why they lost money. Others get in as the stock is going down and wish they had waited a little longer. This has in fact, happened to everyone. So, what's the right psychology?

The answer is, it’s personal! LOL! I wish there were a secret answer for the question, but there’s not. I could tell you that in my opinion, if you could model Warren Buffett, you’d be successful, but that might not work for you. The truth is, education starts with knowing yourself.

What are your tendencies? Can you sleep at night knowing you might be down 50% in one stock over the short term? Can you look at your statements and see losses with a positive frame of mind? Can you sit in at a desk in front of your computer for 7 hours and trade? Do you want to analyze charts or business statements? Or both? These are all serious questions to ask, but keep one thing in mind:

We all have the same physiology, so what has worked for one person, can work for all people!

Jonathan D. Poland
Managing Editor
Wealth|FN – www.wealthfn.com

Southwestern Energy (SWN)

2008-07-31T10:06:00.001-07:00

Southwestern Energy Co's quarterly profit rose 187 percent, beating Wall Street expectations, helped by an increase in production and higher realized natural gas prices.

The company raised its 2008 natural gas and oil production outlook.

For the second quarter, the company reported net income of $136.6 million, or 39 cents a share, compared with $47.6 million, or 14 cents a share, a year ago.

Analysts on average were expecting earnings of 37 cents a share, before items, according to Reuters Estimates.

Gas and oil production rose to 45.1 billion cubic feet of natural gas equivalent (Bcfe) from 25.8 Bcfe in the year-ago quarter.

Operating revenue more than doubled to $604.4 million, while gas sales doubled to $368.9 million.

Southwestern's average realized gas price was $8.17 per thousand cubic feet (Mcf), including the effect of hedges, up from $6.90 per Mcf in the same quarter last year.

Average realized oil price was $122.26 per barrel, compared with $61.72 per barrel in the year-ago quarter.

The company raised its 2008 natural gas and oil production outlook to a range of 181.0 to 185.0 Bcfe, from 168.0 to 172.0 Bcfe.

Flowserve (FLS)

2008-07-31T10:04:00.000-07:00

Flowserve (FLS), maker of industrial pumps and fluid handling equipment, trounced earnings estimates by 64 cents. Sales grew 24% to $1.16 billion. The company reported huge demand in its project infrastructure unit, which serves the oil and gas, power, chemical, and water markets.

Management sees its 2008 earnings now in a range of $7.20 to $7.50 a share, up from its previous forecast of $5.90 to $6.20 a share. For dividend investors, the company’s .74% dividend yield (based on last night’s closing stock price of $135.0) is not super attractive, but the all-important PEG (Price to Earnings Growth) is less than 1. This low PEG number indicates great growth and a low valuation, making Flowserve a name to pick up on pullbacks…as long as management keeps this type of execution up.

The market continues to not reward these global growth companies for stellar earnings. As I wrote this AM, Flowserve (FLS) posted some fantastic earnings and a huge guide up on 2008 estimates [Flowserve Mighty Impressive Earnings]

After gapping up to the mid $140s, the stock is back down to $137s... to completely fill the gap it would need to go down to $135, but I'm willing to put a stake in the ground here. Beginning with a 1.3% position and willing to build on pullbacks. $115-$120 would be a nice area as this is where the stock has bottomed twice in the past month. Considering they just raised 2008 estimates by $1.25 it wouldn't make much sense to see such a fall, but what has been making sense of late. Throw a conservative 15 P/E ratio (for 100% earnings growth) on this extra $1.25 of 2008 earnings and you have +$20 in stock price. Instead we get +$3. I guess "it's all priced in"

EDIT 12:15 PM - that didn't take long. The bear market sneered at us for daring to buy anything. Already down to $130. So the gap is now fully filled and the stock is right back at its 50 day moving average. Folks buying in the mid $140s this morning are already enjoying a quick trip to the house of pain. Off in the distance a bear could be heard laughing. I'll take it up to 1.6% stake here with another smaller purchase. Next addition will be down in $115-$120 range. Which might be in a few hours. Just imagine if they had dared to miss ;) Let me guess - oil is down $3 so every stock that was loved yesterday when oil was up $3 must now be sold. Got it.

weakness in the global infrastructure names is mind boggling to me - Fluor (FLR), Jacobs Engineering (JEC), and Foster Wheeler (FWLT) are acting as if the world will end as oil falls to $120 (or $100). If you read the press releases on the type of contracts these names are putting out on a weekly basis it's an embarrassment of riches (wind, gas, petroleum, solar - they're everywhere), but the hedge fund computers prefer banks I suppose.

Flowserve is not the exact same type of company but off the same theme - yes the globe will slow but those with money (petrodollars and huge trade surplus) will continue their advancement. [Jul 12: Where is your Gas Money Going?] [Feb 27: $2 Trillion of Petrodollars Needs a Home this Year] We'll continue to purchase companies out performing in this period of market madness. But we won't make large purchases until the market acts rational and technicals improve.

Flowserve Corporation develops, manufactures, and sells precision-engineered flow control equipment, as well as provides a range of aftermarket equipment services. It operates in three divisions: Flowserve Pump, Flow Control, and Flow Solutions.

The Flowserve Pump division offers engineered and industrial pumps and pump systems; submersible motors; replacement parts; and related equipment primarily to industrial markets. Its products include centrifugal pumps, positive displacement pumps, and specialty products and systems, such as hydraulic decoking systems, reactor recycle systems, and cryogenic liquid expanders.
The Flow Control division designs, manufactures, and distributes industrial valve products, including actuators and accessories, control and ball valves, lubricated plug valves, condensate and energy recovery systems, pneumatic and electro pneumatic positioners, smart valves, steam traps, manual quarter-turn valves, valve automation systems, valve/actuator software, nuclear valves, and quarter-turn actuators.
The Flow Solutions division offers mechanical seals, sealing systems, and parts principally to process industries. Its products include cartridge seals, dry-running seals, metal bellow seals, elastomeric seals, slurry seals, split seals, gas barrier seals, couplings, and accessories and support systems.

Oil service groups enjoy ‘boom time’

2008-07-22T11:38:00.001-07:00

By Sheila McNulty in Houston

Published: July 20 2008 20:01 | Last updated: July 20 2008 20:01

The big winners of high oil prices are not the international oil companies being criticised by politicians for their enormous profits, but rather the oil services companies that the majors rely on for equipment and labour.

Wood Mackenzie, the energy consultants, say that over the past three years, large oil service company revenues have on average tripled, with net margins rising even higher, outperforming the far better known majors, ranging from ExxonMobil to BP.

And analysts expect this to be another solid year for companies such as Schlumberger, Baker Hughes and Transocean, given the rush to develop oil and gas assets amid record energy prices. Quarterly results are supporting that analysis.

On Friday, industry leader Schlumberger reported revenues of $6.75bn for the second quarter, up from $6.29bn in the previous quarter and $5.64bn in the second quarter of 2007. Other results are scheduled to trickle out over the next few weeks.

“There is a huge demand for equipment and services and many areas are pretty much at maximum capacity,” says Colin Lothian, senior cost analyst at Wood Mackenzie. That has enabled the industry to push up prices. The surge in demand for oilfield services started with the rise in oil and natural gas prices several years ago and the string of record energy prices in recent months looks set to increase this demand still further.

“Certainly this is a services sector boom time,’’ says Mr Lothian. But he notes that the service companies are also experiencing a substantial rise in base costs, which is affecting margins.

Barclays Capital says in a recent report that offshore drillers remain the most lucrative nook in the services arena.

It notes that 120 new jack-up and semi-submersible rigs are reported to be on order, with about 40 scheduled for delivery in 2008, which may affect the balance between supply and demand.

Yet even if more supply comes on line, signs are that demand will continue to grow. Barclays says the tide in North American land drilling weakness has begun to turn, with several companies stating activity will improve because of the run-up in natural gas prices.

Natural gas still represents about 80 per cent of US drilling activity and all signs are that that activity will continue to grow.

Barclays says the active natural gas rig count rose to 1,530 in the last week of June, the highest since gas-specific record-keeping began in 1987.

Yet analysts say the oilfield services companies poised for the biggest profits are those with an international presence, given that the national oil companies that control more than 80 per cent of the world’s oil reserves have begun shutting out the middleman – the big international oil companies – to do some oil and gas development themselves. However, they still need the equipment and talent held by the services sector and are hiring them directly.

Barclays says that oilfield services are “at a premium”, with international opportunities driving growth. Schlumberger, which it calls the “giant of oilfield services”, has products covering the gamut of oilfield services, and is diversified, with North America accounting for only 22 per cent of its total operating income.

Barclays notes that Halliburton, the other giant in the sector, is shifting its relatively high exposure to North America to international markets, having relocated its corporate offices to Dubai in 2007.

Of the contract drillers, Barclays says that Trans-ocean has less than 12 per cent of its rig fleet in the US and that Noble is also internationally diversified, with only nine of its 62 rigs situated in the US Gulf of Mexico.

“Demand for oilfield services continues to accelerate in both established and new geographic markets,” says Robin Shoemaker in Citi Investment Research’s latest report on the sector. “We believe that the industry upturn is still in its early to middle stages.”

Citi has “buy” ratings on Schlumberger, Halliburton, Cameron International and National Oilwell Varco, whose earnings growth it expects to be above-average because of innovative technologies, focused acquisition strategies and targeted expansion into new geographic markets.

Citi notes that the Oil Services Index rose 267 per cent from January 1 2004 until June 20 2008, while the S&P 500 advanced by only 19 per cent.

“A spotlight has been shining on the oil services stocks for four and a half years, and some investors are wondering if the attention continues to be warranted,” Citi says in its report. “Our view is that as investors see more evidence of strong market conditions through 2010 and beyond, they will conclude that the shares of many oil services companies are undervalued.”

CPM says global molybdenum supply deficits will grow in 2009 and 2010

2008-07-20T20:59:00.000-07:00

In its latest molybdenum market study, CPM says tight credit market s and other developments have caused molybdenum’s forward supply curve to shift over the past year. Author: Dorothy Kosich
Posted: Thursday , 10 Jul 2008

RENO, NV -

Commodities research firm CPM Group says financing for molybdenum mining projects "has become an uphill battle for some of the new primary and by-product producers."

Meanwhile, the delays in bring new primary moly or copper/moly mining projects on line have exacerbated the moly supply deficits forecast for 2009 and 2010, according to CPM's study, The Sustainability of Recent Molybdenum Prices, 2008.

The report asserts that supply deficits are expected to be larger over the next two years, followed by slightly larger surpluses from 2011 through 2014.

Meanwhile, CPM says the price outlook for molybdenum going forward "has become moderately more bullish than previously projected. The upward revision in the expected prices for molybdenum is partially supported by climbing capital expenditures, the sharp increase in diesel prices, higher electricity prices in China, and loftier freight charges."

"These higher production costs-combined with robust demand in the energy industry, narrow inventory levels, and expectations that molybdenum supplies will not exceed demand on a sustained basis are expected to boost the floor prices of molybdenum," according to a news release issued by CPM Wednesday.

"The deeper deficit in 2008 and 2010 should help underpin molybdenum prices at higher levels over that period. However, prices are expected to decline in 2011 as the market transitions back into a surplus," the news release said. "Demand for molybdenum, during the recovery in global economic growth, may be amplified by molybdenum's price correction. "

In the release, CPM noted that moly demand has increased at a "robust rate" over the past five years.

"Demand is not only growing in the principal end uses of molybdenum, but in newer industries that are seeking to utilize molybdenum's significant alloying properties," according to CPM.

Three common investment mistakes

2008-07-02T14:43:00.001-07:00

If you are fortunate enough to have the money to invest in stocks, you may have made some money doing so. But you may also have made your share of money-losing investment mistakes. I know I have made plenty of such mistakes. Based on my experience, here are three that I would guess are pretty common:

Not reading the prospectus. Too many investors buy stocks on tips from a broker or a TV stock promoter. They do not read the financial statements of a company. If they did, they would know about financial challenges, legal problems, industry uncertainties and other problems which could hammer their investments. But people don't read these financial statements, in many cases because they lack the financial education to make sense of the information.
Not setting stop losses. People fall in love with a stock once they've invested. If the stock goes down, they hold on because they don't want to admit that they were wrong. Investors should set stop losses – if the stock falls 2% to 5% from the original price, they should sell. Most investors do not have the discipline to do this. But if they did, they would limit their portfolio risk tremendously. Would they also miss out on some opportunities? Probably, but more often than not, they'd save themselves losses.

Confirmation bias. Decision-makers often tend to lap up information that reinforces their view of the world and ignore information that undermines that view.This so-called confirmation bias plays out in investor's portfolios every day. That's because if an investor buys a stock, he or she tends to look for information that makes them believe the stock will rise. Investors filter out any negative information. What they should do is ask an objective analyst to weigh all the pro's and con's and make a recommendation about what to do. But thanks to confirmation bias, most investors would ignore such advice anyway.

Cleveland-Cliffs' run shows no signs of slowing

2008-07-02T12:53:00.000-07:00

Deutsche Bank increases their price target on Cleveland-Cliffs (NYSE: CLF) from $115 to $150 and reiterates their Buy rating. The firm increases their 2008 EPS estimates from $5.77 to $6.69 and 2009 EPS estimates from $9.57 to $12.52.

The firm said, "Our expectations for Cliffs realization prices were upped for both iron ore and coal. Our previous estimates for 2008 were based on a 65% increase for fines in Asia Pacific which has already been superseded by the announcement of the ~80% increase reached by Rio Tinto with Chinese steelmakers. For 2009, main changes stem from DB's revised commodities forecasts, which now call for a 5% increase for pellets (vs. 0% previously), +20% for fines (vs. previous +10%), and higher realization prices given a ~US$230/mton price assumption for standard hard coking coal. These new benchmarks imply realization prices at around US$99/lton for NA pellets, ~US$154/ston for NA coal, and ~US$113/mton for AP fines."

Year founded: 1847
Business: Iron ore and metallurgical coal
Headquarters: Downtown Cleveland
2007 revenue: $2.28 billion
Employees: 5,300 worldwide; 150 in Cleveland.
Locations: Mines in United States, Canada, Australia and Brazil.
Cleveland-Cliffs Inc. has seen its stock price rise more than 300 percent since the beginning of 2007.

But that's nothing.

If you go back to January 2001 -- the height of the steel crisis -- Cliffs' stock price has gone up some 5,000 percent, from about $2 a share to more than $100 today.

That means a $20,000 investment then is worth $1 million now.

And get this. The stock might not have peaked.

Global growth, especially in China, and a weak U.S. dollar have been the drivers, pushing up demand for steel made here and abroad. Cliffs mines in Michigan, Minnesota and Canada supply blast furnaces across North America with iron ore, the main ingredient in making steel, while their mines in Australia ship to China and Japan.

Cliffs recent foray into metallurgical coal is expected to pay off in a big way, too.

The company, one of the oldest in Cleveland, has come a long way from the dark days earlier this decade. It has made all the right moves, beginning with a decision to expand its iron ore reserves in North America at a time when bankrupt steel companies were looking to unload them.

Adding reserves at bargain prices proved brilliant, as Cleveland-Cliffs had more iron ore to sell once the steel industry consolidated and surged back to life.

The company's then chief executive John Brinzo didn't stop there. In early 2005, flush with cash, the company bought into an Australian iron ore company called Portman Ltd. The move didn't sit well at the time with Cliffs investors who chastized Brinzo. They thought a better use of Cliffs' new-found wealth was to buy back shares, thereby rewarding current shareholders with instant gains.

