"Small companies offer individual investors... many advantages. Most institutional investors, who have billions of dollars to allocate, must avoid small caps, at least until they grow larger. That makes them under followed and increases the chances that they're misvalued." –The Motley Fool
At the end of 2009, I discovered an intriguing technology stock called Waytronx (WYNX). The company had surging revenues and solid gross profits. A double-play combination that’s hard-to-find in the massive penny stock universe.
So I dug a little deeper.
What I found was simply amazing.
The company’s ground-breaking technology – “Waycool” - has the potential to revolutionize the semiconductor, solar, and electronic packaging industries. Waycool provides cooling solutions for microprocessors and other digital electronics well beyond the temperature requirements of today’s computer applications.
As a result, the company’s financial numbers were improving rapidly.
Revenues were soaring better than 30% quarter by quarter. And gross profit margins were better than 35%. I knew it wouldn’t be long before the company started showing positive earnings.
Now, a short ten months later, the stock’s showing eye-popping gains of 371%!
What did I know that other investors missed?
It’s pretty simple really. I know that at any given time, a certain number of penny stocks are undervalued relative to either their fundamentals or their potential.
In Waytronx’s case, it was both.
While still a tiny company, Waytronx was seeing explosive growth in revenue and gross profit. At some point, that combination begins catching the eye of investors and Wall Street.
So, I concluded that the stock price of this company was bound to rise. And rise it did.
You see, the consistent way to make money in penny stocks is to have a number of stocks like Waytronx in your portfolio. Keep in mind that not all of them will take off. But the few that skyrocket can make investing in penny stocks a very profitable enterprise.
We’ve seen penny stocks increase hundreds and even thousands of percent. But we’ve also seen many fall to zero. The key is to diversify into a number of high-quality positions that have the potential to make a lot of money very quickly.
And that generally means you need real companies with real products and prospects. After doing a bit of research, I found 3 companies that fit that description very well. In our opinion, these 3 stocks have the potential to generate tremendous returns with less risk than your average penny stock.
Let’s get started…
Unknown Stock #1: A Penny Biotech With Cutting Edge Technology
In the penny stock universe, one area stands out for generating not just home runs… but also the much sought after GRAND SLAMS! Home runs are the doubles, triples, and quadruples most common to penny stocks.
But grand slams are a whole different breed.
These are the monster profits of 10, 20, or 30 times your money. The kind of penny stock winners that can change your life overnight!
I’m talking about penny biotechs of course.
These amazing companies combine the enormous profit potential of biotechs with the explosive price appreciation potential of penny stocks. Having a few choice penny biotechs in your portfolio is a must if you want to strike it big.
That’s why my first pick is a quality, penny biotech.
Introducing… Neostem (NBS).
Neostem is a cutting-edge biotech developing stem cell therapies in the U.S. and China. They’re also a leading provider of adult stem collection, processing, and storage services.
Stem cells are primitive and undifferentiated cells with the unique ability to transform into many different kinds of cells. For example, they can become white blood cells, nerve cells, and even heart muscle cells to name a few.
Neostem works only with adult stem cells. They don’t work with controversial embryonic stem cells at all.
Adult stem cells are found in bone marrow, in peripheral blood, and in umbilical cord blood. For over 40 years, physicians have been using adult stem cells to treat various blood cancers. Only recently has the promise of using adult stem cells to treat a myriad of other diseases begun to be realized.
Neostem is developing stem cell therapies for various diseases at its labs in the U.S. and China.
In the U.S., they’re focusing on developing stem cell therapies based on very small embryonic-like stem cells. They call this process VSEL technology.
Research shows bone marrow contains a population of stem cells with properties similar to those of embryonic stem cells. These very small embryonic-like stem cells could provide the positive benefits of embryonic stem cells without the ethical or moral dilemmas.
In fact, recent studies by Neostem researchers are providing exciting results.
They indicate very small embryonic-like stem cells may have potential to repair degenerated, damaged, or diseased cardiac tissue. And they might even help identify those at risk for cardiovascular disease.
In China, Neostem is advancing their Regenexx process to treat a variety of musculoskeletal diseases. This innovative process uses the patient’s own adult stem cells to treat osteoarthritis, meniscus tears of the knee, avascular necrosis, and bulging lumbar discs.
Neostem plans on establishing a network of hospitals throughout China to offer their cutting-edge orthopedic treatment.
I’m sure your thinking, this sounds absolutely amazing, but isn’t it expensive to develop these stem cell therapies?
It certainly is.
But Neostem has an ingenious business model designed specifically to further their stem cell research and help pay for it.
First off, they operate adult stem cell collection, processing, and storage services. Healthy individuals donate and store their stem cells in order to have a secure supply if ever needed for future medical treatment.
Neostem is a leading provider of these services in the U.S. with nine collection centers.
This business generates revenue from a combination of fees paid up-front and over time. The fees are paid by both the collection centers and the individual clients.
Revenues are set to explode as Neostem expands the number of collection centers and more people learn about the miracles of stem cell medicine.
Second, Neostem operates a pharmaceutical business in China. The company offers a broad portfolio of anti-infective drugs. In 2008, seven of the top 20 antibiotics used in Chinese hospitals were made by Neostem. And last year, this business generated over $11 million in revenue.
The company’s pharmaceutical business has huge growth potential.
China’s antibiotics market was $8.8 billion in 2007 and is growing 24% a year. Plus, the country’s overall pharmaceutical market is expected to triple in size by 2013.
Neostem is poised for huge growth going forward.
Revenues are expanding sharply. Net losses are shrinking rapidly. And the company sports a solid balance sheet.
The stem cell collection and pharmaceuticals business will help grow the company now and in the future. But the real potential money-maker is the stem cell therapy business. Any positive advances in this area have potential to turn Neostem into the next penny biotech grand slam!
Unknown Stock #2: This Company’s Calorie Burning Beverage Could Be The Next “Monster”
One of the all time great penny stock stories is the tale of Hansen Natural (HANS). The company went from bankruptcy to multi-billion dollar beverage titan. Spurred by their wildly popular “Monster” energy drink, Hansen stock soared from around $1 a share in the mid-1990s to a peak price of $68.40 in October 2007.
