Sunday, February 26, 2006

I see a lot of "green"backs

In his state of the union speech on Jan 31st 2006, President George W. Bush said"Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology. Since 2001, we have spent nearly $10 billion to develop cleaner, cheaper, and more reliable alternative energy sources -- and we are on the threshold of incredible advances."

On Jan 12th 2006 at a colorful debate hosted by the Churchill Club —a gathering spot for Silicon Valley'’s movers and shakers. John Doerr of Kleiner, Perkins, Caulfield & Byers saidGreen is the new red, white, and blue"” Doerr, whose firm is investing in clean/alternate energy startups, was echoing comments made by New York Times writer Tom Friedman in a recent column (subscription required).

With crude hitting $60 a barrel and oil politics roiling the middle east, looks like alternate energy may be a good bet for the long term. While we have briefly talked about this in a previous post, there are several ways to play the alternate energy market.

- One diversified way to invest is the PowerShares Clean Energy ETF (NYSE:PBW) ($20.5), this is a new and innovative ETF by PowerShares (expect a post on this company and its innovations)

- Peter Thiel the founder of PayPal whom we have talked about in an earlier post Peter, is betting big on the Canadian oil sands and expects oil to hit $80-$100 by 2010. There are several Canadian plays in this area, Suncor Energy (NYSE : SU) ($76.8), Encana (NYSE : ECA) ($42), Nexen (NYSE : NXY) ($53) and Canadian Natural Resources Ltd (NYSE : CNQ) ($56.12) . Suncor is an integrated oil company with $9B in revenues and Encana is North America's largest natural gas producer with $16B in revenues. Both these companies have trillion plus reserves in the Alberta oil sands. Nexen is a much more risky bet , a pure play on Canadian oil sands.

- In the clean energy arena
  • Hydrogen fuel cells - the king of the game here is Canada based Ballard Power Systems (NYSE : BLDP) ($6.35), this stock is extremely volatile and a safer bet may be the diversified conglomerate United Technologies (NYSE :UTX) ($58.89)
  • Nuclear power - Cameo (NYSE:CCJ), ($37) the world's largest uranium producer, again based in Canada.
  • Wind power - Iberdrola (Madrid CATS:IBE.MC), the world's largest owner of wind farms.
  • Solar power - SunPower Corporation (Nasdaq:SPWR) ($39.7), a recent spinof from Cypress Semi or Suntech Power Co (NYSE : STP) ($36.6) a Chinese company specializing in solar panels and photovoltaic cells.
P.S. - Another good play in this sector particularly in fuel cells, hybrid technologies and batteries is Johnson Controls (NYSE : JCI) ($69), its a well diversified industrial company recently highlighted during a visit by President Bush.

Friday, February 24, 2006

Sherwin Williams - Blood/Paint on the streets

In one of my previous blogs “Martha Stewart and Flu Shots” I had talked about investing in companies that get into trouble, in the US thanks to the tort system that often means legal trouble. Wall Street hates uncertainty and institutions dump shares at the first sight of a legal hurdle. BTW Martha Stewart (NYSE : MSO )is up 200% since its founders legal troubles and Chiron (Nasdaq:CHIR) is up 50% since its regulatory quagmire and is being bought by Novartis.

" most of the time the market is efficient and fairly valued. However on occasions there is such disdain for the stock market and there is blood in the street. These are the occasions when the true value players like Warren Buffet make their killing.– Roger Lowenstein in " The making of an American Capitalist "

Indeed just such an opportunity arose this week, shares of Sherwin Williams (NYSE : SHW) yes the venerable paints company dropped 20% after a jury in Rhode Island held the company liable for lead paint liability. This was a second trial, the first ended in a hung jury. Another defendant DuPont avoided trial by paying off the lawyers!! The stock dropped from $53 and is currently trading at $40.77, This reminds me of the tobacco trials, Phillip Morris (NYSE : MO) turned out to be one of the best investments made by deep value players who bought it in the mid nineties. Yes lead paint is hazardous but science has proven this only in the last 20 years, companies cannot be held liable for what was not known previously. No doubt the verdict will be appealed and saner heads will prevail, the current administration and the federal courts are quite business friendly these days you know!!

The company is solid
Strong brands Dutch Boy, Sherwin Williams, Krylon
Sales of $6.98 Billion at today'’s price a P/S ratio of 0.82
Dividend of 1.8%
Annual operating cash flow of $550M

More on the details on the fundamentals at Value Discipline Blog. Anyway I think this is a deep value play for someone willing to bet on the company coming out of the legal quagmire. Meanwhile while you wait it out there is a nice dividend. Although I think most of the blood letting is done, for those who are faint of heart put in a stop loss at 10-20%. I plan to dip my toes in paint later today.

Also of note Eastman Kodak (NYSE: EK) that we talked about last week is up 13% since then, in no small part due to the fact that Bill Miller of Legg Mason has upped his stake to 25%.