But Brinzo held his ground. The deal went through. Since then, Portman's stock has increased about 400 percent.

Cleveland-Cliffs CEO Joseph Carrabba
Last year, Cleveland-Cliffs expanded again under Brinzo's successor Joe Carrabba, this time into metallurgical coal.

Metallurgical coal, as opposed to the thermal variety burned to make electricity, is converted into coke. It's then mixed with iron ore in a blast furnace to produce molten iron, the first step in the steel making process at mills like the one owned by ArcelorMittal along the Cuyahoga River in Cleveland.

Cliffs' paid $450 million and absorbed $150 million in debt for PinnOak Resources LLC, which included coal mines in West Virginia and Alabama. The investment has fueled the continued rise of Cliffs' stock price, said Mark Liinamaa, an analyst with Morgan Stanley & Co., with coal revenue expected to rise substantially after current contracts expire.

Carrabba said he expects coal contracts that now pay an average of $94 per ton to renew for at least $250 per ton when they start to expire at the end of this year in the United States and next April for European customers. About 60 percent of Cliffs' coal is exported, with much of it going to ArcelorMittal plants in Europe.

"I would say over the last four or five years there really isn't anything they've done wrong," said David MacGregor, analyst with Longbow Research in Independence.

Among those investors along for the ride is New York hedge fund Harbinger Capital Partners, which has steadily added to its stake in the company in recent months. It owned more than 17 percent of Cliffs' common shares -- valued at more than $1.6 billion at Wednesday's closing price of $105.50 a share.

Harbinger senior managing director Philip Falcone did not return a call seeking comment, but his investment group has shown broad interest in the metals industry. It owns a stake in Fortescue Metals Group, a start-up iron ore company in Australia, and at last count was the largest shareholder of U.S. steelmaker AK Steel, based near Cincinnati.

While Harbinger likes Cliffs' business fundamentals, it's also thinking the company could be a takeover target at a premium price, MacGregor said. Among those fueling takeover speculation is Jim Cramer, the bombastic host of CNBC's "Mad Money" stock-picking television show. He often touts Cliffs on his show.

Harbinger has played both active and passive roles with investments. For example, it forced the sale of steel processor Ryerson Inc., while Carraba said Harbinger has been strictly passive in its dealings with him.

Among those speculated to be interested in Cliffs is steel giant ArcelorMittal. It's already Cliffs' largest customer, commanding 44 percent of its North American iron ore sales.

Carrabba would not comment on any possible suitors, but said if an offer is made, it's the company's duty to consider it. Currently, mining giant BHP Billiton Ltd. is looking to take over rival Rio Tinto Ltd.

For his part, Carrabba expects the good times to continue. He does not believe iron ore is trading in a bubble like some think is the case with oil and other commodities. Unlike oil, iron ore is not traded on a commodities exchange and elicits little speculation from investors, he said.

Also, while previous surges in iron ore prices have led to substantial increases in supply, that's not happening this time around, he said.

Petrohawk: A Play on Appreciating Natural Gas Prices

2008-06-26T13:28:00.001-07:00

Oil's current valuation is a slippery slope. No one knows when the price will come down. One side will argue the peak oil theory. The other side will tell you that speculators are to blame and the price run-up will be short-lived.

The problem with the media is they are trying to sell you a magazine, and the truth relies solely with the individual. With oil, it comes down to supply and demand. OPEC is milking it a little more than they should, trying to get as much as they can out of their supply. They announced that they will be increasing production to 9.7 million barrels of oil per day and that they will be able to increase production to 15 million barrels in 2 years.

This is all very negative for oil in the long term. These numbers wouldn't have been so convincing had it not been that OPEC even outlined where the production was coming from. Even with this news the oil market increased all day yesterday. When markets are this shaky it is dumb to jump in. Let the market find solid footing first.

The way to play an unsure oil market is through natural gas and oil exploration and production companies. My XTO call on theupdown.com is up 18% in the last 81 days, GMXR is up 67% in 48 days and MMR is up 7% in 60 days. All of which have been good, and should continue to be good even in an oil pullback if you are in for the long haul.

It looks as though the Fed is going to let supply and demand work. As the price of oil increases, demand should decrease. In this event, there is even more reason to be bullish on natural gas. Without a hike in rates because of a terrible housing market, commodities still look good going forward. This may even help oil in the short term, until consumers pull back their usage through vehicles with higher mpgs and by driving less. General Motors (GM) is already offering 0% for 72 months on most of their vehicles, which is unheard of at this time of year. The current market looks horrible for disposable income and even oil can be cut back on.

PetroHawk (HK) looks to be a good investment for those interested in growth. Their assets are concentrated and well placed. There is low risk in these sites coupled with high reward potential. Most sites are low cost, with improving margins. Many of their assets were bought on sale and have appreciated significantly since their purchase.

They have increased capital expenditures to further their development and the liquidity to pursue future endeavors. Quarter over quarter they have 10% organic production growth. They experienced 25% annual organic production growth in the core areas of their business.

Their cash margins are also very good, and here are their estimates for natural gas prices. With the price at $7, margins are at 73% or $5.09, at $8 there are 75% margins or $6.02. When the price is at $9, 77% and $6.96. $10 natural gas is 79% or $7.89, while $11 is 80% or $8.83. With an average price of $12, operating margins are at 81% and operating cash margins are $9.76 when looking at Mcfe.

It's easy to be scared off by HK as it has a PE of 429. Looking at the forward PE, the stock seems cheap at just 32. Current growth this year is estimated at 44% while next year is 24%. Five year estimates have average yearly growth of over 30%. I would wait for a good pullback on the stock as I think it will get cheap again.

How to control losses

2008-06-26T10:53:00.000-07:00

Everyone knows how to win; but, few know how to lose! Yet the secret to making money in the market is knowing how to lose; or how to control your losses. Listen to the pros:

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money; focus on protecting what you have.” – Paul Tudor Jones

“The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.” – William O’Neil

“One investor’s two rules of investing:

Never Lose Money
Never forget rule No. 1” – Warren Buffett

Verily, most investors don’t want to be wrong and take a loss. They stubbornly seek perfection – a profit in every trade or investment. And, the neurotic pursuit of market perfection is the Achilles Heel of most investors. Perfection is impossible on Wall Street! As Martin Sosnoff said in his book “Silent Investor, Silent Loser,” “There is only perfection in the cemetery above Omaha Beach. There no crabgrass grows among the bright green blades cropped three inches above the earth. It is truly as Walt Whitman has said, ‘The hair of the Lord.’ And the crosses stretch out in that echelon of perfect longitude. The only perfection is in death.”

Is Agrium the new Potash?

2008-06-22T11:11:00.000-07:00

Since my last report back in October 2007, when I highly touted and recommended agricultural equities, particularly Agrium (AGU), my fundamental point of view on this trend has not changed:“The word needs food."

The basis of my previous points in that article were to come to a new reality and realization that the “West” is not the only place that will have its steak (it has been for a long time); the people in new developing economies and countries are demanding lifestyle changes in the form of better living conditions, enjoyment of life, and the need for better food (it is not just the basic needs anymore - standards are continuing to adjust as the growth of the middle class outstrips supply).

These observations and beliefs bring me to Agrium (AGU), which I previously stated (in the October article) would experience unprecedented demand and growth, along with the other fertilizer equities.

In my opinion the growth and demand that is being driven is in no way a “bubble” as some have propagated in hopes of popularizing themselves as “today's Nostradomises." Some of these bubble theorists, or so called analysts, have been speculating bubbles for many years in these plays (one such foolish analyst, at a financial institution in Canada had been negative on Potash (POT) since it was at an adjusted price of about $30; imagine if you took their advice - you would have missed at least a 700 % upside, plus, what I believe is to come over the next several years), many in the bubble camp have never properly analyzed the middle class trends and demands being incurred in places such as China, India, Russia and South America, not including the rest of the industrialized world that is in need of resources to build strong economies. They simply are looking at charts and guessing at certain points, in hopes of being the first to call “their” so called top in these equities (these are perhaps calculated MBA superstars) .

The fundamental basis when building strong economies is that people work harder to maintain and develop a new level in their standards; the spin-off to the growth of the middle class is the enjoyment of the benefits for their effort, particularly their habits and necessities around the food they consume.

Specifically on Agrium: the company’s growth will be very positive for the next several years (as they recently indicated); the demand for fertilizer products is unprecedented today and will continue to have further growth and demand within the industry, with prices escalating due to the continued absorption and pressures from growing nations, as mentioned above.

My previous target on Agrium was that it would see $100 within 6-18 months. I now, based on research and my own opinion, as well as recent confirmations in growth, have to upgrade my longer term target; some may see this new adjustment as excessive and unjustified, but my basis is directed towards the logic of supply/demand, pricing power, as well as the recent integration of the retail operations in the United States (which Agrium has previously stated will have a definitive positive effect on earnings/cash flow going forward).

My new target on AGU (Agrium) is being set to reflect a supply/demand scenario for the industry as well as pricing power on several fronts, specific to AGU, as well as new drivers, particularly seed products that will potentially enhance their products and expand their portfolios; the new 12 month target is set at $160 (though aggressive for some, I believe this price will be realized and possibly exceeded. I am not going to get into the specifics around PE/Cash Flow ratios at this point, even though my basis and target has encompassed and been evaluated based on the potential PE and Cash Flow multiples, as well as current and future prospects for growth and sustainability).

There are always going to be some form of price shocks in all types of markets; the ultimate difference separating prosperous and growing nations from stagnate nations will be how these occurrences are integrated and absorbed into the economies. The low price environment for staples and possible other goods in some first world nations will be gone forever (my opinion). I believe we will have various ups and downs in market prices, though I think the lifestyle (when it comes to prices for staples) has been forever changed, and will continue to change/adapt as the population and developing nations grow.

Disclosure: I am definitely long and will continue to purchase AGU on an ongoing basis (dips, occurrences).

Agrium eying 150 pct potash expansion, sees M&A
Thu Jun 12, 2008 3:22pm EDT

(Adds details; in U.S. dollars, unless noted)

TORONTO, June 12 (Reuters) - Agrium Inc's (AGU.TO: Quote, Profile, Research, Stock Buzz) potash output could rise by 150 percent to 5 million tonnes by the middle of the next decade, while small-size acquisitions are also likely down the road, company officials said on Thursday.

"We could go very well from a 2 million tonne producer to a 5 million tonne producer," Ron Wilkinson, head of the company's wholesale division, told investors at a presentation in Montreal.

The Calgary, Alberta-based company is looking at a $500 million expansion of its current Potash mine in Saskatchewan and is also planning on building a new mine, but has yet to decide exactly where it would build it.

The new mine would have capacity of about 2 million tonnes a year, with capital costs expected around $2.5 billion. Production would begin in 2014 or 2015 and hit its full stride by 2017, Agrium said.

Agrium, the smallest of the three main potash producers active in Canada, has benefited from a sharp rise in prices brought on by skyrocketing agricultural demand. Potash is used as a crop nutrient.

Agrium acquired agricultural retailer UAP Holding Corp in May for $2.7 billion, and bolt-on acquisitions are likely down the road, Chief Financial Officer Bruce Waterman said.

With strong cash flows -- cumulative flows were $1.1 billion in 2005-2007 -- Agrium would also consider giving cash back to shareholders if acquisitions or other investments don't pan out, he said.

Agrium reaps spoils of potash surge

From Thursday's Globe and Mail

June 11, 2008 at 8:12 PM EDT

Booming agriculture markets have lit a fire under fertilizer maker Agrium Inc., whose shares jumped above the $100 mark Wednesday after the company said it's going to make even more money this year than expected.

But the company has a dilemma. To take advantage of the explosion in demand for fertilizer, Agrium is planning a new potash mine in Saskatchewan, but it's going to have to wait five or six years before the project is up and running.

The lead time for building new mines is lengthy, chief financial officer Bruce Waterman told a mining conference in Toronto Wednesday. That's mainly because developers need to place orders way ahead of time to get mining equipment, and book the expert drillers to drive shafts into the ground. There are only a handful of firms worldwide with those kinds of skills.

As a result it'll likely be 2014 before the new mine is in production, Mr. Waterman said. “It sounds like a long time, but it does take a long time to get in the order queue for [mining equipment].”

Fortunately for Agrium, other potash mine developers are in the same boat. And because the lead times are so long, everyone in the business knows when more capacity is going to be coming on stream.

Meanwhile, fertilizer prices are not likely to slip in the short, or even medium-term, Mr. Waterman said. “The cycle looks really good for three to five years. We really don't see supply-demand [ratios] being anything but tight for the next few years.”

Agrium, like other Canadian firms in the fertilizer business, is riding the agricultural wave up the Toronto Stock Exchange. Potash Corp. of Saskatchewan is now the top weighted stock in the S&P/TSX composite index, outpacing EnCana and Research In Motion.

Agrium, though smaller, has moved into 26th place, ahead of giants in other sectors such as Telus Corp., Husky Energy Inc., Shoppers Drug Mart and Bombardier.

The market for fertilizer is so hot that Agrium now projects second quarter earnings of $2.80 to $3 a share, up sharply from previous projections of $1.92 to $2.22.

And that doesn't even count the contribution it will get from UAP Holdings Corp., the U.S. fertilizer and seed retailing giant Agrium bought last year. That $2.1-billion acquisition just closed in early May.

With the UAP acquisition, the company now has control of about 15 per cent of the U.S. market for the retail distribution of fertilizer to farmers. In Canada, there has been too much competition for Agrium to consider getting into the retail game, Mr. Waterman said, but things are going so well that the company is reconsidering its position.

“It's quite possible we'll expand into [Canadian retailing],” he said. “It's a market we know very well.”

While some farmers are suffering from the “sticker shock” of higher fertilizer prices, most don't see it as a big issue, Mr. Waterman said. With current prices for farm commodities so high, they can easily afford to pay more. The key to a farmer's success is to get more crop yield, so “it doesn't make any sense to cut back on fertilizer.”

There was some bad news from Agrium Wednesday. Its new nitrogen plant in Egypt is now on hold because of a fight between the national government and local politicians. While the company has the required permits for the $1.2-billion project, public concerns over environmental issues could prevent Agrium from continuing work on the plant, Mr. Waterman said.

Agrium Inc. has not enjoyed the same level of attention this year as Potash Corp. of Saskatchewan Inc., even though both produce that hotter-than-gold commodity, fertilizer. Agrium's shares are up 19 per cent this year, about half the increase of Potash Corp.'s shares.

Now, Agrium's lesser-status might be shifting: While the price of potash has been soaring in recent months, pricing is also on the rise for phosphate and nitrogen, helping Agrium top expectations in its first quarter results.

Paul D'Amico, an analyst at TD Securities, maintained his “buy” recommendation on Agrium . However, he raised his 12-month target on the shares to $125 (U.S.) from $98 previously – a 28 per cent bump and nearly 50 per cent higher than the current price of the shares. The upgrade makes him the most bullish analyst among those who follow the stock. The shares traded in New York at $83.76 on Monday morning, up 1.4 per cent. (The shares are listed in Toronto as well.)

Part of Mr. D'Amico's bullishness stems from higher commodity prices, but another part relates to Agrium's strong retail operations, which have performed far better than expected. “To be clear, better than expected pricing was evident in both nitrogen and phosphate, but retail's execution was a big positive,” he said in a note to clients.