In just ten years' time, you could have made a whopping 6,740% return on your money!
If you missed the Hansen bonanza… don’t fret. I’ve found the next penny-sized beverage company poised for Hansen-like growth. Say hello to Celsius Holdings (CELH).
Celsius has developed the next-generation of functional beverage products… the calorie burning energy drink!
These amazing fitness/energy drinks combine nutritional science with mainstream beverages. Not only do they provide a great taste, they’re scientifically proven to burn calories.
According to multiple clinical studies, a single serving (12 ounce can) of Celsius burns up to 100 calories.
Celsius is made with the company’s proprietary thermogenic MetaPlus formulation. It’s scientifically proven to increase a consumer’s metabolism an average of 12% for up to three hours.
The drink also packs a strong energy punch. Each 12 ounce can contains 200 milligrams of caffeine… that’s comparable to about two cups of coffee.
The market opportunity for Celsius is phenomenal to say the least…
The company’s target market is a niche within the functional beverage market. Ideal customers are men and women aged 25 to 54 who are looking for a way to burn calories and boost energy.
According to Datamonitor, the functional beverage market was about $9.7 billion in 2009. And it’s growing very fast. This market is expected to hit $19.7 billion by 2013.
That’s a compound annual growth rate of 15.2%!
And here’s the best part…
The two biggest segments of the functional beverage market are energy drinks (62%) and sports drinks (26%). But not for long. Celsius has created a new segment… calorie-burning drinks… and it should grab a big chunk of market share from the leading categories.
You see, a new trend is taking hold of the functional beverage industry, and it benefits Celsius.
While more and more consumers are buying functional beverages, they’re now looking for the healthiest drinks. Many leading functional beverage products contain high doses of sugar or high fructose corn syrup, sodium, artificial flavors, and preservatives.
Celsius, on the other hand, is as natural as possible.
The drink has no chemical preservatives, aspartame, or high fructose corn syrup, and it’s very low in sodium. It uses good-for-you ingredients like green tea, ginger, calcium, chromium, B vitamins, and Vitamin C. And it’s sweetened with sucralose, a low-calorie, sugar-derived sweetener found in Splenda.
Right now you can still get in on the ground floor of this amazing opportunity.
Celsius is still relatively unknown. But that won’t last much longer. The company’s marketing blitz across TV, radio, newsprint, magazines, and social networking sites is rapidly building brand awareness.
And it’s already translating into huge sales growth. It won’t be long before Celsius hits the radar screens of more individual and institutional investors. Grab your shares now before the herd rushes in!
Unknown Stock #3: An Obscure Company Poised To Make A Killing In Rare Earth Metals
This last penny stock pick is a play on the crisis evolving from the global shortage of rare earth metals. This tiny company is one of just seven publicly traded rare earth companies. And they stand to make a killing by supplying rare earth metals to U.S. industries.
Before I explain why, let me first tell you about rare earth metals…
Rare earth metals, or rare earths, are 17 chemically similar elements. They are critical components of hybrid cars, flat screen TVs, LED light bulbs, and wind turbines.
What’s more, these metals are vital to the aerospace and defense industry. They’re used extensively in aircraft parts, anti-missile defense systems, jet engines, and missile guidance systems.
Clearly, rare earths are key materials for a number of important industries.
The U.S. was a major global producer of rare earths until the mid-1980s, but now it no longer mines any of the materials. The world’s largest producer is China. They control a mind-boggling 97% of the global supply.
And that’s where the problem begins…
You see, China has slashed exports of rare earth metals. And this is causing a panic in Japan and the U.S. – two of the largest importers of rare earths. A shortage of rare earths could cause a major disruption for many industries and the U.S. military.
However, the shortage of rare earths could be a boon for one tiny company…
American Rare Earths & Materials (AREM) is positioning itself to become “America’s and North America’s best and most reliable source for rare earth metals.”
This amazing company has long-standing relationships with rare earth producers in Russia and Indonesia. And the company has proven scientific know-how to transform rare earth metals into commercially viable products.
Now they’re developing opportunities to distribute rare earths that will help key industries launch major industrial brands.
With demand for rare earths expected to keep rising and global supply tightening, AREM is on the cusp of a major growth cycle. Prices for rare earths are likely heading astronomically higher. And as one of the few suppliers of rare earths, AREM is sure to rake in huge profits.
Now’s the time to establish a position in AREM.
Most investors have yet to catch on to the astonishing growth potential of rare earth metals. And tiny AREM is hardly a blip on anyone’s radar screen. Grab your shares now before Wall Street wakes up and realizes the staggering profit potential this company offers.
How To Turn $300 Into $1.3 Million With Penny Stocks
Before concluding our report, we wanted to do the math on how it would be possible to turn $300 into $1.3 million. Now before we run the numbers, you need to know that getting a return this high would be difficult, but not impossible. Most investors would be happy to get just a fraction of these gains.
Start Amount Return Gain Ending Amount
Stock #1 $300 852% $2,556 $2,856
Stock #2 $2,856 3,428% $97,903 $100,759
Stock #3 $100,759 1,256% $1,265,541 $1,366,300
So there you have it. To turn $300 into $1.3 million, you’d need three consecutive returns of 852%, 3,428% and 1,256%. Difficult to do, yes. Impossible, no.
One thing is certain however. If you’re going to attempt gains like this, you’ll need to do it with penny stocks. It’s very difficult to register gains of 1,000% to 4,000% with blue-chip stocks like General Electric and Microsoft. You’ve got to find penny stocks that turn into the next General Electric and Microsoft.
And you do that by finding high-quality companies with real products and real potential. They’re out there- it’s just a matter of finding them!
Best Oil Stocks To Buy For 2011
You don’t have to be an adherent of peak oil theory to be bullish on oil and oil stocks over the next two, five, ten years. Simple math shows that the world’s energy needs are rising – even with the entrance of electric cars into the North American market. Individual stock investors are wise to have some exposure to this sector of the energy market.