Saturday, February 18, 2006

China Investment Strategies
A paper by Burton Malkiel of the "A random walk down wall street" fame, Jianping Mei and Rui Yang in the Journal of Investment Consulting Vol7, No3, Winter 2005-2006 pg 32-47 touched upon why they believe the Chinese economy will continue to roar and ways for the investor to make money. Indeed some of the themes are very similar to the ones touched upon in two previous posts:

Profiting from long term trends and

Emerging Markets for the small guy

And some other suggestions - the conclusions are ways make money from China
  • Open end US Mutuals like "Alliance Bernstein Greater China", Fidelity China Region", "Matthews China", "Columbia Greater China Z", "Dreyfus Premier Greater China" and "Guinness Atkinson China"
  • Closed end shares like "Jardine Fleming China region", "Greater China" and "China Fund"
  • Investing in Taiwan, HK and Japan since these economies are and will be even more closely intertwined with China
  • Investing thru US companies with China exposure, they name UPS, Wal Mart, ProLogis (a REIT) and Yum Brands . (previous posts on UPS and WMT )
  • Investing in Chinese ADR's
  • Investing in Natural Resources (previous post on Canada, Australia, BHP Billiton and Rio Tinto)
Needless to say it was pleasant to see many of the themes and trends validated by Malkiel, it was however disheartening to see that the two China ETF's namely
  1. FXI ($71.65) - the Barclays FTSE/Xinhua China 25 Index Fund
  2. PGJ ($15.65) - the Power Shares Golden Dragon Halter USX China
that offer almost all the benefits of Open and Closed funds at lower costs were ignored. For a copy of the paper leave an address on your post.

Tuesday, February 14, 2006

Eastman Kodak - Sinking or Surviving?
In the last five years one of the most venerated names in business was blindsided by disruptive technology - Eastman Kodak (NYSE : EK), the erstwhile king of photography will lose more than $1B in 2006. A simple comparison of Kodak versus Canon's stock tells it all.

Canon, Nikon and Sony jumped on the digital photography trend while Kodak completely missed the boat on this one believing they would ride out the storm selling film and throw away cameras - tough luck! The end result has been bloody 20,000 plus jobs lost in upstate New York and about $20billion wiped out in market cap. Needless to say Kodak has woken up the question is - Is it too late and too little. Kodak has been rapidly moved to becoming a digital company.
- Painful restructuring has stemmed losses.
- Kodak digital cameras were the largest sellers by volume in the US in 2005 (I was surprised to learn of this).
- Kodak has been cranking its innovation juices lately - In 2004 it was the first company to introduce the WiFi enabled digital camera and in 2005 it was the first to introduce a dual lens digital camera.
-Kodak has recently entered into an agreement with Motorola for developing sensors for cell phones.
- Kodak has a phenomenal intellectual property portfolio in CMOS sensors, indeed it has joined forces with Texas Instruments recently.

All this means Kodak may be the value play/turnaround of the decade Or EK may join the ranks of its cousin "Polaroid" in bankruptcy court. I believe Kodak should further its transition to a digital company by buying Lexmark (NYSE:LXK) and OmniVision Technologies (Nasdaq:OVTI) - A stock recommended on this blog that is up 60% since then.

As an investor willing to bet on a turnaround EK currently trading at $24.90 might be a good buy although personally I would be a buyer at anything less than $24 at these valuations. Will keep you posted.

Friday, February 03, 2006

Profiting from long term trends

One of the things I often think about, as an investor are how can I make any money from long term social, economic and global trends. A few of my thoughts on the trends we see and how could we enrich ourselves from these.

  • China rising, on its way to become the largest economy - Buy the China Exchange traded fund a cheap way to get into the China market. The ETF is (NYSE:FXI) (See blog post below on investing in Emerging Markets)
  • We are living in an uncertain world (think 9/11, London, Madrid) and no doubt more unfortunate attacks will follow - We will be using a lot more biometrics made by companies like Identix (Nasdaq : IDNX) and Viisage (Nasdaq : VISG) (soon merging).
  • The populations of developed nations are getting older, the industry that will do well here is the assisted living companies , companies like Manor Care Inc. (NYSE:HCR), Sunrise Senior Living (NYSE:SRZ), Beverly Enterprises Inc. (NYSE:BEV) and quite a few smaller players.
  • The developing markets are hogging commodities, they need to if they are to achieve the western standards of living - the best way to play these is own one or both of the largest mining companies in the world BHP BillIton (NYSE;BHP) or Rio Tinto (NYSE;RTP), another way to own this piece of action is to buy the Canada (NYSE: EWC) or Australia (NYSE : EWA) Exchange Traded fund, both these countries economies are significantly weighted by commodity and energy companies.
  • Oil & Energy politics will roil world markets, alternative and clean fuels will be in vogue. Some plays on this theme are the PowerShares Clean Energy ETF (NYSE:PBW) , some pure plays here are Cameo (NYSE:CCJ), the world's largest uranium producer, Iberdrola (OTC : IBDRF), the world's largest owner of wind farms, or SunPower Corporation (Nasdaq:SPWR), a recent spinof from Cypress Semi.
  • Water will become the next precious commodity. The only diversified play that I know of here is the PowerShares Water ETF (NYSE:PHO)
  • Cell phones or similar handheld devices will become the norm for talk, information access, photos, music, videos, payments. There will be many winners here but the key is wavelength spectrum ownership. I would bet on Vodafone (NYSE:VOD) internationally and Verizon (NYSE : VZ) and Cingular (owned by BellSouth (NYSE:BLS) and AT&T(NYSE:T)) in the US.
  • globalization is here to stay, the US and other nations are actively pursuing bi-lateral and multi-lateral free trade agreements, regardless of the opposition - one way to play this trend is investing in companies that deal in movements of goods, prime examples are Fedex (NYSE:FDX) and United Parcel Service (NYSE:UPS). Also included are freight forwarders, logistics providers and shippers like Expeditors Intl (Nasdaq:EXPD), EGL Inc. (Nasdaq:EAGL).
  • The possibility of SARS, Avian flu like diseases that can mutate rapidly and devastate large populations is high. Some of the best companies working on vaccines and cures in this space are Novartis (NYSE:NVS), which recently bought Chiron, one of the world's largest vaccine maker and Glaxo Smith Klein (NYSE:GSK)
send me your comments and any new ideas. Disclaimer (I own FXI, BHP, IDNX and VZ)