Add it up, and he believes management's guidance on earnings is too conservative. He has raised his 2008 earnings estimates to $6.48 a share from $4.66 previously; he raised his 2009 estimates to $7.40 a share from $5.52. Right now, the shares trade at a slight premium, based on the company's earnings before interest, taxes, depreciation and amortization – but Mr. D'Amico believes the premium is justified.

“We speculate that a premium for AGU is reasonable versus its immediate peers given our view that investors look favourably upon AGU's increasing retail business influence in its earnings stability, and as such justifies a better valuation multiple, especially on a relative basis,” he said

Many analysts believe that we are still in the early stages of fertilizer shortages. As long as the government continues to support ethanol usage, stocks like Agrium could continue to move higher. Another key company in the sector is Potash (NYSE: POT), which has also seen a dramatic run-up in price.

Both Potash and Agrium have moved up nearly 200% since 2007, but Agrium still trade at a reasonable 20x earnings. In fact, given its substantial growth prospects, this P/E radio remains substantially below where it should be at. The PEG ratio (P/E to growth) is a more accurate measure of value and shows Agrium undervalued and Potash evenly valued at current prices.

In the end, many industry experts agree that Agrium and Potash have a lot of upside. However, there are some investors that are taking money off the table because of the previous run-up in the stock. This has created a buying opportunity that many investors may want to take advantage of before the next earnings announcement.

May 7 (Reuters) - Agrium Inc is plowing more money into its search for a new potash mine site amid record prices for the crop nutrient, the chief executive of the fertilizer producer and farm-products retailer said on Wednesday.

Agrium is examining a new development in Saskatchewan as it proceeds with with expansion of its current potash mine in the province, CEO Mike Wilson said.

"Our board just today approved additional capital to accelerate our look-forward on greenfield facilities," Wilson told shareholders at the company's annual meeting.

Potash prices have soared as farmers around the world try to capitalize on skyrocketing grain prices, which have caused food inflation in some countries and shortages in others.

Agrium, the smallest of three producers in Canada's potash belt, mines 2.05 million tonnes of the mineral from a Saskatchewan operation and has said it is considering expanding capacity there by a total of 800,000 tonnes.

That will likely cost $500 million, with one stage starting up in 2012 and a second a year later, he said.

A new mine producing 2 million tonnes could cost $2.5 billion, Wilson told reporters.

Earlier this year, Wilson said the company planned seismic tests on a greenfield potash mine site in the second half.

Agrium shares were up 35 Canadian cents at C$87.10 on the Toronto Stock Exchange on Wednesday.

Calgary-based Agrium, the world's third-largest nitrogen producer, has also bought several farm-retailing competitors to become the largest U.S. retailer of fertilizer, seed and chemicals.

This week, it closed its $2.7 billion takeover of Colorado-based UAP Holding Corp.

Wilson said the retail business provides stability amid cyclical swings in its commodity fertilizer sales.

With fertilizer and crop prices surging, the company is generating stacks of cash above a $1.7 billion kitty on its balance sheet earmarked for funding the UAP deal.

But Agrium will likely wait before jumping back into the acquisition market for retail assets, he said.

"From a big acquisition point of view, unless something fell in our laps, I think we need a year to digest (UAP)," he said. "We obviously look at small things all the time, and on the other front, we're always entertaining opportunities."

Agrium does not see world demand slowing down for fertilizer, but Wilson said producers will eventually boost supplies to ease the shortage.

"In theory, the cycle should last anywhere from four to six years and beyond. In practice, usually you wake up and there's a surprise," he said.

"But we keep looking over our shoulder and we don't see that. We think it's going to be an extensive cycle."

Meanwhile, Agrium's nitrogen operations are thriving, despite the recent run-up in natural gas, its raw feedstock, above $11 per million British thermal units.

Nitrogen prices have surged nearly $200 a tonne in the last three weeks, which, Wilson said, would be the equivalent of an $8 per mmBtu jump in gas price if that were the sole reason.

"So actually, margins are spreading," he said.

Agrium has hedged about 35 percent of its gas needs for the third quarter and 15 percent for the last quarter of 2008. ($1=$1.01 Canadian) (Additional reporting by Roberta Rampton; editing by Rob Wilson)

Petrobras: Poised for Growth

2008-06-12T15:27:00.000-07:00

Petrobras has estimated that the Tupi field alone probably holds between five billion and eight billion barrels of oil. Brazil already has a proven oil reserve base of 14 billion barrels.

The find would represent the biggest single oil discovery in the world since the mid-1990s. Furthermore, the company's director of exploration and production suggested this week in a London newspaper that the Tupi field could be just a small part of potential discoveries in neighbouring fields.

By way of comparison, Petro-Canada shares have returned just 7.7 per cent in the last year; Suncor Energy Inc. 45.8 per cent and Husky Energy Inc. 13.9 per cent. (It should be noted that Petrobras, in addition to its oil and gas operations, also has thermal power plants, fertilizer plants and petrochemical units.)

Given such potential, Petrobras has caught the eye of many an investor banking on the share prices rising still further. Just how much the shares of Petrobras - already the world's seventh largest company by market value - will climb seems to be a matter of debate.

Tereza Mello, who follows the company for Citigroup Global Markets Inc., has just raised her target price for the preferred shares to 58 Brazilian reais ($36.05 Canadian) from 50. The preferreds ended yesterday at 46 reais, down from a high of 53.68 reais on May 21. Frank McGann, an analyst with Merrill Lynch & Co. Inc., has a price objective of 78 reais for the common shares, which closed yesterday at 54.3 reais. The American depositary receipts, which trade under the symbol PBR on the New York Stock Exchange, fell $2.71 (U.S.) yesterday to $66.29.

The share price will, it is expected, be driven by news about the company's exploration and production and by oil prices, which the head of Petrobras said yesterday he expects will likely stay high for four to five years.

Investors are well aware of the potential connected to Petrobras's discovery, but it is going to cost huge amounts of cash to develop the Tupi deposit and nearby prospects. Last week, Bloomberg reported that Peter Wells, director of a British research firm and former exploration manager for Royal Dutch Shell PLC, has estimated that developing those fields will probably cost $240-billion. This year alone, Petrobras has indicated it will spend the equivalent of $33.5-billion on investments.

A key item on its shopping list will be drilling rigs and other vessels. Among other things, Petrobras expects to lease 57 rigs capable of drilling in waters deeper than 2,000 metres between 2009 and 2017.

Petrobras (PBR), Brazil’s largest energy company, was founded in 1953 and is now one of the world’s largest oil company with 109 production platforms, with 77 fixed and 32 floating. It has 5,973 service stations all over Brazil, in addition to another 990 of them abroad, and 15 refineries with installed capacity to process 2.2 million barrels per day.

Fiscal ‘07 saw a production of 2.3 million barrels of oil equivalent, a milestone reached by few companies in the world. However, the company has more ambitious plans.

Based on its Business Plan 2007-2011, Petrobras is set to maintain its rapid growth rate, aiming for the first time, to plan its production over the long term: a total of 4.556 million barrels a day [bpd] of oil and natural gas will be produced in Brazil and abroad in 2015. As a guarantee of a solid foundation for future growth, for every barrel that was produced during the year 2006, 1.739 barrels were added to the reserves.

As stated in economic and financial reports, the company continues trending towards growth. Profit surged from $1.373 billion, in fiscal 1997, to more than $13 billion in fiscal 2007.

Recently, Petrobras found a giant new field with potential recoverable oil reserves between 700 million and one billion barrels-catapulting its already huge pool of reserves to 9.6 billion barrels.

On April 14 of this year, according to Brazil’s National Petroleum Agency, a deep-water exploration area off Brazil’s coast suggested that the specific area could contain as much as 33 billion barrels of oil. If proven, the oil in the Carioca exploration area would also be five times larger than the Tupi oil field, whose estimated reserves of 8 billion barrels were announced by Petroleo Brasileiro SA (PBR) in November 2007. That would make it the world’s third-largest known oil reserve.

Brazil’s current proven oil reserves are 11.8 billion barrels.

Not only is Petrobras one of the world’s biggest oil producers, it is also the world’s biggest BioFuel producer. In the ’70s Brazil began transforming its sugar cane into fuel. Now as the rest of the world and global industry wheezes as oil-prices climb higher, Brazil is poised to not only weather the coming energy problems, but also get rich off of them.

Petrobras contributes in fueling almost 50% of Brazil’s cars with its BioFuels. It also imports its BioFuels to many other countries too, including India, Venezuela, Nigeria and the US. Currently, the company is building the world’s first major BioFuel pipeline and has plans on spending $54 billion on its BioFuel and oil production and distribution facilities by fiscal year 2010.

Petrobras is decades ahead of practically every other company in the world in its production and distribution of renewable energies and eventually as global oil supplies evaporate, and oil prices spike, this company will only grow more valuable.

The company trades with an attractive P/E ratio that won’t remain cheap for long. It has $100.86 billions in revenues, $13 billion in net income, and a market cap of $284 billion. The company has almost 13% in profit margins with 24% in operating ones. It pays a dividend, which is based on the company’s growth, and profits should continue to rise for the next (very conservatively here) 3-4 years. PBR just had a 2:1 split carried out May 8, 2008.

With oil possibility hitting the $200 p/b mark in the not too-distant future, I remain of the opinion that the energy sector should be overweighted long-term. In particular, producers are likely to see large increases in production of either oil or gas over the next several years. At the large cap end of the spectrum this certainly includes Petrobras.

USEC (USU): 'Ben Graham value play' in uranium

2008-06-12T08:56:00.001-07:00

Over the last year, USEC Inc. (USU) has fallen from a stock price of over $22 to just over $6. The stock has recently moved upward after falling as low as $3.15, but has since recovered somewhat. Since my call on fool.com, the stock is up 16.82%. Last year USU moved up quickly and was grossly overvalued, but the sell off was extreme and I believe this stock has higher to go in the upcoming months.

USU has had many critics, and many reasons not to support nuclear energy. It seems inevitable that current energy pricing will not increase the need for more power through electricity. The biggest problem with current plans is with hybrid vehicle production. In the very near future, we will have hybrid vehicles that will be plugged in at home for the purpose of taking the pressure off oil inventories. This move of using electricity in conjunction with combustable engines seems to be part of the equation. Other methods are starting, such as the use of natural gas to propel government and other vehicles, as with Clean Energy Fuels Corp.(CLNE). There is also talk of a development stage use of hydrogen, but it is far enough off that we need something that will work in the interim.

When looking at USU, it is better to focus on the positives with respect to the company. Worries that USU would not be able to come up with financing for its new plant have recently been stifled by anticipation it will have a DOE guaranteed loan. This is by no means for sure, but prospects are good.

USU is the only uranium enrichment facility in the United States. It provides half the nuclear fuel to the US and a third to the rest of the world. It acts as the executive agent for the program to convert the US and Russian nuclear warheads into fuel. As of the end of last year, its order backlog was $6.5 billion. If we are to look long term at this company, its American centrifuge will dramatically cut costs, as its margins have been pressured by the increased cost of electricity.

Nuclear energy has many advantages. Its zero emissions and reliability are very important, as it can be used as base as it is not reliant on the weather such as wind or solar. Electricity production costs by nuclear are cheaper than any of the fossil fuels. It is currently, the third largest source of electricity in the United States and provides approximately 20%.

The US has 104 reactors of the current 435 worldwide. USU's enriched uranium is used in three continents and in 150 reactors. Its revenues have increased every year since 2005. Net income was down in 2007 from 2006 based on costs. Revenue for last year was 68% United States, 18% Asia and Europe, and 14% Japan. 81% was from enrichment, 10% US Government contracts and 9% natural uranium.

Current valuation seems inexpensive as its PE ratio is only 10 times earnings. The company's forward PE is even better at 6.69. Earnings for the current year are already valued correctly in the stock price and next year is estimated to increase by 190%. I believe this stock is a good buy at these levels.

Tuesday, 10 June 2008
"USEC (NYSE: USU) is the nation's leading supplier of enriched uranium for use in commercial nuclear power plants -- in fact, it is the only supplier," notes value investor Nathan Slaughter.

In Half-Priced Stocks, he explains, "Low-enriched uranium is commonly used as fuel in nuclear reactors, and no other company in the U.S. provides it, giving USEC a dominant position in a key niche market."

Turnaround time for pharmaceuticals?"Its competitive advantage? USEC has the single best competitive advantage there is: zero competition -- at least in the United States. While the firm does have a handful of rivals overseas, it has reaped the benefit of being the lone U.S. supplier.

"The company has also been awarded lucrative contracts to perform work for the U.S. Department of Defense. The company also benefits from the nation's longstanding nuclear non-proliferation treaty with Russia.

"Specifically, it participates in the salvaging of old Soviet nuclear warheads under the 'Megatons to Megawatts' program, which essentially gives the firm a sharply discounted source of uranium.

"And, given the federal government's continued push toward alternative energy, regulators have a vested interest in seeing USEC prosper and could help the company obtain financing for new projects by backing its debt or assisting in other ways.

"Right now, there are 104 nuclear power plants operating in the US, and those facilities get roughly half of their uranium from foreign sources. However, incoming shipments from Russia (which account for about 40% of the nation's fuel) are scheduled to be cut in half within the next five years.

"In short, USEC doesn't have the capacity to meet demand now, and supply could be even more restrained in the coming years -- meaning the company won't have to worry about finding customers. And until new capacity enters the market, prices should remain firm.

"And that's just here in the United States. Demand for nuclear power is also on the rise elsewhere around the globe. In fact, the World Nuclear Association is forecasting the addition of 70 new reactors by 2015.

"And keep in mind, USEC has already built up a sales backlog of $6.5 billion, more than triple the revenues it reported all of last year.

"At the moment, USEC is still operating out of its Paducah, Kentucky plant, which relies on an outdated, energy-intensive process. However, the company is rapidly moving forward with the most advanced uranium enrichment plant in the world, a state-of-the-art Ohio facility that will use energy-efficient centrifuge-based technology.

"Unfortunately, rising prices for everything from materials to labor have led to cost overruns, and the budgeted $2.3 billion plant is now projected to cost upwards of $3.5 billion.

"The increased cost has caused many frustrated investors to pull the plug, sending the shares spiraling from $25 down to around $5.

"However, those with a less myopic viewpoint have plenty of reasons for optimism. According to Morningstar, the new centrifuge plant will require far less personnel to run and will operate on 95% less power, both of which should help profit margins expand considerably.

"Furthermore, many old contracts with utility customers (which were indexed to overall inflation rather than faster-growing energy costs) are set to expire, and new contracts in force will allow for more favorable terms.

"USEC is a classic Ben Graham pick. The company is now trading at just five times trailing cash flows, offers a stable earnings outlook, and has a healthy balance sheet sporting $161 million ($1.46 per share) in net cash.

"And since the most recent financial snapshot, the company just paid $5 million to acquire a 74-acre uranium enrichment facility in Tennessee with an assessed value in excess of $13 million.

"Perhaps most important, net tangible assets have risen 45% over the past two years and currently stand at $1.3 billion, or roughly $11.84 per share -- meaning the stock is trading at less than half of its book value."

Deere & Company (DE)

2008-06-11T09:44:00.000-07:00

Deere & Company (DE) just reported a decent quarter (see conference call transcript) and is now a buy on any dips simply due to its positioning in one of the hottest secular growth stories I've ever seen: agriculture.