Another part of the reason I focus on these types of posts is that there’s a dearth of information for US investors on international stocks and their valuations. Since I keep up on analysis of the Canadian equities markets, I’m happy to share with you what I’ve learned. I’m not a financial advisor, however, so keep that in mind and use these as suggestions for further research only.
When I say “best,” I mean some mixture of both the largest, the companies with the most lucrative oil patch locations, and the stocks that are most often recommended by Canadian analysts specializing in this sector. Also note that all of these are mature oil producers and they all pay dividends. I’ve listed them here according to market cap.
Best Oil Stocks To Buy For 2011: Suncor (TSX: SU)
One analyst called this the “#2 go-to name” for foreign investors. Suncor is another solid management team with steady, if not spectacular, growth prospects projected ahead. They recently acquired Canada’s #2 gasoline company, Petro-Canada, which owned a large number of gas stations throughout the country. Market Cap: $55.3 billion. Yield: 1.1%
Suncor Energy Inc. is a growing, integrated energy company, strategically focused on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oil sands.
In 1967, Suncor made history by tapping the oil sands to produce the first commercial barrel of synthetic crude oil. Since then, Suncor has grown to four major businesses with more than 5,000 employees.
*
Near Fort McMurray, Alberta, Canada, Suncor extracts and upgrades oil sands into high-quality refinery feedstock and diesel fuel.
*
In Western Canada, Suncor explores for, develops and produces natural gas.
*
In Ontario, Suncor refines crude oil and markets a range of petroleum and petrochemical products, primarily under the Sunoco brand.
*
In Colorado, Suncor’s downstream assets include a Commerce City-based refinery, crude oil pipeline systems and 43 retail stations branded as Phillips 66.
While we work to responsibly develop hydrocarbon resources, Suncor is also investing in clean, renewable energy sources. By 2008, Suncor plans to have four projects in operation with a total capacity of 147 megawatts of renewable energy as an alternative to hydrocarbon-fuelled generation. These projects are expected to offset the equivalent of approximately 270,000 tonnes of carbon dioxide annually. In Ontario, Suncor expects to complete construction in 2006 on a plant that will supply ethanol – a renewable energy source – for lower-emission blended fuels.
Suncor Energy (SU:TSX) is one of Canada's premier integrated energy companies. Suncor's operations include oil sands development and upgrading, conventional and offshore oil and gas production, petroleum refining and product marketing under the Petro-Canada brand (Annual Report 2009). Suncor's common shares are listed on the Toronto and New York Stock Exchanges.
Currently Suncor's stock price is trading close to its mid-point in the 52 week time range. It's last closing price was recorded at $34.32. It's 52 week low price was $27.44 and it's 52 week high price was $40.79.
Suncor Fundamental Valuation Metrics
All of Suncor's financial ratios other than the Return on Equity and Gross Profit Margin are lower than the industry average. Its operating performance measures are on par/better than some of its closest peers.
However, its relative valuation measures are higher than the industry average as illustrated below:
Suncor Valuation
Is the valuation justified?
Suncor has a strong recoverable resource base of 27 billion barrels of oil equivalent.
Suncor also has in place a debt retirement plan and is now in the process of divesting assets it inherited in the merger with Petro-Canada that do not support its core operations. The company expects to close most sales by the end of the year. The proceeds from these sales are expected to be around CAD $ billion 2 to 4 and are expected to be used in reducing the company's debt. Along these lines, Suncor recently announced that it has entered into an agreement to sell certain natural gas-heavy assets in west-central Alberta for C$235 million ($230 million) in cash.
With 84% of the value in Suncor coming from oil, rising oil prices are Suncor's strongest catalyst for growth. For the near future, the US Energy Information Administration forecasts oil price to average USD 80.06 in 2010 and USD 83.50 in 2011.
Best Oil Stocks To Buy For 2011: Encana (TSX: ECA)
Encana has been described as one of the “bluest of the blue-chips.” Its focus is unconventional oil and gas with strengths in clean energy production, although it is weighted to natural gas. However, it has the second-largest market cap of any Canadian oil company. Market Cap: $45.4 billion. Yield: 2.8%
EnCana is a leading oil and gas producer in North America, where the company's primary focus is on the development of resource plays and the in-situ recovery of oilsands bitumen.
Christina Lake In-situ oilsands, northeast Alberta, EnCana's largest potential oilsands project
Located in northeast Alberta about 120 kilometers south of Fort McMurray, Christina Lake has the potential to be EnCana's largest oilsands project. Pilot project work over the past five years has taken steam-assisted gravity drainage production, from six well pairs drilled into the McMurray formation, to a level that is expected to average 6,000 barrels of bitumen per day in 2006. A current expansion is expected to take production to about 18,000 barrels per day in 2008 and the project is targeted to grow to more than 250,000 barrels per day over the next decade.
With a reservoir thickness of up to 150 feet of oil-bearing sands, Christina Lake is estimated by EnCana to have an unbooked resource potential of about 1.8 billion barrels of oil.
Foster Creek
In-situ oilsands, northeast Alberta, commenced commercial operations in 2001.
Foster Creek is the quintessential resource play — a high-quality, unconventional resource with large potential and scalable, repeatable operations that enable the company to incorporate technical advances.
Foster Creek produces from the McMurray formation of the Athabasca oilsands, and features a technology called steam-assisted gravity drainage (SAGD). We conducted a multi-year pilot project prior to starting commercial operations in 2001. In SAGD, horizontal wells are drilled in pairs — running parallel above one another about 17 feet apart. Steam is injected in the upper well to warm the bitumen and make it less viscous so it can drain to the lower production well bore.
A critical SAGD thermal efficiency measure is the ratio between the quantity of steam injected and the quantity of oil produced. Our steam-oil ratio of 2.5 times is industry leading. With a high-quality reservoir and leading thermal efficiency, Foster Creek delivers excellent returns.