Deere & Company makes tractors, farm equipment, integrated agricultural management systems, and irrigation equipment, just to name a few. When you think of agriculture and farming, Deere & Co is one of the first names that come to mind (and, rightfully so). Their bright green and yellow logo can be seen all over the United States and world. They have been dominating the agriculture industry for years and plan on doing so for the infinite future.

With the recent bull market in agriculture, it would be stupid not to include a name such as DE on your watch list. Sure, everyone is more interested in the seeds and fertilizers as the boom continues, but don't forget about DE in the process. As farmers lavish in high commodity prices such as wheat and corn, they now have more money to put back towards improving their farm. Sure, they will most likely buy seeds and fertilizers first, BUT, there's only so much of that they can buy. With limited farmland, they can't buy millions of seeds without the necessary amount of farmland to plant them all. So, naturally, they use the rest of the money to upgrade their equipment.

That's where DE comes in. They make so many different farming machines it would take a paragraph just to list them out. They have dominated that market share. Deere is one of the most trusted names out there when it comes to tractors and other various farming machines. With the recent agricultural boom, you can bet good money that DE has seen a ton of their products head off to farms across the USA. This is a long term buy simply because the food and famine issues are not going to go away anytime soon. Not to mention that the high crop and fertilizer prices just play into the whole story. There is high demand and limited supply of nearly everything. Until this gets corrected and producers can start producing enough to meet demand, DE and other ag names are a buy.

If you want to see a solid performing stock, just take a look at the 1 year chart of DE, revealing a beautiful uptrend. I said at the beginning of this analysis that DE is a buy on dips and this chart shows you exactly why. Look at every major dip on the DE chart. Literally every single dip has been a great buying opportunity, and the one we've just seen is no different. If you got into DE in January when the markets were abysmal down at 73, then kudos to you - that takes balls of steel. As Buffett says, buy when there's blood in the streets.

DE trends up in a practically perfect channel, following its 50 day and 200 day moving averages as supports. Right click here and open in new window - this is about as good as it gets for a long-term chart. DE is a solid company within a solid sector. Agriculture is going nowhere in the near future as farmland becomes scarcer and commodity prices continue to rise. This is simply a buy on dips in a long term name, simple as that.

Why is DE such a solid buy on dips name? Well its partially due to the fact that they are just a solid, well-run company. Turning to fundamentals, we get a better idea how financially stable DE is. With a trailing PE of 21 and a forward PE of 14, DE's valuation is good. A PEG ratio of 1.88 might indicate that DE is done growing, but that is far from the case. The recent run-up in agriculture stocks due to the ag-bull market is skewing these numbers. DE's machinery is selling like hotcakes. With operating margins of 11% and a return on equity of 24%, DE is a solid player in the agriculture game. Its margins could be better, but those should increase over time. DE also has a price to sales ratio of only 1.57, signaling supreme undervaluation (any PS ratio under 5 = undervalued). DE has a market cap of $34 billion and growing.

Overall, DE posts sounds numbers in a thriving sector. Growth is definitely one factor not as apparent in the numbers. This agricultural bull market will surely see DE's orders continue to surge, yet the PEG reflects a growth story that is stagnant. This just goes to show that sometimes the numbers are skewed and you have to look beyond the numbers and into the current market environment. This is exactly the case with DE. With quarterly revenue growth of 20% and quarterly earnings growth of 52%, DE would be pretty much trading at a discount to its earnings growth rate. This is just another reason to own this name on pullbacks.

Looking at the Institutional ownership aspect of DE, we see that it includes some big names. Major shareholders of DE include: Vanguard, Barclays, T. Rowe Price, BlackRock, and Chase.

Analyst coverage of DE reveals an astonishing consensus among some of the big investment banks and research firms. Citigroup, Cleveland Research Company, and Wachovia ALL rate DE 5 stars. Merrill Lynch is the laggard of the group, ranking DE a respectable 4 stars. Clearly the analysts are fans of DE's strong position in the agriculture sector. They all expect DE to significantly outperform the market with less than average risk over the next 6 months. And, given the secular bull market that agriculture is right now, you could argue that DE has less than average risk for the entire next year (based on all the estimates agriculture names have been giving).

So, its really quite simple. The secular growth story DE is in right now gives you reason enough to own it. But, as if that was not enough, you could also own it for strong fundamentals, or a very strong uptrending chart. Commodity prices have skied higher recently with agricultural commodities such as corn and wheat experiencing big run-ups. Farmers directly benefit from this as they receive higher prices for the crops they harvest. In turn, the farmers use this increased cash flow to plant and harvest more crops. Thus, the seed producers, the fertilizer producers, and the machinery producers all benefit. It is one giant domino effect. Deere is a direct beneficiary of higher commodity prices and an agricultural bull market. And, the best part is, this ag-bull market is not going anywhere. Farmland is scarce and farmers are growing as fast as they can to try and meet demand.

Agriculture is a sector that will see continued strength in the coming year and DE is one of the best names in the sector. Buy this name on dips simply because it works. Just look at the chart, it speaks volumes. Buy on dips and savor the ag secular growth story.

Rejuvenation of spot uranium price predicted for 2H 2008

2008-06-11T08:32:00.000-07:00

Haywood Securities says uranium demand will “manifest as a technology-driven nuclear renaissance across a growing number of countries for generations to come.”Author: Dorothy Kosich
Posted: Friday , 06 Jun 2008

RENO, NV -

In their Uranium Industry Report published Thursday, Haywood Securities forecasts primary uranium production at 113.5 million pounds this year, which is well below reactor demand as secondary uranium sources dwindle.

Haywood predicts that the second half of 2008 will see a rejuvenation of the spot price.

Meanwhile, demand continues to outstrip primary supply, while a sustained injection of capital is needed to meet required primary production increases, according to Haywood.

In the report, Haywood analyst Geordie Mark noted that production costs have increased across the sector with the uranium price representing only a small fraction of operating costs.

The World Nuclear Association had earlier forecast uranium production of 124.8 million pounds of U₃O₈this year, which had been projected to be a 16.5% increase on 2007 production. However, Mark said that, "based on the stilted flow of supply to venture on stream thus far due to various technical and infrastructural impediments, it is anticipated that 2008 production will rise only moderately above 2007 production."

Mark attributed the drop in production to: 1. ongoing production pressure within the sector; 2. Uncertainty of power and acid supply; and, 3. Technical nuances of bringing new production on-stream. "Consequently, these factors provide greater potential for upward pressure on the spot price."

Haywood asserted that 2008 primary production "will continue to fall short of future reactor demand. Thus, the entire sector will be ever more reliant on dwindling secondary supplies that progressively become more expensive, as well as technically, and politically difficult to extract."

"These factors will continue to support uranium prices into the future, where geopolitical interests will become ever more focused on security of domestic supply," Mark suggested. "This is particularly pertinent given that the major producers (Canada, Australia, and Kazakhstan) have little domestic demand."

"Primary uranium production has failed to deliver at estimated forecast rates over the last few years, and 2008 appears to be no except with Q1 production data being lower than either the forecast estimates and/or the previous quarter for a range of operations owned by Cameco, BHP Billiton, Denison Mines, Energy Resources, Australia, Paladin Energy, AngloGold Ashanti, Uranium One and Uranium Resources.

LONGER TERM OUTLOOK

Haywood asserts that the public's quest for a cheap, cleaner alternative to hydrocarbon-based energy production is being met "with a measurable change in view and broader acceptance of nuclear power generation by the general populace.

"Popular acceptance equates to a shifting political outlook on nuclear policy leading to potential changes in nuclear power production policy in both: countries ramping down future production (e.g., Sweden and Germany, as well as those countries considering a nuclear future. These motions are leading to a shift, a rebalance in sources used for future energy supply leading inexorably to a greater role for nuclear energy; and a sustained nuclear renaissance."

Nevertheless, Mark acknowledged that "future growth is at a bottleneck that continues to narrow and lengthen due to infrastructural impediments, political and NGO engagement, and an over reliance on second source material."

Haywood advises that, in the midterm, increased uranium production capacity is going to be largely derived by the expansion of current mines, or the exploitation of deposits in currently producing countries, such as Kazakhstan, the United States, Canada and Australia. "This is primarily due to infrastructural, regulatory and community support that is in place to expand and/or develop mines in locations with a ready draw on personnel currently engaged in mining," Mark suggested.

New long-term nuclear capacity will be driven mainly from China, India, Russia, and the United States, Haywood suggests. The Gulf States, mainland Europe, Africa and other counties will also increase nuclear generating capacity at a smaller rate

In their report, Haywood predicts that the next uranium companies to move to producer status within the next three years will originate from U.S. operations. "The rationale is that the USA was the primary producer of the world's uranium, and thus is a producer with a regulatory framework and a well established infrastructure that can be employed to bring projects into production rapidly," according to Mark.

The U.S. uranium projects may be small at under 2 million pounds of U₃O₈ of annual production. The mostly likely states that will experience increased production are Colorado, Utah, Wyoming and Texas, Haywood predicts. Despite this production, the U.S. will still have significant need for uranium.

In the meantime, Haywood forecasts that primary production to 2015 will continue to rely on secondary supplies, "which is unsustainable, and particularly acute in an environment seeking to expand nuclear energy capacity."

Study sees a uranium price lift ahead as buyers venture back

A just-released and detailed quarterly report on the global uranium scene estimates that the current uranium price of $US60 a pound – down 15% from March end – will rebound to around $US75/lb.

Author: Ross Louthean
Posted: Friday , 30 May 2008

PERTH -

Sydney-based Resource Capital Research (RCR) believes that a perceived recovery in the uranium price in the next quarter is linked to signs of improved market sentiment for uranium equities both on the Australian and Canadian bourses.

RCR said the industry average, long term uranium price was now estimated at $US90/lb, down $US5/lb from where it had held firm for nearly 12 months to March 2008.

RCR's senior analyst, John Wilson, said positive market sentiment has returned, driven by indications the spot uranium price is about to head up, combined with relative stability in the equity markets following the sub prime rout.

Forward indicators (fund implied price) currently indicate an expectation for an upward correction to the uranium price to around US$75 (+25%). In the past 3 months the fund implied price has ranged from US$57/lb to US$90/lb. According to recent market commentary by Trade Tech "[uranium] buyers are beginning to venture back into the market and sellers are less willing to cut prices".

RCR said the market valuation of Australian companies with one or more uranium projects (266 companies) is up 23% over the past month, up 12% over the past 3 months, and down 8% over the past 12 months.

This compares with a selection of 289 Canadian companies with one or more uranium projects, up 7% over the past month, down 6% over the past 3 months, and down 32% over the past 12 months. The RCR report covers explorers operating in Australia, North America, South America, southern Africa and Mongolia.

RCR echoed a point made several times recently by Mineweb that the Beverley Four Mile uranium project in South Australia -- Heathgate Resources 75%, Alliance Resources (ASX: AGS) 25% -- may beat the Honeymoon in situ recovery (ISR) project in the same region into production. (This is looking more certain now that Honeymoon's troubled owner Uranium One (TSX: UUU) has admitted it may sell Honeymoon so it can focus on remedying problems at its Dominion mine in South Africa and on developing its Kazakhstan projects).

In the past month the majors have mostly demonstrated positive share price performance. Cameco (CCO) is up 10%, Denison Mines (DML) up 21%, Uranium One (UUU) down 3%, Energy Resources of Australia (ERA) up 15% and Paladin (PDN) up 45%.

Planned and proposed construction of new nuclear power reactors worldwide has increased "strongly" in the past two years. From January 2007 to May this year there was an increase of 89 reactors from 222 reactors to 311 reactors (+40%). This compares with 439 nuclear power reactors currently in operation and 36 under construction.

America's Congressional Budget Office reported that nuclear power would be commercially competitive compared to conventional fossil fuel technologies at a carbon price of $US45/t. Rising prices of competing energy sources - both spot oil and thermal coal prices, which spiked over $US130/bbl and $US130/t respectively, reinforces the commercial potential of nuclear energy.

Major issues in the past three months were:

NamWater (Namibia) announced plans to construct a second desalination plant to support water needs of the growing Namibian uranium industry - commissioning expected 2010 (capacity 25 million m³ per annum). The other desalination plant is already under construction (Areva and NamWater) - commissioning 4Q09 (capacity 20 million m³ per annum) to serve Areva's Trekkopje heap leach project.
Kazakhstan's new sulphuric acid plant at Balkhash (capacity 1.2Mtpa) is expected to be commissioned this June. Kazakhmys Corporation is building the plant adjacent to its copper smelter. Capacity is expected to be sufficient for KazAtomProm's planned ISR uranium mining needs.

Key corporate developments in the past three months included Bluerock Resources Ltd (TSXV: BRD) starting ore production from the J-Bird project in Colorado in the United States and Hathor Exploration (TSXV: HAT) reporting a significant discovery in the Roughrider Zone at its Midwest NE project in Canada's Athabasca Basin. Intercepts include 15m @ 10% U₃O₈ and 9m @ 10% U₃O₈.

Zambia is expected to issue uranium mining licenses in July. Companies with advanced uranium projects in Zambia include Equinox Resources (ASX: EQN) which released its updated feasibility study for a stand-alone uranium plant at Lumwana and African Energy Resources (ASX: AFR) which released a pre feasibility study for its Chirundu uranium project.

RCR said an enhanced scoping study is expected at Bigrlyi in Australia's Northern Territory, while a market positive on the ASX was the listing of Energy and Minerals Australia (ASX: EMA) with exploration focus on the Mulga Rock Deposits in Western Australia, which had been a major discovery dropped by PNC of Japan about 20 years ago.

Extract Resources (ASX:EXT) expects to announce an initial resource at Ida Dome (Namibia) 2Q08. Globe Uranium (ASX:GBE) expects to complete a scoping study at the Kanyika uranium/specialty-metal project (Malawi) 2Q08. Significant resource upgrade at Kvanefjeld (Greenland, Greenland Minerals - ASX:GGG) May '08 (to 229Mlb U₃O₈, up 104%). An initial resource is expected at Bennet Well (WA, Scimitar Resources, ASX:SIM) 2Q08. Toro Energy (ASX:TOE) expects to complete a PFS at Lake Way/Centipede mid '08 and drilling in Namibia starts 2Q08. Uranex (ASX:UNX) has scoping studies and resource statements expected at Thatcher Soak (WA) and Bahi (Tanzania) 3Q08. West Australian Metals (ASX:WME) expects the next resource statement at Marenica (Namibia), adjacent to Trekkopje, July '08, targeting 35Mlb to 50Mlb U₃O₈.

Strong growth predicted for uranium as global energy demand could rise 50% by 2030

Australian broking house Southern Cross Equities has reiterated a comment attributed to BHP Billiton chief Marius Kloppers that, driven by China, India and developing nations, global energy demand could grow 50% by 2030.

Author: Ross Louthean
Posted: Tuesday , 20 May 2008

PERTH -

A detailed study on energy issues released by Southern Cross Equities has painted a strong growth pattern for uranium for nuclear power and assumes that if uranium mine production grows only by the current 3% per annum then the shortfall in 2030 could be 30,000 tonnes based on China's unrelenting growth continuing.

Southern Cross said the unprecedented structural increase in commodity demand "has coincided with decades of under-investment in productive capacity.

The Sydney-based broking house cited Kloppers' reported statement that current energy supply "is fully utilised" that has resulted in higher prices that are "structural rather than cyclical."

"The significance of this comment should not be under-estimated. We believe this represents a genuine endorsement of our ‘stronger forever' commodity view," Southern Cross' review said.

The report said there is little doubt energy, water and food are globally scarce and that the security of supply for these vital commodities will become a major issue for governments world-wide.

"In this regard currently we are witnessing China through its sovereign wealth fund (or masquerading State-owned vehicles) taking equity stakes in companies supplying strategic commodities.

"There is no doubt that strategic commodities in the form of oil, LNG or uranium are strategic commodities of the highest calibre," Southern Cross said.

In Australia the Rudd Federal Government has committed to a 20% increase in alternate renewable energy use by 2020, as well as plans to reduce CO₂ emissions by introducing a carbon credits trading scheme by 2010.

"We expect (Australian) environmentally-friendly companies with low carbon emissions generating carbon credits will trade at a significant price/earnings premium," the report said.

"Uranium is the ultimate alternate green energy source. It is highly environmentally friendly compared to oil considering that after the initial mining and processing a nuclear reactor emits no CO₂ emissions.

"However, even adjusting for mining and processing, the carbon emissions of nuclear power are less than all renewable energy sources with the exception of hydro-electricity.

"In our view the world continues to have irrational fear of nuclear power."

Southern Cross said the World Nuclear Authority (WNA) reported nuclear reactors supply about 17% of global electricity requirements. In contrast to the rest of the world, Asia is a major nuclear power generator. South Korea and Japan generate 45% and 30% respectively of electricity through nuclear power while the global figure is 18%.

WNA reportedly said China, Japan, India and South Korea will account for 36% of the world's new electricity generation out to 2020, of which nearly 40% will come from nuclear power. But at this stage China generates just 1.4% of its power from nuclear plants and India just 4%. "The upside for uranium as an energy source in these countries is huge."

Southern Cross said right now some investors have been spooked by the spot uranium price falling to the low $US60/lb range, however, unwinding of large speculative positions has played a large part in the fall.

"At current levels, we believe the downside risk for the uranium spot price is very limited. The hedge fund selling has abated.

"In fact, we are hearing that speculative short positions have been unwound with the global power disruptions. In addition, supply remains dependent on secondary sources."

"We believe the spot price is now close to the marginal cost of new production," Southern Cross said.

Inside US uranium markets

The latest uranium marketing annual report from the Energy Information Administration suggests flat US buying volumes for much of the next decade.

Author: Barry Sergeant
Posted: Thursday , 29 May 2008

JOHANNESBURG -

The latest Uranium Marketing Annual Report from the Energy Information Administration (EIA), a US government agency, suggests that US buyers of uranium, some of the biggest in the world, could have played a part in the collapse in spot prices from a manic $138/lb in June 2007, to, eventually, current levels around $60/lb, a level which has not yet demonstrated a bottom.

The latest EIA annual marketing report says that owners and operators of US civilian nuclear power reactors purchased a total of 51m pounds U₃O₈e (uranium oxide equivalent) of deliveries from US government, US suppliers and foreign suppliers during 2007, at a weighted-average price of $32.78/lb U₃O₈e.

The 2007 total of 51m pounds U₃O₈e decreased significantly by 23% compared with the 2006 total of 67m pounds U₃O₈e. On the flip side, the 2007 weighted-average price of $32.78/lb U₃O₈e increased significantly by 76% compared with the 2006 price of $18.61/lb U₃O₈e.

The EIA makes no comment on or analysis of commercial uranium prices, an issue that is compounded, in any event, by parallel term (contract) and spot markets. The EIA defines spot contracts as a one-time delivery (usually) of the entire contract to occur within one year of contract execution (signed date). Long-term contracts include those with one or more deliveries a year following contract execution (signed date), and as such may reflect some agreements of short and medium terms as well as longer term.

Eager to secure maximum possibility of supply, utilities are apparently resigned to holding inventory - stockpiles - of uranium. One factor here is that only 8% of the 51m pounds U₃O₈e delivered to US buyers in 2007 was US-origin; foreign-origin accounted for the balance. During 2007, 13% of the 51 million pounds U₃O₈e delivered was purchased under spot contracts at a weighted-average price of $88.25/lb U₃O₈e. The remaining 87% was purchased under long-term contracts at a weighted-average price of $24.45/lb U₃O₈e.

As of the end of 2007, the maximum uranium deliveries for 2008 through 2017 under existing purchase contracts for owners and operators of US civilian nuclear power reactors totalled 230m pounds U₃O₈e. Also as of the end of 2007, unfilled uranium requirements (not under contract) for 2008 through 2017 totaled 264m pounds U₃O₈e.

These contracted deliveries and unfilled requirements combined, according to the EIA, represent the maximum anticipated market requirements of 493m pounds U₃O₈e over the ten year period. Simply divided, this is roughly the same annually as the 51m pounds delivered to US buyers in 2007. For 2008, the maximum anticipated requirements of owners and an operator of US civilian nuclear power reactors is 43 million pounds U₃O₈e. This suggests a good to high level of standing inventories on US soil.

According to Ux Consulting, a specialist trade consultant, with the focus on term deliveries, uncovered needs shift forward by one year. Ux Consulting says that uncovered demand for 2011 stands at 17.4m pounds U₃O₈e, but jumps to 30m pounds U3O8e in 2012 and reaches its high point of 48m pounds U₃O₈e in 2016.

Ux Consulting and TradeTech this week reported spot prices unchanged from the previous week at around $60/lb. Ux Consulting has also introduced what it calls the "mid-term" market, typically for deliveries beginning one to two years out with deliveries over two to three years.

Ux Consulting says the average mid-term price starts around the mid-$70/lb range, and features base-escalation or stair-stepped provisions. Ux Consulting believes that the supplies for mid-term transactions come from inventories, rather than from new production as is usually the case for term contracts.

This week the term price for U₃O₈e was unchanged at $90/lb for both Ux Consulting and TradeTech.

Teck's transformation

2008-06-08T20:21:00.000-07:00

June 1

The latest zinc trade data out of China came as a huge positive surprise to the market and should bode well for a balanced zinc market this year and next, according to Desjardins analyst John Hughes.

On Thursday, the Chinese government said that the country imported net refined zinc of 4,672 tonnes in April compared to net exports of 119,218 tonnes in the same period in 2007. Net imports from January to April now stand at 4,334 tonnes versus net exports of 119,218 tonnes during the first four months of 2007.

In a note to clients Mr. Hughes said:

We view this as very positive – recall that the market was expecting China to be a net exporter of zinc metal at an average monthly rate of 12,000 to 17,000 tonnes at the beginning of the year.

Going forward, the analyst said the country will record net imports of around 5,000 tonnes in May 2008 and be a net exporter by 50,000 tonnes in 2008. In 2007, China exported net 126,159 tonnes of zinc.

Mr. Hughes told clients the data supports his forecast of a balanced zinc market in 2008 and 2009, and based on the expectation for inventory levels to remain at current lows, he estimates average zinc prices of $1.25 per pound in 2008 and $1.50 per pound in 2009.

The Desjardins analyst also foresees a balanced world copper market in 2008 and 2009 after China also reported strong data for refined copper, with net imports at 109 kilometric tonnes during the month. For the year so far, net imports equal 486 KMT for a annualized rate of 1,467 KMT versus Mr. Hughes' estimate of 1,200 KMT.

Mr. Hughes' said China's strong demand for both copper and zinc markets is good news for Teck Cominco Ltd. (TCK) and reiterated his "buy" rating and C$59.60 price target on the stock.

He wrote:

We note that copper and zinc sales constituted 29% and 40% of Teck's consolidated revenues in 2007, and we expect the company to benefit from strong metal prices in 2008.

nov 25

While figures show that China remains a net exporter of refined zinc, it nonetheless imported 15,941 tonnes of the metal in October – an all-time high. China continues to be a net importer of copper, bringing in 89,038 tonnes last month.

Domestic demand for both metals remains strong in China, while inventories are near historical lows, according to Desjardins Securities’ John Hughes. As a result, the analyst continues to see renewed strength for metal prices in 2008.

He also reiterated his “buy” recommendation and C$55 price target on shares of Teck Cominco Ltd. (TCK), which represents upside of 50% from its Thursday close of C$36.67.

As yet another signal of China’s growing appetite for metals, two of China’s largest metals company just announced plans to spend roughly $3.7-billion to develop a large copper mine in Afghanistan.

The Anyak copper field is estimated to contain 11 million tons of the metal, while 220,000 tons are expected to be produced there annually. The deposit is near the capital of Kabul, and was first discovered in a geological survey by the former Soviet Union in 1978.

Meanwhile, Octagon Capital analyst Hedrik Visagie forecasts copper consumption in China will be 4.7 million tons in 2007, zinc at 3.4 million tons and lead at 2.45 million tons.

In a note he said that,

If consumption grows by 12% in 2008, and Chinese mine production remains static to feed domestic growth, China will have to import 564,000 tons more copper, 408,000 tons more zinc, and 294,000 tons more lead.

He also added that this is very bullish for the metals.

Mr. Visagie also pointed out that this analysis contrasts with some of the “current conventional wisdom of doom and gloom and oversupply.”

Oct 24

Teck Cominco Ltd. (TCK) is valued similarly to its competitors, but the company has "stand-out margins and growth," according to Citigroup Global Markets analyst John Hill. He is initiating coverage of the stock with a "buy" rating and a hefty price target of C$60 a share.

Mr. Hill is a believer in the so-called "commodity supercycle" thesis, and feels Teck is well-positioned to take advantage of it because of its exposure to base metals, coal, gold and the oilsands.

"In the global contest for resources Teck has natural advantages in Canada and Alaska, but may be 'stuck in the middle' in terms of critical mass," he wrote in a note to clients.

In the long-term, Mr. Hill sees Teck as a buyer rather than a takeover target because of its dual-class share structure and growth mandate. "Shareholders are trading control for superior long-term capital allocation, in commodity exposure, operations, and dividends/buybacks," he wrote.

Mr. Hill also noted that his "sum of the parts" model for Teck suggests upside to valuation.

Having blown the treasury on a series of high-priced acquisitions, Don Lindsay has created a diversified company with a future tied to surging copper. He says he's laid the groundwork for the next 20 years, but will the master of the deal prove as adept at the down-and-dirty business of mining?

ANDY HOFFMAN

October 20, 2007

VANCOUVER -- The only boy growing up in a house with five sisters, Don Lindsay did the dishes. He did more dishes, in fact, than all of his siblings combined.

At the time, no one was quite sure why he agreed to the chore night after night.

But the future president and chief executive officer of Teck Cominco Ltd. knew exactly what he was doing and why, even if others did not.

"Every family would have a version of this where they would argue over who would do the dishes," Mr. Lindsay explains.

"I always found that rather than sitting around and talking about it, it was better to do them and get them done. Then I could go play ball hockey."

As the head of Canada's largest diversified mining company, Mr. Lindsay has recently embarked on a similar cleanup campaign, spending billions of dollars on a series of small and medium-sized acquisitions and investments.

Yet to many, his actions have puzzled rather than placated. Teck's stock price, while posting strong gains over the past year, has still lagged most of its rivals.

Teck, Mr. Lindsay declares, is in the midst of nothing less than a major facelift. No longer a zinc-focused miner with declining copper production, it is now a copper-rich company with some of the best growth prospects in the industry. With five distinct operating divisions - copper, zinc, coal, oil and gold - Teck is building a portfolio diverse enough to effectively buffer the company's profit from wild swings in commodity prices.

The major problem, he concedes, is that most people haven't figured it out yet.

At stake with Mr. Lindsay's plan is the strategic direction of Canada's last great base metals company. In an industry that has seen some of its most storied names, including Alcan, Inco and Falconbridge, gobbled up by aggressive foreign buyers over the past year, Teck has become the Great White North's lone hope to become a mining major, able to compete in the same weight class as the sector's giants.

"We have a very clear vision of what we're doing. We've got seven or eight of the steps done and we've got more to go. It's coming together pretty nicely and we're not going to stop," Mr. Lindsay says.

TECK SPENDING SPREE

RAISES EYEBROWS

With a flurry of frenetic corporate activity, Mr. Lindsay, a former investment banker, has quarterbacked a slew of acquisitions and mining project investments during the past 12 months.

In a spree that has seen the company spend or commit to spend more than $7-billion, Teck bought copper assets in South America, pledged to build a massive mine in northern British Columbia, purchased majority control of its coal operations and significantly increased its holdings in the oil sands. Teck also dipped a toe into the diamond business and even plowed $25-million into a company that hopes to one day mine copper and gold from the ocean floor.

More than a few of the deals prompted rounds of collective head scratching.

Were the moves part of a well-developed strategy or simply the result of an overeager management team desperate to close transactions (and still reeling from its bitter loss in the battle for Inco in 2006)? While not insignificant in monetary terms, several deals could certainly be called safe - mere increases in the company's ownership of coal and oil sands projects.

"They have been doing all the right things. The problem is it appears to be random rather than part of a well-conceived strategic direction. Their challenge is convincing everyone that they really do have a strategic direction and they are not just opportunistic," said John Stephenson, senior vice-president and portfolio manager at First Asset Funds Inc., which owns roughly $4-million worth of Teck's common shares.

Still others worry that Teck is developing a proclivity for overpaying.

July's $4.1-billion friendly bid for Aur Resources Inc., which offered a 28-per-cent premium for the copper company's shares, was a little too friendly, some analysts say.

"When you start to look out now, their growth profile looks a lot better than it used to. It's just a question of what did they pay to get it," said Orest Wowkodaw, an analyst at Canaccord Adams.

"I think they paid up on every one of those deals. ... They surely didn't get anything on the cheap," he said.

Teck's hefty balance sheet has certainly been dented by all the activity, as well as the $1-billion worth of share buybacks and dividend payments it has returned to investors in the past year. Awash in $5.3-billion in cash at the start of the year as a result of strong zinc, copper and coal prices, Teck is expected to finish 2007 with less than $1.3-billion in cash on hand.

"It seems like in the last five months they've just blown the whole treasury," Mr. Wowkodaw said.

Mr. Lindsay bristles at the suggestion he has squandered the company's cash.

The CEO points to Moody's Investors Service's recent upgrade of Teck's credit rating as a "validation" of the company's strategy, despite the shrinking balance sheet.

"In the middle of the greatest credit crunch the North American economy has seen in 20 years, we got upgraded to the highest credit rating we've ever had ... obviously, they like what we did," he says.

DEAL MAKING DEFINES

LINDSAY TENURE SO FAR

Mr. Lindsay insists he is not a deal junkie, despite a popular perception to the contrary. Tall and trim in a dark blue pinstriped suit, white shirt and orange striped tie, the 48-year-old may have kept the polished appearance of the investment banker he once was, but in his heart, he says, he has always been a down-and-dirty mining guy.

Growing up in mid-town Toronto, his interest was piqued by a visit to a mine in 1968. A year later he bought his first mining stock. Coincidentally, both had a Teck connection. The mine was the company's Temagami copper mine in Ontario and the stock, Leitch Gold Mines, was a company chaired by Norman Keevil Sr., Teck's late founder and father of current chairman Norman Keevil Jr.

Trained as a mining engineer in university, Mr. Lindsay worked summers at a uranium mine in Saskatchewan and later at an iron ore operation near Labrador City. "I was a foreman in the pits," he says with pride. "I was a blasting engineer."