Oil production averaged 29,019 bbls/d in 2005. In the fourth quarter of 2005, we completed the first stage of an expansion which added an additional 10,000 bbls/d of capacity. The second stage of the expansion, which is expected to add an additional 20,000 bbls/d of capacity, is expected to be completed around year-end 2006.
In November of 2005, we announced that EnCana is developing plans to significantly expand production from its estimated 5 billion to 10 billion barrels of recoverable oilsands resources - assets that have the potential to reach a production rate of 500,000 bbls/d of oil per day in the next 10 years.
Best Oil Stocks To Buy For 2011: Imperial Oil (TSX: IMO)
Imperial Oil has not been getting as much attention lately, but is still clearly a major player rounding out the profile of the largest Canadian oil companies. Imperial has not only consistently won awards for being one of Canada’s top employers, but they actively work to improve their environmental record. The dividends are meagre, however. But the management team is considered solid, and if you can call an oil company “blue-chip,” this is as close as they get. Market Cap: $35.1 billion. Yield: 1.0%
Imperial Oil Limited was incorporated under the laws of Canada in 1880. It is an integrated oil company. It is active in all phases of the petroleum industry in Canada, including the exploration for, and production and sale of, crude oil and natural gas. The Company's operations are conducted in three main segments: Upstream, Downstream and Chemical. Upstream operations include the exploration for, and production of, conventional crude oil, natural gas, upgraded crude oil and heavy oil. Downstream operations consist of the transportation, refining and blending of crude oil and refined products and the distribution and marketing thereof. The Chemical operations consist of the manufacturing and marketing of various petrochemicals. The Company owns and operates four refineries. Two of these, the Sarnia refinery and the Strathcona refinery, have lubricating oil production facilities. The Strathcona refinery processes Canadian crude oil, and the Dartmouth, Sarnia and Nanticoke refineries process a combination of Canadian and foreign crude oil. In addition to crude oil, the Company purchases finished products to supplement its refinery production. Crude oil from foreign sources is purchased by the Company at market prices mainly through Exxon Mobil Corporation. It owns and operates crude oil, natural gas liquids and products pipelines in Alberta, Manitoba and Ontario. Its known brand names are notably Esso and Mobil. The Company's Chemical operations manufacture and market ethylene, benzene, aromatic and aliphatic solvents, plasticizer intermediates and polyethylene resin. Its major petrochemical and polyethylene manufacturing operations are located in Sarnia, Ontario, adjacent to the Company's petroleum refinery. The Company's competitors include major integrated oil and gas companies and numerous other independent oil and gas companies. All phases of the Upstream, Downstream and Chemical businesses are subject to environmental regulation pursuant to a variety of Canadian federal, provincial and municipal laws and regulations, as well as international conventions.
IMO.TSX Revenue
As a value investing shop, we are interested in seeing how IMO.TSX's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 1.67x and the low end of the range at 1.09x.
With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for IMO.TSX of 1.49x is somewhat above its historical average. As such, the current Price to Sales ratio suggests a neutral share price forecast. In order for us to become more positive about IMO.TSX we would need to see a drop in the Price to Sales ratio of 7% given current sales per share levels in order to return to its historical weighted average.
IMO.TSX Cash Earnings
Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. IMO.TSX is significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for IMO.TSX, the current level of Cash Earnings compared to its historical levels helps identify where IMO.TSX is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 17.13 and a historical low Cash Earnings per share ratio of 11.35, an investor can relate where value becomes optimal.
Just recall that when a stock's price, as in the cases of IMO.TSX, is significantly elevated to the level of Cash Earnings being generated, the market has already priced in much of that value. For example, the historical average for IMO.TSX's Price to Cash Earnings ratio is 35% below the current ratio of 19.28. That is not an insignificant amount, and diminishes our overall outlook on IMO.TSX. However, you need to review several areas of a company's potential, and as management would point out, one metric is not the end-all-be-all of any analysis.
IMO.TSX Dividends
While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.
In IMO.TSX’s case, the estimated annual dividend is 0.40 resulting in a current dividend yield of 1.00%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from IMO.TSX against the historic high and low levels over the past 10 years. The highest dividend yield from IMO.TSX over this period was 2.47% while the lowest dividend yield was 0.61% With that range in mind, IMO.TSX’s current dividend yield is a full 35.24% below its median dividend yield historically. This is a negative from our perspective.
Best Oil Stocks To Buy For 2011: Talisman Energy (TSX: TLM)
An independent company since 1992, Talisman is headquartered in Calgary, Alberta. It has subsidiaries operating in the UK, Norway, Southeast Asia, and North Africa. Talisman is another reputable big-cap, oil-weighted stock with gas exposure. It’s also more likely to be a buyer rather than a target of a takeover. Market Cap: $18.6 billion. Yield: 1.2%
Talisman Energy Incis considered to operate in the Energy sector. They specifically operate in the Independent Oil & Gas business segment contained within the Oil & Gas - E&P industry.
Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The Company also has a portfolio of international exploration opportunities. It is a Canadian-based independent oil and gas producers. Talisman's main business activities include exploration, development, production, transportation and marketing of crude oil, natural gas and natural gas liquids. It has a diversified, global portfolio of oil and gas assets. The Company believes this portfolio would provide growth from shale gas development in North America, project developments in Southeast Asia, and its international exploration portfolio. Talisman investigates strategic acquisitions, dispositions and other business opportunities on an ongoing basis, some of which may be material. The Company's activities are conducted in five geographic segments: North America, UK, Scandinavia, Southeast Asia, and Other. The North America segment includes operations in Canada and the United States. The Southeast Asia segment includes exploration and operations in Indonesia, Malaysia, Vietnam and Australia and exploration activities in Papua New Guinea. The Other segment includes operations in Algeria and exploration activities in Peru, Colombia and the Kurdistan region of northern Iraq.
TLM.TSX Revenue
Cash earnings is the most important factor in our analysis, but it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, TLM.TSX the high and low end of the Price to Sales per share ratios are 2.55x and 1.43x respectively.
Notice that TLM.TSX's current Price to Sales per share ratio is 2.55x, which is high enough compared with historical norms of TLM.TSX to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 28% merely to return TLM.TSX to its historical average.
TLM.TSX Cash Earnings
Looking at TLM.TSX specifically in their Cash Earnings capabilities, Ockham views TLM.TSX as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for TLM.TSX, the current level of Cash Earnings compared to its historical levels helps identify where TLM.TSX is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 16.60 and a historical low Cash Earnings per share ratio of 9.93, an investor can relate where value becomes optimal.
Just recall that when a stock's price, as in the cases of TLM.TSX, is significantly elevated to the level of Cash Earnings being generated, the market has already priced in much of that value. For example, the historical average for TLM.TSX's Price to Cash Earnings ratio is 204% below the current ratio of 40.37. That is not an insignificant amount, and diminishes our overall outlook on TLM.TSX. However, you need to review several areas of a company's potential, and as management would point out, one metric is not the end-all-be-all of any analysis.
TLM.TSX Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from TLM.TSX against the historic high and low levels over an available data range. Because TLM.TSX has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In TLM.TSX’s case, the estimated annual dividend is 0.24 producing a current dividend yield of 1.35%. The highest dividend yield from TLM.TSX in recent history was 2.42% while the lowest dividend yield was 0.54%. TLM.TSX is not making us feel all that confident when their current dividend yield is below the historical median by 9.08%.
Best Oil Stocks To Buy For 2011: Crescent Point Energy (TSX: CPG)
This is by far the hot Canadian oil stock right now, but for good reason. Not only does it seem to have the best growth and production prospects over the next ten years, but it has the best location of reserves in both southwest and southeast Saskatchewan. I have yet to see an analyst have anything negative to say about this company. Take that for what it’s worth, but I’m just saying. One factor to consider is its small market cap relative to others in the sector. It also has an unusually high yield, perhaps owing to its recent conversion from income trust status. Market Cap: $5.7 billion. Yield: 7.8%
Crescent Point Energy Corporationis considered to operate in the Energy sector. They specifically operate in the Independent Oil & Gas business segment contained within the Oil & Gas - E&P industry. Through Crescent Point Resources Ltd. and other subsidiaries, explores for, develops and produces oil and gas in western Canada.
CPG Revenue
As a value investing shop, we are interested in seeing how CPG's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 8 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 5.94x and the low end of the range at 3.30x.
With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for CPG of 8.54x is well above its historical average. This means that CPG looks relatively expensive compared to its historical Price to Sales average, and thus it is more difficult to believe that there is significant price appreciation potential. In order for the stock to become more attractive, we would like to see a decline in the Price to Sales ratio of 84% just to return CPG to its historical average.
CPG Cash Earnings
Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. CPG is significantly above its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 8 years of cash earnings levels for CPG to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 18.82 and a 11.99 low over the same period.
Therefore, at the current price of 37.83 and a Price to Cash Earnings ratio of 4,770.83, CPG is significantly overvalued. This diminishes the attractiveness of CPG until we see either a significant increase in cash earnings or a decline in price. A decline of the Price to Cash Earnings ratio of 30869% is needed just to return to the historical cash earnings multiple.
CPG Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from CPG against the historic high and low levels over an available data range. Because CPG has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In CPG’s case, the estimated annual dividend is 2.76 producing a current dividend yield of 7.30%. The highest dividend yield from CPG in recent history was 14.40% while the lowest dividend yield was 0.00%. Therefore, the current dividend yield of CPG is above the historical median by 1.36%. This is definitely a positive in our view.
Best Oil Stocks To Buy For 2011: Canadian Natural Resources (TSX: CNQ)
Canadian Natural Resources, Ltd.is considered to operate in the Energy sector. They specifically operate in the Independent Oil & Gas business segment contained within the Oil & Gas - E&P industry.
Canadian Natural Resources Limited was incorporated under the laws of the Province of British Columbia on November 7, 1973 as AEX Minerals Corporation (N.P.L.) and on December 5, 1975 changed its name to Canadian Natural Resources Limited. It is a Canadian based senior independent energy company engaged in the acquisition, exploration, development, production, marketing and sale of crude oil, NGLs, and natural gas production. The Company's main core regions of operations are western Canada, the United Kingdom sector of the North Sea and Offshore West Africa. It initiates, operates and maintains a large working interest in a majority of the prospects in which it participates. It focuses on exploiting its core properties and actively maintaining cost controls. The Company's business approach is to maintain large project inventories and production diversification among each of the commodities it produces namely: natural gas, light/medium crude oil and NGLs, Pelican Lake crude oil (14-17º API oil, which receives medium quality crude netbacks due to lower production costs and lower royalty rates), primary heavy crude oil, thermal heavy crude oil and SCO. Its operations are centered on balanced product offerings, which together provide complementary infrastructure and balance throughout the business cycle. Virtually all of the Company's natural gas and NGLs production is located in the Canadian provinces of Alberta, British Columbia and Saskatchewan and is marketed in Canada and the United States.
CNQ Revenue
For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at CNQ through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 3.07x and 1.31x respectively.
Utilizing this range we can see that CNQ’s current Price to Sales per share ratio of 2.83x is high enough compared with historical norms of CNQ to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 28% merely to return CNQ to its historical average.
CNQ Cash Earnings
As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of CNQ, Ockham views their current Cash Earnings as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for CNQ, the current level of Cash Earnings compared to its historical levels helps identify where CNQ is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 17.05 and a historical low Cash Earnings per share ratio of 7.30, an investor can relate where value becomes optimal.
So what does this tell us about CNQ in particular? Basically, we would value the current level of Cash Earnings per share (which is at 14.25) as significantly overvalued. Just by looking at the last closing price of CNQ, which was 32.47, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded CNQ with a higher stock price. So basically, we don't view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that CNQ may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.
CNQ Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from CNQ against the historic high and low levels over an available data range. Because CNQ has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In CNQ’s case, the estimated annual dividend is 0.23 producing a current dividend yield of 0.67%. The highest dividend yield from CNQ in recent history was 2.15% while the lowest dividend yield was 0.37%. With that range in mind, CNQ’s current dividend yield is a full 46.57% below its median dividend yield historically. This is a negative from our perspective.