What came next, most would call a career. But Mr. Lindsay now refers to a 20-year stint at CIBC World Markets as a "diversion." While there, he launched a global mining team, which became a dominant industry force, brokering major mining deals and financings. Before leaving to join Teck in 2005, Mr. Lindsay headed the bank's entire investment banking operations.

Back in the business of extracting resources from the ground, Mr. Lindsay seems genuinely thrilled.

Seated at a boardroom table at Teck's head office in Vancouver, high resolution photographs of the company's 18 mining operations scroll by on a flat-panel television behind him. Turning his impossibly boyish face toward the screen, Mr. Lindsay remarks on a winter scene at a Teck coal mine.

"We have some of the most beautiful mines in the world," he says.

Mining has not, however, defined Mr. Lindsay's tenure in the executive suite at Teck so far. Deals and, most notably, attempts at deals are what have put Teck in the spotlight.

A $20-billion stock-and-cash offer for Inco in 2006 was Mr. Lindsay's full-blown attempt at the proverbial transformative transaction; the company-making deal that has become a hallmark of the mining industry in the past few years and successfully demonstrated by heavyweights including Xstrata, CVRD, Barrick Gold and Rio Tinto.

It never happened. Teck was forced to abandon its pursuit of the nickel producer and its prized Sudbury operations when a proposed $5.7-billion stock sale, the biggest in Canadian history, failed to find enough buyers. An all-cash bid by Brazil's CVRD won the day.

"If you look back at our last effort, the so-called 'Hail Mary,' I had a choice then," Mr. Lindsay says.

"CVRD had bid all cash and I could have just walked away. But I gave it one more go. I said we'll put it to the shareholders and see what they do. They called it the Hail Mary and I thought that was appropriate terminology. It was like that. You are deep in your own zone, there is a big lineman named CVRD bearing down on you and the clock is running out. You're down by five points. What are you going to do? Put your knee down and concede defeat or throw the ball? So I threw the ball. The fact is, when the ball was on the ascendancy the crowd was all excited and everyone thought it was going to make it. Then as the ball starts to reach its apex and come down, everyone realizes the ball is never going to make it.

"But you had to try. I have no regrets for trying. You had to go for it. That's what [Barrick Gold chairman] Peter Munk was talking about [when he publicly chastised Canadian mining CEOs for lacking "balls" and "vision"]. But it didn't work out. They had more money than us and more government support and all the rest of it. So then you get on with life and you build a company a different way."

In the wake of that very public setback, Teck entered a three-month period of reflection. Then it turned to Plan B.

TECK'S COPPER STRATEGY

WINS OVER THE PESSIMISTS

Too small to compete with most of the mining majors for large top-tier assets and unwilling to invest in many of the rich deposits found in overtly risky political jurisdictions, Teck has undertaken more of a piecemeal approach to growth.

Instead of a single, revolutionary transaction, the company has opted for a series of smaller deals that Mr. Lindsay contends will have just as dramatic an effect on the company. He concedes, however, the payoff for shareholders will likely take longer and there will be plenty of headaches along the way.

"If you look back on the company from 2012 or 2014 and ask if the program was transformational, I think you will find that it really is. It isn't as much fun for a journalist or an analyst. It's a slow and painful process and there will be periods where there will be capital cost overruns and delays. But at the end of it all, the Teck Cominco shareholders will have three times as much copper, three times as much gold, materially more coal and a whole oil sands business backing it up," he said.

"That is transformational."

The Aur transaction has already dramatically overhauled Teck's asset mix.

Long considered to be a play on zinc - a somewhat lowly base metal used primarily for galvanizing steel - Teck is now more of a copper company. It has sharply increased its exposure to the metal, whose short-term prospects are considered by most analysts to be far brighter than those of zinc.

In 2008, 53 per cent of Teck's profit is expected to come from copper while only 30 per cent of profit will come from zinc, even though Teck remains the world's second-largest zinc producer.

Fuelled by robust demand from China's booming economy, where copper is a desperately needed material to build housing and infrastructure, the metal's price has remained particularly resilient in recent months. Zinc, on the other hand, is more plentiful in China and with new mine supply expected to come on soon, most analysts are more bearish.

"There is some hesitancy with zinc and that is a potential negative for this company. I don't think people realize that copper is now a dominant force with this transaction. What they're saying is 'Look, we're really a copper company now with a zinc piece bolted on the side,' " Mr. Stephenson said.

In addition to the immediate 43-per-cent increase in annual copper production of 200 million pounds provided by Aur's operating mines in Chile and Canada, Teck expects further development of the Aur assets and other projects to help the company boost annual copper production by 72 per cent or 342 million pounds by 2010.

The immediate production revenue and growth potential from the Aur deal will help offset the massive capital spending of at least $1.5-billion that Teck is facing with the Galore Creek project in northern British Columbia. The company is committed to developing the asset as part of a 50/50 partnership deal with NovaGold Resources that was announced in May. The mine, which won't be in production until at least 2012, is believed capable of producing more than six billion pounds of copper and to have a lifespan of more than 20 years.

"Teck currently has one of the strongest copper growth pipelines in the Canadian equity market," Scotia Capital analyst Onno Rutten said in a recent note to clients. The analyst believes Teck is now the Canadian copper growth stock along with First Quantum and Inmet.

Mr. Lindsay says Teck's outlook for the price of copper shifted after the metal hit a record $4 (U.S.) a pound last year. "We were bearish on copper at that stage," he explains. They expected the price to drop back below $2 a pound. But it never got there, bottoming out at around $2.35 a pound. "That was quite an eye opener," Mr. Lindsay says. Teck believes that China has now replaced the United States as the main driver for copper prices. Despite a slowing U.S. housing market, the price has stayed above $3.50 a pound for the past few months, as Chinese demand remains strong.

"So the outlook looks pretty good. We don't need to have $3 copper, but if it's true that China is a buyer at $2.50, which is what things look like, then that would be a pretty good base," Mr. Lindsay says, cautioning that the company's long-term outlook for copper is well below that level.

Even so, many analysts and investors who initially criticized Teck for paying too much for Aur have changed their tune. Considering the current copper price and the market's revised expectations for the metal, Aur shares, some now suggest, would likely be worth far more today than the $41 (Canadian) each that Teck paid.

"If you look at it with a revised price deck for copper, they got a bargain," Mr. Stephenson said.

That might explain the anxious moments Mr. Lindsay and his management team endured on Aug. 21, the deadline for Aur shareholders to tender to Teck's offer.

While most expected the generous bid to be a slam dunk, the executives had reason to worry. Ahead of the Teck offer, Australian zinc rival Zinifex had built up a near 5-per-cent position in Aur, they had been told. As well, Xstrata and Anglo American, which both have operations close to Aur's in Chile, were still considered threats to launch rival bids. The market was willing to forgive Teck for its failure to pull off the Inco deal, but would it forgive it again if it lost Aur?

The stock tender came in as usual until about 2 o'clock in the afternoon, Mr. Lindsay recalls, and then "it just stopped." Still short of the necessary two-thirds of Aur shares needed for the deal to go through, the CEO began fretting that Teck's bid was going to come up short.

"I was thinking my nightmare is appearing," Mr. Lindsay says with a laugh. Shortly before the midnight deadline, a brokerage firm whose clients collectively owned roughly 30 million shares submitted enough stock to give Teck 93 per cent of the company, much to the relief of Mr. Lindsay and his team. "For five hours we were like, oh boy, here we go again," he says.

DIFFICULT TASK REMAINS

TO RAISE PRICE OF STOCK

Mr. Lindsay has time on his side, a rare luxury in the mining industry these days. His company is shielded from unwanted takeover bids by its dual class share structure.

With a market value of more than $21-billion, Teck is still very much a family business thanks to the protection of the founding Keevil family and its Japanese partner, Sumitomo Metal Mining Co. Ltd. Together they own more than half of the miner's class A shares, (essentially giving them voting control of the company).

Things are not about to change any time soon. Teck's straight-talking 69-year-old chairman, Mr. Keevil Jr., is emphatic; there are no plans to sell.

"None whatsoever," he says.

The stable ownership structure has allowed Teck to invest in capital-intensive long-term projects such as the oil sands. Although the estimated $4-billion it will have to spend up front for its interest in the Fort Hills project won't start being paid back for at least half a decade, the operation could run for half a century.

Heavy oil may be a new business for Teck, but Mr. Keevil says it meshes perfectly with the company's unwavering strategy of acquiring long-life, high-quality ore reserves in mining-friendly jurisdictions. While a dearth of exploration discoveries over the past decade has forced many other miners to acquire second-tier assets, old mines or properties in risky political jurisdictions in an attempt to replenish reserves, Teck doesn't face the same pressures.

"A mining company without ore reserves is an oxymoron," Mr. Keevil says.

Mr. Lindsay, the chairman believes, has brought a ferocious work ethic and a youthful enthusiasm to the company. "He has a great capacity for handling a lot of detail, which I never liked to do, as well as seeing the broad picture," Mr. Keevil says.

"He's a perfect CEO."

He also has major challenges ahead. Teck's Canadian coal operations are heavily sensitive to the rising Canadian dollar. Every 1-per-cent increase in the loonie against the U.S. greenback will reduce annual profit by more than $20-million.

As well, Teck's share price, while gaining a respectable 40 per cent on the New York Stock Exchange over the past year, has underperformed many of its rivals during the same period.

Stock in CVRD, which is also shielded from a takeover by the Brazilian government's "golden shares," has gained 172 per cent over the past year on the NYSE. Xstrata, protected by a 35-per-cent stake owned by secretive metals trader Glencore International, has seen its shares rise 48 per cent on the London Stock Exchange.

Mr. Lindsay's task of boosting his company's share price is sure to be much more difficult. The quick returns that an Inco acquisition would have provided will now have to be wrested from the always challenging and costly task of constructing mines and bringing them into production on time and on budget. With his asset portfolio largely in place, the deal maker finally has a chance to prove himself a down-and-dirty mining guy.

"What's not to like," Mr. Lindsay asks with a grin. "This is clearly, one of, if not the greatest company in the country. These are good times that are going to last for another 20 years."

ahoffman@globeandmail.com

*****

Teck CEO still hunting the next deal

Don Lindsay's deal-making days aren't quite over. Although he says a major transaction is unlikely in the short term, he remains keen to boost Teck Cominco's exposure to commodities whose prices are set by long-term contracts and not by the daily trading on the London Metal Exchange.

Iron ore, uranium or diamonds would do the trick, but finding the right project to increase Teck's annual revenue from so-called non-LME commodities to 35 per cent from 20 has proven difficult.

Simply buying the remaining 47 per cent of the Elk Valley Coal partnership it doesn't already own would not fulfill the mandate, according to Mr. Lindsay.

"I think doing something else would provide better and broader diversification," he says.

Something else could be iron ore. Teck wants producing assets so it can sell the commodity to steel-making customers already buying its metallurgical coal. Mr. Lindsay covets Rio Tinto's controlling stake in the Iron Ore Company of Canada's operations in Newfoundland and Quebec, but doesn't think the asset will come up for sale.

As for uranium, valuations remain high despite a recent market correction and the Teck chief executive officer says there are reasons why mining the metal used to make fuel for nuclear reactors is challenging.

"If we saw the right property and thought permitting was possible and political risk was minimal, then sure, we'd be interested. Taken all together, those three things are difficult to find."

Mr. Lindsay also likes Canadian diamonds, but because the country's two major mines are controlled by De Beers and Rio Tinto, Teck would have to stick with smaller projects for a foothold.

That leaves thermal coal (used to generate electricity from coal-fired plants). Some analysts believe a U.S. coal producer will be Teck's next acquisition target.

TECK (TCK.B)

Close: $46.70, down $1.24

*****

Aug. 1, 2006

Close: $38.30

Aug. 17, 2006

Teck officially withdraws its $20-billion stock and cash bid for Inco. The company regroups and begins to formulate its plan B.

Nov. 15, 2006

Mr. Lindsay makes a foray into the Canadian diamond business, investing $30-million in Tahera Diamond Corp.

Dec. 7, 2006

Jumping into the speculative prospect of mining base metals from the ocean floor, Teck ponies up $25-million (U.S.) for a 9.2-per-cent stake in Nautilus Minerals Inc.

Feb. 12, 2007

Teck says it plans to buy back as many as 20 million of its own shares. The company also says it will split its stock 2 for 1.

May 23, 2007

Committing to spend more than $1.5-billion to develop the massive Galore Creek copper and gold mine in Northern B.C., Teck forms a partnership with NovaGold Resources.

July 3, 2007

Making a big bet on copper, Teck unveils a $4.1-billion cash and stock offer for Aur Resources Inc. The deal gives Teck 200 million pounds of annual copper production from Aur's Chilean operations and its mine in Newfoundland.

Sept. 19, 2007

Boosting its presence in the Alberta oil sands, Teck buys an additional 5-per-cent stake in the Fort Hills project from UTS Energy.

Sept. 24, 2007

Paying $600-million to the Ontario Teachers Pension Plan Board, Teck boosts its stake in the Fording Canadian Coal Trust from 9 per cent to 20 per cent. The deal gives Teck a majority 53 per cent control of the Elk Valley Coal Partnership.

SOURCE: FIRST ASSET FUNDS, SCOTIAL CAPITAL

Tue Oct 9, 2007 9:01pm BST

(In U.S. dollars unless noted)

By Cameron French

TORONTO, Oct 9 (Reuters) - Teck Cominco (TCKb.TO: Quote, Profile, Research) still intends to grow into a global mining powerhouse, despite last year's failed attempt to take over nickel giant Inco, but it is in no hurry to rush into another blockbuster deal, its chief executive says.

Instead of trying to make that one big catch, CEO Don Lindsay has kept busy this year with smaller fry: bulking up the company's copper assets with the takeover of Aur Resources, adding to its coal and gold businesses, and building a position in Alberta's oil sands that Lindsay says could be worth more than C$20 billion ($20.3 billion) a decade from now.

"All of these steps... when you take them all together, it's quite material growth, kind of transformational growth," he told Reuters in a recent interview.

"I think we have such a good growth platform now, that we can really take our time and be very careful about any other moves. We have the capacity to make more moves if we want to, but we're in no rush."

While Teck is commonly referred to as the world's No. 2 zinc miner, Lindsay notes its fortunes are now more closely tied to copper prices after its C$4.1 billion Aur takeover.

With copper having risen 44 percent last year and 26 percent so far this year, Lindsay is happy with the exposure.

"We have sort of a positive outlook for copper," he said.

The Aur takeover, which gives an immediate 43 percent boost to Teck's copper output and doubles its copper resources, is also significant as Aur's operations in Chile are close to exploration properties Teck has in the region.

Included in this is the dormant Lobo Marte gold project in Chile, a joint venture with Anglo American (AAL.L: Quote, Profile, Research) that now could merit a second look, Lindsay says.

"The fact that we made the Aur acquisition has sort of caused us to look at that project in a whole new light because we now have skills there that we didn't have before," he said.

If Teck does choose to invest in the mine, it would add to a growing gold business whose upside expanded this year with a 50 percent interest in the $2 billion Galore Creek mine in northwestern British Columbia.

BLACK GOLD

But the company's most intriguing growth arm is perhaps its presence in Alberta's oil sands, which has largely been the domain of oil and gas companies rather than miners, despite the huge mining aspect of the heavy crude's extraction.

With a 20 percent interest in the Fort Hills project -- up from 15 percent this year -- and leases on two properties, Lindsay sees the size of Teck's energy business growing over the next eight to 10 years to perhaps the current size of the overall company, or C$22 billion.