Another part of the reason I focus on these types of posts is that there’s a dearth of information for US investors on international stocks and their valuations. Since I keep up on analysis of the Canadian equities markets, I’m happy to share with you what I’ve learned. I’m not a financial advisor, however, so keep that in mind and use these as suggestions for further research only.
When I say “best,” I mean some mixture of both the largest, the companies with the most lucrative oil patch locations, and the stocks that are most often recommended by Canadian analysts specializing in this sector. Also note that all of these are mature oil producers and they all pay dividends. I’ve listed them here according to market cap.
Best Oil Stocks To Buy For 2011: Suncor (TSX: SU)
One analyst called this the “#2 go-to name” for foreign investors. Suncor is another solid management team with steady, if not spectacular, growth prospects projected ahead. They recently acquired Canada’s #2 gasoline company, Petro-Canada, which owned a large number of gas stations throughout the country. Market Cap: $55.3 billion. Yield: 1.1%
Suncor Energy Inc. is a growing, integrated energy company, strategically focused on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oil sands.
In 1967, Suncor made history by tapping the oil sands to produce the first commercial barrel of synthetic crude oil. Since then, Suncor has grown to four major businesses with more than 5,000 employees.
*
Near Fort McMurray, Alberta, Canada, Suncor extracts and upgrades oil sands into high-quality refinery feedstock and diesel fuel.
*
In Western Canada, Suncor explores for, develops and produces natural gas.
*
In Ontario, Suncor refines crude oil and markets a range of petroleum and petrochemical products, primarily under the Sunoco brand.
*
In Colorado, Suncor’s downstream assets include a Commerce City-based refinery, crude oil pipeline systems and 43 retail stations branded as Phillips 66.
While we work to responsibly develop hydrocarbon resources, Suncor is also investing in clean, renewable energy sources. By 2008, Suncor plans to have four projects in operation with a total capacity of 147 megawatts of renewable energy as an alternative to hydrocarbon-fuelled generation. These projects are expected to offset the equivalent of approximately 270,000 tonnes of carbon dioxide annually. In Ontario, Suncor expects to complete construction in 2006 on a plant that will supply ethanol – a renewable energy source – for lower-emission blended fuels.
Suncor Energy (SU:TSX) is one of Canada's premier integrated energy companies. Suncor's operations include oil sands development and upgrading, conventional and offshore oil and gas production, petroleum refining and product marketing under the Petro-Canada brand (Annual Report 2009). Suncor's common shares are listed on the Toronto and New York Stock Exchanges.
Currently Suncor's stock price is trading close to its mid-point in the 52 week time range. It's last closing price was recorded at $34.32. It's 52 week low price was $27.44 and it's 52 week high price was $40.79.
Suncor Fundamental Valuation Metrics
All of Suncor's financial ratios other than the Return on Equity and Gross Profit Margin are lower than the industry average. Its operating performance measures are on par/better than some of its closest peers.
However, its relative valuation measures are higher than the industry average as illustrated below:
Suncor Valuation
Is the valuation justified?
Suncor has a strong recoverable resource base of 27 billion barrels of oil equivalent.
Suncor also has in place a debt retirement plan and is now in the process of divesting assets it inherited in the merger with Petro-Canada that do not support its core operations. The company expects to close most sales by the end of the year. The proceeds from these sales are expected to be around CAD $ billion 2 to 4 and are expected to be used in reducing the company's debt. Along these lines, Suncor recently announced that it has entered into an agreement to sell certain natural gas-heavy assets in west-central Alberta for C$235 million ($230 million) in cash.
With 84% of the value in Suncor coming from oil, rising oil prices are Suncor's strongest catalyst for growth. For the near future, the US Energy Information Administration forecasts oil price to average USD 80.06 in 2010 and USD 83.50 in 2011.
Best Oil Stocks To Buy For 2011: Encana (TSX: ECA)
Encana has been described as one of the “bluest of the blue-chips.” Its focus is unconventional oil and gas with strengths in clean energy production, although it is weighted to natural gas. However, it has the second-largest market cap of any Canadian oil company. Market Cap: $45.4 billion. Yield: 2.8%
EnCana is a leading oil and gas producer in North America, where the company's primary focus is on the development of resource plays and the in-situ recovery of oilsands bitumen.
Christina Lake In-situ oilsands, northeast Alberta, EnCana's largest potential oilsands project
Located in northeast Alberta about 120 kilometers south of Fort McMurray, Christina Lake has the potential to be EnCana's largest oilsands project. Pilot project work over the past five years has taken steam-assisted gravity drainage production, from six well pairs drilled into the McMurray formation, to a level that is expected to average 6,000 barrels of bitumen per day in 2006. A current expansion is expected to take production to about 18,000 barrels per day in 2008 and the project is targeted to grow to more than 250,000 barrels per day over the next decade.
With a reservoir thickness of up to 150 feet of oil-bearing sands, Christina Lake is estimated by EnCana to have an unbooked resource potential of about 1.8 billion barrels of oil.
Foster Creek
In-situ oilsands, northeast Alberta, commenced commercial operations in 2001.
Foster Creek is the quintessential resource play — a high-quality, unconventional resource with large potential and scalable, repeatable operations that enable the company to incorporate technical advances.
Foster Creek produces from the McMurray formation of the Athabasca oilsands, and features a technology called steam-assisted gravity drainage (SAGD). We conducted a multi-year pilot project prior to starting commercial operations in 2001. In SAGD, horizontal wells are drilled in pairs — running parallel above one another about 17 feet apart. Steam is injected in the upper well to warm the bitumen and make it less viscous so it can drain to the lower production well bore.
A critical SAGD thermal efficiency measure is the ratio between the quantity of steam injected and the quantity of oil produced. Our steam-oil ratio of 2.5 times is industry leading. With a high-quality reservoir and leading thermal efficiency, Foster Creek delivers excellent returns.
Oil production averaged 29,019 bbls/d in 2005. In the fourth quarter of 2005, we completed the first stage of an expansion which added an additional 10,000 bbls/d of capacity. The second stage of the expansion, which is expected to add an additional 20,000 bbls/d of capacity, is expected to be completed around year-end 2006.
In November of 2005, we announced that EnCana is developing plans to significantly expand production from its estimated 5 billion to 10 billion barrels of recoverable oilsands resources - assets that have the potential to reach a production rate of 500,000 bbls/d of oil per day in the next 10 years.
Best Oil Stocks To Buy For 2011: Imperial Oil (TSX: IMO)
Imperial Oil has not been getting as much attention lately, but is still clearly a major player rounding out the profile of the largest Canadian oil companies. Imperial has not only consistently won awards for being one of Canada’s top employers, but they actively work to improve their environmental record. The dividends are meagre, however. But the management team is considered solid, and if you can call an oil company “blue-chip,” this is as close as they get. Market Cap: $35.1 billion. Yield: 1.0%
Imperial Oil Limited was incorporated under the laws of Canada in 1880. It is an integrated oil company. It is active in all phases of the petroleum industry in Canada, including the exploration for, and production and sale of, crude oil and natural gas. The Company's operations are conducted in three main segments: Upstream, Downstream and Chemical. Upstream operations include the exploration for, and production of, conventional crude oil, natural gas, upgraded crude oil and heavy oil. Downstream operations consist of the transportation, refining and blending of crude oil and refined products and the distribution and marketing thereof. The Chemical operations consist of the manufacturing and marketing of various petrochemicals. The Company owns and operates four refineries. Two of these, the Sarnia refinery and the Strathcona refinery, have lubricating oil production facilities. The Strathcona refinery processes Canadian crude oil, and the Dartmouth, Sarnia and Nanticoke refineries process a combination of Canadian and foreign crude oil. In addition to crude oil, the Company purchases finished products to supplement its refinery production. Crude oil from foreign sources is purchased by the Company at market prices mainly through Exxon Mobil Corporation. It owns and operates crude oil, natural gas liquids and products pipelines in Alberta, Manitoba and Ontario. Its known brand names are notably Esso and Mobil. The Company's Chemical operations manufacture and market ethylene, benzene, aromatic and aliphatic solvents, plasticizer intermediates and polyethylene resin. Its major petrochemical and polyethylene manufacturing operations are located in Sarnia, Ontario, adjacent to the Company's petroleum refinery. The Company's competitors include major integrated oil and gas companies and numerous other independent oil and gas companies. All phases of the Upstream, Downstream and Chemical businesses are subject to environmental regulation pursuant to a variety of Canadian federal, provincial and municipal laws and regulations, as well as international conventions.
IMO.TSX Revenue
As a value investing shop, we are interested in seeing how IMO.TSX's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 1.67x and the low end of the range at 1.09x.
With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for IMO.TSX of 1.49x is somewhat above its historical average. As such, the current Price to Sales ratio suggests a neutral share price forecast. In order for us to become more positive about IMO.TSX we would need to see a drop in the Price to Sales ratio of 7% given current sales per share levels in order to return to its historical weighted average.
IMO.TSX Cash Earnings
Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. IMO.TSX is significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for IMO.TSX, the current level of Cash Earnings compared to its historical levels helps identify where IMO.TSX is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 17.13 and a historical low Cash Earnings per share ratio of 11.35, an investor can relate where value becomes optimal.
Just recall that when a stock's price, as in the cases of IMO.TSX, is significantly elevated to the level of Cash Earnings being generated, the market has already priced in much of that value. For example, the historical average for IMO.TSX's Price to Cash Earnings ratio is 35% below the current ratio of 19.28. That is not an insignificant amount, and diminishes our overall outlook on IMO.TSX. However, you need to review several areas of a company's potential, and as management would point out, one metric is not the end-all-be-all of any analysis.
IMO.TSX Dividends
While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.
In IMO.TSX’s case, the estimated annual dividend is 0.40 resulting in a current dividend yield of 1.00%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from IMO.TSX against the historic high and low levels over the past 10 years. The highest dividend yield from IMO.TSX over this period was 2.47% while the lowest dividend yield was 0.61% With that range in mind, IMO.TSX’s current dividend yield is a full 35.24% below its median dividend yield historically. This is a negative from our perspective.
Best Oil Stocks To Buy For 2011: Talisman Energy (TSX: TLM)
An independent company since 1992, Talisman is headquartered in Calgary, Alberta. It has subsidiaries operating in the UK, Norway, Southeast Asia, and North Africa. Talisman is another reputable big-cap, oil-weighted stock with gas exposure. It’s also more likely to be a buyer rather than a target of a takeover. Market Cap: $18.6 billion. Yield: 1.2%
Talisman Energy Incis considered to operate in the Energy sector. They specifically operate in the Independent Oil & Gas business segment contained within the Oil & Gas - E&P industry.
Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The Company also has a portfolio of international exploration opportunities. It is a Canadian-based independent oil and gas producers. Talisman's main business activities include exploration, development, production, transportation and marketing of crude oil, natural gas and natural gas liquids. It has a diversified, global portfolio of oil and gas assets. The Company believes this portfolio would provide growth from shale gas development in North America, project developments in Southeast Asia, and its international exploration portfolio. Talisman investigates strategic acquisitions, dispositions and other business opportunities on an ongoing basis, some of which may be material. The Company's activities are conducted in five geographic segments: North America, UK, Scandinavia, Southeast Asia, and Other. The North America segment includes operations in Canada and the United States. The Southeast Asia segment includes exploration and operations in Indonesia, Malaysia, Vietnam and Australia and exploration activities in Papua New Guinea. The Other segment includes operations in Algeria and exploration activities in Peru, Colombia and the Kurdistan region of northern Iraq.
TLM.TSX Revenue
Cash earnings is the most important factor in our analysis, but it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, TLM.TSX the high and low end of the Price to Sales per share ratios are 2.55x and 1.43x respectively.