"The point of the oil sands business is we're building for the future. These are assets that will have a reserve life of 50 years. We don't find that in the mining business very often," he said.

However, that growth could be slowed if Alberta adopts the recommendations of a provincial advisory panel and raises sector royalties by 20 percent, Lindsay said.

"If the final result is what's currently contemplated, there is no doubt in my mind that that will slow investment quite dramatically, and it will cause us to rethink things on the other properties," he said

"Fort Hills is a go; it's a great project. That won't slow down, but the other ones we'd look at very carefully."

Aug 6th

Davy Bui submits: I'm a little disappointed by the Teck (TCK) results. Revenue went up 1%, net income fell 20% and operating cash flow before non-cash working capital changes came down 3.7%. Their results across the board were down but that isn't what bothers me. After all, the company doesn't control pricing and they had given good visibility on the fact that copper production was going to be lower this year due to the Highland Valley mine extension and a drop-off from Antamina.

Here are the factors that did concern me:

operating expenses up 20+%
mining costs at Hemlo gold mine now close to actual spot price of gold
2nd straight quarter of substantial decrease in operating cash flow due to tax and royalty payments

It seems my hunch about the Aur Resources deal was correct: Teck's copper resources did need bolstering. Fortunately, the Aur and Galore Creek transactions should do exactly that (though Aur Resources quarter results weren't stellar either).

We didn't get an update on what Teck plans to do with their gold assets. They don't seem to be extracting maximum value and that needs to be addressed. Hemlo mining costs rose to $612 per oz. Additionally, they ran into community resistance at their Morelos mine located in Mexico. At this point, I wouldn't mind if they got out of the gold mining business.

Finally, cash flow from operations is down markedly this year. The last two quarters, changes in non-cash working capital have reduced OCF by C$675M, ostensibly due to tax and royalty payments. Year to date, operating cash flow is down ~65%, C$345M from C$971M a year ago. This may not be anything to worry about but I'd like to see these numbers improve.

Performance measurements to watch:

lower costs @ Pogo & Hemlo
update on Morelos
hit production target @ Lennard Shelf
rein in operating costs
hit Red Dog production numbers
consolidate Aur Resources numbers
improve operating cash flow results

31 Jul 2007 at 04:57 PM GMT-04:00

VANCOUVER (CP) -- Teck Cominco Ltd. [NYSE:TCK; TSX:TCK.B] says it is shopping to expand its asset base, but hasn't been able to cut a deal since its offer for Aur Resources Inc. [TSX:AUR] because it wants to stay ''disciplined'' in its spending.

''We're committed to diversification. There are a number of opportunities we've been looking at but are unable to conclude a deal to this point,'' CEO Don Lindsay told analysts in a conference call Tuesday.

''Price is very important to us so we're trying to remain disciplined, but from time to time when we see a collection of assets or a key asset where there's something we can do to add value, create value, that may not have been recognized before, than we'll make the move at that time,'' Lindsay said.

The company announced late Monday that its second-quarter profit fell 21% due to lower coal prices and lower sales volumes at its Highland Valley and Antamina copper mines.

The company, currently making a C$4.1 billion cash-and-stock bid to acquire copper-rich Aur Resources Inc., reported earnings of C$485 million or $1.14 per share compared with C$613 million or $1.48 per share in the second quarter of 2006.

However, Teck's president and CEO said if adjustments for changing metals prices and one-time items were excluded from the comparison, the earnings would have been C$434 million in the second quarter of this year, compared to C$500 million last year.

''The significant change quarter to quarter is the result of lower coal prices and lower copper sales which were partially offset by higher zinc sales,'' Lindsay said.

Coal prices averaged US$101 per tonne, down 13% from US$116 per tonne in the second quarter of 2006.

Lindsay said the earnings for the three months ended June 30 were in line with expectations.

Cash flow from operations was C$579 million compared with $669 million in the second quarter of 2006.

The company said less copper ore was processed at Highland Valley, near Kamloops, B.C., as a result of the push-back to extend the mine life. The mine is also a significant producer of molybdenum.

Meanwhile, sales volumes at the company's copper-zinc Antamina mine, in Peru's Andes mountain range, were lower in part due to the mix of ore types being mine and processed, as well as shipment timing.

Copper production was 81,000 tonnes in the quarter, and sales were 64,000 tonnes; down from 89,000 tonnes and 88,000 tonnes respectively in the same quarter of 2006.

Teck and Fording Canadian Coal Trust [TSX:FDG.UN], its partner in the Elk Valley Coal Partnership, said earlier this year they expected coal prices from the project to be 15% lower than a year ago.

Fording and Teck jointly own Elk Valley, the world's second largest exporter of metallurgical coal, on a 60-40 basis.

While copper prices averaged US$3.47 per pound, an increase from US$3.27 per pound in the second quarter of 2006, Teck said the increase was offset by a lower Canadian dollar exchange rate of 1.10 in the second quarter compared with 1.12 a year ago.

The company's copper assets would be greatly improved if Teck's offer to buy Aur Resources succeeds.

Aur's significant copper holdings include a 76.5% interest in the Quebrada Blanca mine in Chile, a 90% stake in the Andacollo copper mine and the Andacollo hypogene copper-gold deposit under development in Chile.

In Canada, it owns 100% of the Duck Pond copper-zinc mine in Newfoundland and Labrador.

Teck also pointed to the 50-50 partnership it made with NovaGold Resources Inc. [AMEX:NG; TSX:NG] to develop the Galore Creek copper-gold mine in northwestern British Columbia. Teck will invest an initial US$478 million toward its US$2 billion construction cost and split all subsequent costs with Nova Gold.

Galore Creek is expected to produce in excess of 430 million pounds of copper, 340,000 ounces of gold and four million ounces of silver annually during the first five years of operations.

As for zinc, Teck said zinc prices in the second quarter averaged US$1.66 per pound, up from US$1.49 in the second quarter of 2006.

The company sold 105,000 tonnes of zinc in the second quarter, on production of 97,000, up from zinc sales of 27,000 tonnes in the same quarter in 2006, on production of 44,000 tonnes.

Despite the increase in zinc prices and sales, Teck said second quarter earnings are typically weaker than other quarters due to seasonally lower sales from its Red Dog mine in Alaska.

''Sales volumes of zinc concentrates from Red Dog in the second quarter represented approximately 12% of its expected annual sales and there were no lead sales from the mine in the quarter, as market inventories had been depleted in the previous quarter,'' the company said in a release

Davy Bui submits: With nearly CA$5 billion burning a hole in their pocket at year-end 2006, it seems Teck Cominco Limited (TCK) CEO Don Lindsay and crew have been looking hard for places to put the money to work. Apparently, all paths were lined with copper.

The first major announcement heralded a joint venture with NovaGold (NG) to develop the Galore Creek copper/silver/gold project. Teck will make a US$478 million buy-in on the project which is expected to cost $2 billion. Lindsay noted the majority of Teck-controlled projects started as joint enterprises so we'll see where this goes.

The second deal was the $3.8 billion cash+stock friendly buyout of Aur Resources (AUR) at a 29% premium to market price. Once again, this acquisition is heavy on the copper. Up to 22 million shares will be issued to allow Aur stakeholders to maintain exposure. A 40 million share buyback program is still ongoing so the dilutive aspect should be minor (5-7% at most). No debt will be issued for this deal, which is projected to be immediately accretive and will boost copper production over 40% annually as well increase copper reserves over 140%.

Here are some items of possible concern to us stemming from these transactions:

Increased exposure to copper

Aur Resources offer appears fully valued in today's market

Galore Creek includes significant gold, which Teck mined at a loss in Q1 2007

The heavy copper focus suggests that perhaps the Antamina and/or Highland Valley sites may be slowing down. The company had announced that production at Antamina was coming into a lower-grade zone. They're also extending the Highland Valley mine which will cut copper production for the next few years. As copper is a third of their revenues and an even higher percentage of operating profits, maybe they wanted to shore up their copper production with these deals.

Or perhaps management is extremely bullish on copper. On the latest analyst rounds, they've stopped talking zinc and have been putting forth the case that the copper market today, with Chindia, resembles the 1960-1980 period when Japan went through its growth phase. During that time, copper traded well above its 20-year average price ($2.25 vs $1.38 in 2006 dollars). Lindsay suggests a Chinese-influenced trading range of $2.50-$3.50 in today's market and said Teck is very comfortable with that range. Also, today's new projects and discoveries are lower-grade than in past times so pickings are getting slim. I can't imagine that Teck didn't run the numbers on Aur and Galore Creek using that range so they must feel pretty good about it, even at a 29% premium in current market conditions.

As for the gold side, management remains as elusive as ever. They've put out the possibility of selling their gold assets or spinning them off to take advantage of the high multiple awarded to gold miners. However, they've stated that no decision will be made until the Pogo and Hemlo mines are brought to 100% operating capacity. At this point, the company's not focused on efficiency but rather just getting production up to speed. I'm sure it'll be discussed at the quarter-end conference call and, hopefully, we'll get something more definitive.

These concerns aside, we remain confident in our investment. We'd like to see management move closer toward adding non-exchange-traded commodities to their portfolio, and Lindsay addressed this during the conference call: you make the deals that are available. As investors struggling to find attractive prospects in today's stock markets, we empathize with his position! Or to paraphrase a thankfully-departed bureaucrat, you go with the deal you have, not the deal you wish you had. Teck are moving forward with their exciting oil sand projects but we won't see first phase production until 2011 and other prospects like nickel or uranium haven't yet made sense.

In summary, nothing here alters our assessment of the company. The portfolio composition hasn't changed much except to include more copper. The dual class stock still weighs on valuation though Lindsay mentioned the controlling family would be open to dropping that structure if circumstances arise. We await further word on the fate of the gold assets and how TC plan to extract value from them. And there are still plenty of "experts" warning of a sharp downturn in commodities any day now. In the meantime, we retain our trust in management and will add to our position on any significant pullback.

Disclosure: Author has a long position in TCK

FP Trading Desk submits: Lead prices surpassed aluminum prices for the first time in history last week, hitting a record high of US$1.30 per pound on the strength of growing Chinese demand and production shortfalls. And traders in the base metal are saying the ride isn't over yet, suggesting lead prices could in the very near term overtake zinc prices, currently US$1.55 per pound.

The soaring lead prices are great news for Teck Cominco Ltd. (TCK), according to Desjardins Securities analyst John Hughes.

"Teck Cominco produces approximately 440m lbs. of lead annually, and we expect a sizable C20¢ a share bump in third 3Q07 vs. 2Q07 earning per share, driven by high lead prices and seasonal shipments from the company's Red Dog mine in Alaska," Mr. Hughes told clients in a note.

He reiterated his "buy" rating on the stock and C$55 price target.

FP Trading Desk submits: Looking ahead to results for China’s copper imports in May, initial data suggests the country took in a healthy 110 to 120 thousand metric tons [KMT] of the refined metal. While this represents a 34% decline in net imports compared to April, the average in 2006 was 49 KMT per month, according to Desjardins Securities.

Analyst John Hughes attributes the “extraordinarily high” import levels for the first five months of 2007 to a restocking phase by Chinese consumers, producers, traders and merchants. However, he expects levels to normalize in the 70 to 80 KMT range.

For Teck Cominco Ltd. (TCK), whose 267 KMT in copper sales last year accounted for 30% of its 2006 gross revenue, these developments are very significant. So too are copper prices.

Mr. Hughes sees the copper market strengthening as inventories continue to fall on Chinese imports and growing demand in the West.

In the second quarter, the cash price for copper on the London Metal Exchange was US$3.45 per pound, compared with an average of US$2.70 in the first quarter, he told clients in a note.

Based on current rates of decline, Mr. Hughes said copper inventories will approach the psychologically important 100,000 tonne level by the end of July.

“This sets an exciting stage for copper prices this summer, with positive implications for Teck Cominco and other Canadian copper producers,” he said.

Mr. Hughes has a “buy” recommendation and C$49.55 price target on Teck shares, which represents upside of roughly 8%.

FP Trading Desk submits: The first place people mention when discussing demand for metals these days is China. So metals markets were eagerly awaiting Friday’s announcement when the country reported that it became a net importer of zinc in April.

China’s net imports of zinc were 23,458 tonnes, compared to an average of 30,000 tonnes of net exports during the first three months of 2007, according to Desjardins Securities analyst John Hughes. China also continues to import large quantities of refined copper – 181,908 tonnes (net) last month.

As the western world’s largest zinc producer, Teck Cominco Ltd. (TCK) was also likely watching closely. Mr. Hughes reiterated his “buy” recommendation on the shares, while his C$49.55 price target represents upside of roughly 15%.

But it appears that price, not supply or demand is the reason behind China’s reversal on zinc.

At the end of 2006 and early this year, the spread between zinc prices in the West and domestic prices in China was much larger that it is now, Mr. Hughes said in a note to clients. With the price difference narrowed, Chinese zinc holders now have less incentive to export, something he considers a more “normal” situation.

“This structural shift in the supply-side dynamics of international zinc markets favours the Western world’s largest producer of zinc, namely Teck Cominco,” Mr. Hughes added.

Investors Are Diving Into Water ETFs

2008-06-07T08:49:00.000-07:00

By Rob Wherry
May 15, 2008

ITT (ITT¹) is well known as a maker of the technology behind modern warfare, from night-vision equipment to radar that detects low-flying cruise missiles to sensors that pick up chemical and biological agents. Some investors may not realize, though, the company makes 39% of its revenues, or $3.5 billion in 2007, from a more mundane industry: water. While soldiers rely heavily on ITT's products on the battlefield, millions of consumers and businesses count on the company's pumps and valves to get H20 to their faucets and factory floors.

To remind investors just how important an industry water is to the global economy — and to its bottom line — ITT tucked a couple of impressive statistics into one of its recent publications. It takes a whopping 62,000 gallons of water to make a ton of steel. The typical automobile requires 39,000 gallons during its manufacturing phase. It takes 3,000 gallons to produce a single semiconductor before it is placed into the nerve center of a computer. In addition, several studies have shown that trillions of dollars of upgrades need to be done to the world's aging water infrastructure in order to keep everything humming right along.

Those big numbers caught the attention of Jim Reardon, president of Peoples Wealth Management in Topeka, Kan. He's one of a growing number of financial advisors who've started using individual stocks, mutual funds and exchange-traded funds to give clients' portfolios exposure to an industry that is booming as global demand for water surges. Of course, making a sector bet, regardless of its growth story, is always filled with risks. But advisors like Reardon are betting water will be a theme that will continue to pay off over the long term.

"I never looked at this as a casino bet," says Reardon. "It's just a fact of life that there is a water shortage."

It's not uncommon these days for the typical portfolio to contain funds that focus on energy or commodities or financial services — the choices are almost endless. While some advisors view those positions with promise, others see them as an easy way to lose a lot of money.

The water business is no different. It's enjoying its day in the sun thanks, in part, to the increasing popularity of the alternative energy investing theme. It has also benefited from the emergence of growing economies in parts of the world like Asia, the global demand on agriculture and the spotlight infrastructure upgrades were put in after last year's bridge collapse in Minnesota and a steam pipe explosion in New York City. However, the water industry is slow-moving, it's expensive to transport the liquid, its use tends to decrease during recessionary times, the industry is fraught with political potholes and water utilities really never know what they are going to run into until they start digging. What was thought to be a pesky leak can turn out to be an all-out system failure.

"It's not something I would ever recommend," says David Hayes, a financial planner in Mount Juliet, Tenn. "My pain threshold is too low."

Reardon, though, recognizes both the risks and the potential rewards. He divides his water investments into what he calls "new world portfolios" — a series of smaller bets that are outside a portfolio's core holdings. In general, these positions would be less than 5% of an entire well-diversified portfolio. We think that's a sound strategy.

Investors could play the water theme by investing in companies like General Electric (GE²), which derives a small portion of its revenues from water-treatment equipment and other products. If investors have time to do homework, they could also explore smaller firms like Itron (ITRI³), a maker of wireless water meters and reading devices. There are also several mutual funds to consider, including Kinetics Water Infrastructure (KWINX⁴), launched last June.

Many advisors are opting to use exchange-traded funds, since their trading flexibility allows them to more easily get in and out of the position. One of the leading water ETFs is the $2.2 billion PowerShares Water Resources (PHO⁵) fund. It owns 35 firms with an average weighted market capitalization of $20.7 billion. The fund was launched in late 2005. Since then it returned 22.2% in 2006 and 16.7% in 2007. Year to date, this ETF is up 1.7%, about five percentage points ahead of the broad market, according to Morningstar. It owns an eclectic collection of water utilities, consulting firms, infrastructure companies and conglomerates. Top holdings include Aecom Technology (ACM⁶), an engineering and construction consulting firm, and Valmont Industries (VMI⁷), which makes irrigation equipment in addition to other products.

Claymore S&P Global Water (CGW⁸) owns a large share of water utilities, both here in the U.S. and abroad. These companies have seen customers' water usage decrease as they do some belt tightening during these tough economic times. Indeed, Aqua America (WTR⁹), a prominent U.S. water utility and a holding of this ETF, has seen its shares drop 18% this year over concerns its earnings were being dinged by macroeconomic issues. At 16 times future earnings, this ETF's portfolio does appear cheap. But it has returned a negative 3.9% this year, almost six percentage points behind the PowerShares product.

Other funds to consider are the PowerShares Global Water Portfolio (PIO¹⁰), an international sister fund to the one above, and the SPDR FTSE/Macquarie Global Infrastructure 100 (GII¹¹). The SPDR offering won't only give you access to water; it will be an effective play on the building and upgrades going on in that industry and in the electricity business, too.

World coal shortfall to grow: Arch CEO

2008-06-06T14:56:00.000-07:00

Tue Jun 03 05:58:16 UTC 2008

HOUSTON (Reuters) - The world coal shortfall will last at least two or three years and could reach 70 million tons next year, Arch Coal Inc Chairman and CEO Steve Leer said Monday.
"In 2008, we estimate we're 25 to 35 million tons short across the globe," Leer told the Reuters Global Energy Summit in Houston. "We see that virtually doubling," he added, explaining later he meant by the end of 2009. World production totals about 6 billion tons annually.
Leer said the shortfall has driven recent price increases, with benchmark U.S. coals doubling in the past year to more than $100 a ton, but he declined to predict how high prices might go.
He forecast a strong market for at least two or three years, saying it will take at least that long to ease rail and port bottlenecks in Australia and electric power shortages in South Africa, both key producing countries.
"Delays in infrastructure improvements probably would tend to support a longer time frame," Leer said
Leer said he has been through several booms and busts in his 30 years in the oil and coal business but this one feels different to him.
"The world has never seen 2 billion people go through an industrial revolution, and we're witnessing it right now. It is changing everything. It is certainly changing basic commodity demands and flows," he said.
The United States is in a coal-fired power plant-building boom, despite recent cancellations, he said. "About 4 million tons of annual demand will come on line in 2008, and I think about 20 million tons in each of the next two years," he said.
At the same time, he said, several important coal basins are maturing, in South Africa, Poland and central Appalachia in the United States. "We're seeing some fundamental changes on the supply side," Leer said.
In the United States, Leer said the failure to build more power plants faster is going to put the nation at risk of electricity shortages within five years because demand growth is outstripping supply.
"It's not coal-fired power plants. It's power plants," he said, citing a North American Electric Reliability Council study published last November.
"Right now, over half the U.S. will cross below the 15 percent reserve margin in 2009," Leer said, warning of brownouts and blackouts. "If the economy would slow down appreciably more, I think that would delay that by one year. But it doesn't resolve the issue."
(For summit blog: summitnotebook.reuters.com/)
(Reporting by Bruce Nichols; Editing by Gary Hill)

Coal earnings will be constrained by cost increases, as regulations stall new coal plants

2008-06-06T14:28:00.000-07:00

Uncertainty surrounding carbon legislation and capital costs is slowing the development of new U.S. coal plants. Nevertheless, the new plants are expected to match demand lost from closing inefficient coal-power plants.Author: Dorothy Kosich
Posted: Thursday , 05 Jun 2008

RENO, NV -

As U.S. coal producers benefit from tight global markets for both steam and metallurgical coals, Fitch Ratings cautioned that "high consumable prices and labor costs will constrain earnings growth over the new few months. "

In the report, ‘Coal Outlook: Summer Burn, Supply Response', which was released by Fitch Wednesday, Monica Bonar, Director, Fitch Ratings, and analyst Sean Sexton noted that "mining in new or challenging regions can amplify already high maintenance and capital costs."

Constraints to developing new coal mines include high capital costs, the need for sales contracts covering a high portion of new tonnage, and a lengthy permitting process, according to Fitch. While some producers are announcing new projects, the analysts noted that "these have more than two years lead-time and may only replace declining production at existing mines."

While coal producers are benefiting from tight global markets for steam and metallurgical coal, regulatory uncertainty about carbon emissions has stalled plans for construction for many new coal plants, which Bonar and Sexton said, will cap domestic demand in the medium term.

"Stocks are reportedly tight for Northern Appalachian coal, high for Powder River Basin coal, and comfortable for Central Appalachian and Illinois Basin coals, according to the report. However, the analysts predicted that coal company earnings growth will be constrained by cost increases. "Coal producers are experiencing high prices for consumables such as fuel, explosives and steel in addition to high labor costs. Maintenance and capital costs have been on the rise, which can be amplified when mining in new or difficult areas."

While steam coal inventories are reported to be at comfortable levels, contract prices are up. Fitch expects steam coal realization growth to flatten out over the 12-18 months "absent a new supply growth."

Meanwhile, metallurgical coal prices "have blown through expectations on short supply. World growth in demand for metallurgical coal has not been met by a corresponding increase in Australian coal export infrastructure, particularly port and rail," the report said. Currently, prices are settling at $305/mt for the year ending March 31, 2009, with supply not expected to significantly ease until 2010.

The report noted that U.S. steel producers are benefiting from a weak dollar and high transportation costs. "The U.S. metallurgical coal market also benefits from the growth of the Brazilian steel industry."

Fitch said it expects the metallurgical coal market to continue to benefit from tight supply and robust steel demand over the next 12-18 months. "While U.S. metallurgical coal varies by quality, realizations may be up $100/ton on average for the period."

The Energy Information Administration (EIA) expects slow growth in domestic energy consumption, combined with projected increases in wind and hydroelectric power generation, will lead to "virtually flat U.S. coal consumption in 2008 and 2009."

While new U.S. coal plants are being developed, the analysts noted that "it is at a much more modest level than previously anticipated given uncertainties surrounding carbon legislation and capital costs. Fitch expects demand from newer efficient plants to match demand lost from shuttering inefficient plants over the medium term. The EIA's current Annual Energy Outlook does not anticipate incremental demand from net new coal plants until 2020."

The United States is increasingly benefitting from the international coal trade as "European demand for high Btu U.S. steam coal is robust in the longer term as two- and three-year transactions are being completed," according to the report.

"The weak dollar, combined with high freight rates, renders U.S. coal cheaper than South African or Australian coal. In addition, growing internal demand from transitional economic reduces exports from Russia, China and Indonesia," the analysts noted. "Coal trade has been hampered by rail and port constraints in Australia, derailments and power outages in South Africa, and weather and rail constraints in Colombia and China."

Fitch expects the seaborne coal to remain robust.

"While there are indications that European buyers are looking for multiyear transactions with U.S. suppliers, a modest export infrastructure and focus on large domestic demand limit how much exports can grow in the next 12-18 months," Fitch advised. "If U.S. ports can sustain the March 2008 rate of 6.7 million tons, 80 million tons can be reached for the year."

The EIA's most recent forecast is that U.S. coal production will increase 1.1% this year and to remain relatively flat next year. The National Mining Association last month forecast a total demand of 1.218 billion tons of U.S. coal this year, including 80 million tons of exports.

Fitch forecasts that western coal production "may be pulled east as Appalachian production to be pulled overseas. ...Appalachian production should fall given difficulties in gaining valley fill permits as well as changed mine plans associated with avoiding historic mining areas and safety concerns."

The analysts predicted that cost escalation for coal producers this year will range from 5% to 7%. They estimated that underground mining costs have increased between $2/ton and $4/ton in lost productivity associate with new federal mine safety regulations.

Nevertheless, while 2007 was a challenging year for U.S. coal producers and the financial markets, Fitch noted that most coal miners have worked to improve their liquidity. "

"Fitch expects the coal producers under view to continue to balance capital spending with free cash flows for the most part and maintain healthy capital structures. We note that companies with weaker capital structures are selling common stock or converting debt to common stocks and generally working to shore up liquidity."

The analysts expect coal mining company consolidation to "continue on a modest scale and generally involve acquisition and sale of reserves."

POT MOS RIG FCX CSX: 5 promising stocks for patient investors

2008-06-06T14:00:00.000-07:00

In a challenging market amid an uncertain U.S. economic landscape, identifying long-term, promising investment opportunities becomes a difficult task. Further, to make the investment equation even more challenging, there's election risk, as well, with the 2008 U.S. Presidential election five months away.

Still, risk-adjusted investment opportunities exist. Accordingly, here's a 'Fab Five' that should rank with the best the equity markets have to offer, 3-5 years out.

(Note: Don't buy these stocks if you're interested in a short-term trade of six months or less. These are longer-term investments where the goal is a double-digit, average, annual, total return on equity over 3-5 years.)

Potash (NYSE: POT). Current Price: $212, p/e 47. Revised Stop Loss: $170. Potash remains the best of a very good fertilizer bunch, due to its 20% global market share in the namesake fertilizer. Consider buying POT on a pull-back to $202-203, but keep in mind Potash may not retreat to that level.

Mosaic (NYSE: MOS). Current Price: $132, p/e 40. Revised Stop Loss: $97. Mosaic also is well-positioned in phosphate and crop nutrients. Further, the fact that 66% of its revenue is internationally based is especially appealing, given the U.S. economic slowdown.

Transocean (NYSE: RIG). Current Price: $144, p/e 10. Revised Stop Loss: $110. RIG offers deepwater oil drilling services in all regions of the world, and it's an oil-thirsty world.

Freeport-McMoRan (NYSE: FCX). Current Price: $114, p/e 14. Revised Stop Loss: $69. Copper / gold / molybdenum miner Freeport is one of a handful of companies that have the economies of scale to compete in the global mining sector of the early 21st century, and it boasts impressive clients, to boot. Consider buying FCX on a pull-back to $111-113, but keep in mind Freeport may not retreat to that level.

CSX Corp. (NYSE: CSX). Current Price: $66, p/e 23. Revised Stop Loss: $48. Ride the railroad resurgence with this superior trade / commodity / freight transport company. The rails are in the transportation sweet spot: truck transport costs are rising with fuel costs, and the U.S. highway system is inadequate, with increased congestion likely, pending future investment.

Top Pick: Potash.

Chasing Value: You want power, buy power -- Huaneng Power HNP

2008-06-06T13:57:00.001-07:00

One of my more avid readers and obviously another believer in Huaneng Power Intl ADS (NYSE: HNP) asked why the stock price was so erratic lately. I find that question strange given the following two year chart that indicates it is not behaving any different than it always has, it fluctuates.

I elected to show the two year chart because it is the closest to the length of time that BloggingStocks.com has been around. During that time I have written numerous stories about the company and it is one of our top five holdings. There does seem to have been a lot of volatility recently as the the short term chart indicates, where the stock moved 5% to 10% in 48 hour periods, but making anything of it is just wild speculation.

Last August I posted Volatile Markets: Huaneng Power (HNP) is my pick for the next 50 years discussing the strength of utility stocks and even showing how this value play had beaten Google, the "growth" stock. I also have made a big deal about utility stocks and dividend paying stocks in one of my early stories Dow Jones Utilities BEAT Industrials with ease!.

It is human nature to want to know why something occurs. This is exaggerated when you have invested heavily in something, be it your stocks or your kids.

The bottom line is that stocks jump around for a multitude of reasons. Sometimes an earnings report or industry news. Sometime because major investors are making a play and volume is up. It could be the government allowed for price increases or decreases or changes in subsidies. It could also be that something corrupt is happening behind the scenes -- heaven forbid -- and that you cannot find out about until it is too late usually.

The last issue is of course the most disconcerting and there was news reported by the China Daily on Monday that makes one wonder, Huaneng Power says chairman resigns. However, if I let my imagination run wild with each news story or press release I could not invest in stocks at all.

We originally got into HNP at $26.35 in May of 2006. We followed up into the $50's and back down where we have been acquiring more, most recently at $28.00 per share. It is trading around $35 mid-day today which is a nice return in a short period of time and I must add that the current 5% dividend yield (20% higher for me) does allow one to be a very patient investor.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of HNP.

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Raymond James Best Stock Picks for 2011

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John Paulson's Top Picks

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Potash Continues To Surge

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BY LESTER BROWN | JANUARY 10, 2011

China Boss in Peru on $50 Billion Peak Bought for $810 Million

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EZCorp one of my larger positions

Commodities Cycle Won't Be Over for Years and Food Crisis Looms, Rogers Says

Nickel is the metal of the future, analyst

Aruba could be next big sale

Clean Coal in China Said to Face ‘Staggering’ Costs

Potash (POT): Long-term growth in fertilizers

Potash won't recover until 2011, analyst warns

Bumper crop projected in U.S., China, puts pressure on demand

Bank Earnings to Spike 300-500%: Bove

Citi 'too big to fail', will hit $12 a share: Richard Bove

Why I Fired My Broker

5 Reasons Investors Fail to Beat the Market

May-8-2009

Southwestern Energy (SWN)

Flowserve (FLS)

Oil service groups enjoy ‘boom time’

CPM says global molybdenum supply deficits will grow in 2009 and 2010

Three common investment mistakes

Cleveland-Cliffs' run shows no signs of slowing

Petrohawk: A Play on Appreciating Natural Gas Prices

How to control losses

Is Agrium the new Potash?

Petrobras: Poised for Growth

USEC (USU): 'Ben Graham value play' in uranium

Deere & Company (DE)

Rejuvenation of spot uranium price predicted for 2H 2008

Study sees a uranium price lift ahead as buyers venture back

Strong growth predicted for uranium as global energy demand could rise 50% by 2030

Inside US uranium markets

Teck's transformation

Print Edition - Section Front

Investors Are Diving Into Water ETFs

World coal shortfall to grow: Arch CEO

Coal earnings will be constrained by cost increases, as regulations stall new coal plants

POT MOS RIG FCX CSX: 5 promising stocks for patient investors

Chasing Value: You want power, buy power -- Huaneng Power HNP