Notice that TLM.TSX's current Price to Sales per share ratio is 2.55x, which is high enough compared with historical norms of TLM.TSX to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 28% merely to return TLM.TSX to its historical average.
TLM.TSX Cash Earnings
Looking at TLM.TSX specifically in their Cash Earnings capabilities, Ockham views TLM.TSX as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for TLM.TSX, the current level of Cash Earnings compared to its historical levels helps identify where TLM.TSX is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 16.60 and a historical low Cash Earnings per share ratio of 9.93, an investor can relate where value becomes optimal.
Just recall that when a stock's price, as in the cases of TLM.TSX, is significantly elevated to the level of Cash Earnings being generated, the market has already priced in much of that value. For example, the historical average for TLM.TSX's Price to Cash Earnings ratio is 204% below the current ratio of 40.37. That is not an insignificant amount, and diminishes our overall outlook on TLM.TSX. However, you need to review several areas of a company's potential, and as management would point out, one metric is not the end-all-be-all of any analysis.
TLM.TSX Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from TLM.TSX against the historic high and low levels over an available data range. Because TLM.TSX has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In TLM.TSX’s case, the estimated annual dividend is 0.24 producing a current dividend yield of 1.35%. The highest dividend yield from TLM.TSX in recent history was 2.42% while the lowest dividend yield was 0.54%. TLM.TSX is not making us feel all that confident when their current dividend yield is below the historical median by 9.08%.
Best Oil Stocks To Buy For 2011: Crescent Point Energy (TSX: CPG)
This is by far the hot Canadian oil stock right now, but for good reason. Not only does it seem to have the best growth and production prospects over the next ten years, but it has the best location of reserves in both southwest and southeast Saskatchewan. I have yet to see an analyst have anything negative to say about this company. Take that for what it’s worth, but I’m just saying. One factor to consider is its small market cap relative to others in the sector. It also has an unusually high yield, perhaps owing to its recent conversion from income trust status. Market Cap: $5.7 billion. Yield: 7.8%
Crescent Point Energy Corporationis considered to operate in the Energy sector. They specifically operate in the Independent Oil & Gas business segment contained within the Oil & Gas - E&P industry. Through Crescent Point Resources Ltd. and other subsidiaries, explores for, develops and produces oil and gas in western Canada.
CPG Revenue
As a value investing shop, we are interested in seeing how CPG's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 8 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 5.94x and the low end of the range at 3.30x.
With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for CPG of 8.54x is well above its historical average. This means that CPG looks relatively expensive compared to its historical Price to Sales average, and thus it is more difficult to believe that there is significant price appreciation potential. In order for the stock to become more attractive, we would like to see a decline in the Price to Sales ratio of 84% just to return CPG to its historical average.
CPG Cash Earnings
Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. CPG is significantly above its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 8 years of cash earnings levels for CPG to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 18.82 and a 11.99 low over the same period.
Therefore, at the current price of 37.83 and a Price to Cash Earnings ratio of 4,770.83, CPG is significantly overvalued. This diminishes the attractiveness of CPG until we see either a significant increase in cash earnings or a decline in price. A decline of the Price to Cash Earnings ratio of 30869% is needed just to return to the historical cash earnings multiple.
CPG Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from CPG against the historic high and low levels over an available data range. Because CPG has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In CPG’s case, the estimated annual dividend is 2.76 producing a current dividend yield of 7.30%. The highest dividend yield from CPG in recent history was 14.40% while the lowest dividend yield was 0.00%. Therefore, the current dividend yield of CPG is above the historical median by 1.36%. This is definitely a positive in our view.
Best Oil Stocks To Buy For 2011: Canadian Natural Resources (TSX: CNQ)
Canadian Natural Resources, Ltd.is considered to operate in the Energy sector. They specifically operate in the Independent Oil & Gas business segment contained within the Oil & Gas - E&P industry.
Canadian Natural Resources Limited was incorporated under the laws of the Province of British Columbia on November 7, 1973 as AEX Minerals Corporation (N.P.L.) and on December 5, 1975 changed its name to Canadian Natural Resources Limited. It is a Canadian based senior independent energy company engaged in the acquisition, exploration, development, production, marketing and sale of crude oil, NGLs, and natural gas production. The Company's main core regions of operations are western Canada, the United Kingdom sector of the North Sea and Offshore West Africa. It initiates, operates and maintains a large working interest in a majority of the prospects in which it participates. It focuses on exploiting its core properties and actively maintaining cost controls. The Company's business approach is to maintain large project inventories and production diversification among each of the commodities it produces namely: natural gas, light/medium crude oil and NGLs, Pelican Lake crude oil (14-17º API oil, which receives medium quality crude netbacks due to lower production costs and lower royalty rates), primary heavy crude oil, thermal heavy crude oil and SCO. Its operations are centered on balanced product offerings, which together provide complementary infrastructure and balance throughout the business cycle. Virtually all of the Company's natural gas and NGLs production is located in the Canadian provinces of Alberta, British Columbia and Saskatchewan and is marketed in Canada and the United States.
CNQ Revenue
For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at CNQ through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 3.07x and 1.31x respectively.
Utilizing this range we can see that CNQ’s current Price to Sales per share ratio of 2.83x is high enough compared with historical norms of CNQ to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 28% merely to return CNQ to its historical average.
CNQ Cash Earnings
As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of CNQ, Ockham views their current Cash Earnings as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for CNQ, the current level of Cash Earnings compared to its historical levels helps identify where CNQ is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 17.05 and a historical low Cash Earnings per share ratio of 7.30, an investor can relate where value becomes optimal.
So what does this tell us about CNQ in particular? Basically, we would value the current level of Cash Earnings per share (which is at 14.25) as significantly overvalued. Just by looking at the last closing price of CNQ, which was 32.47, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded CNQ with a higher stock price. So basically, we don't view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that CNQ may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.
CNQ Dividends
A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.
Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from CNQ against the historic high and low levels over an available data range. Because CNQ has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In CNQ’s case, the estimated annual dividend is 0.23 producing a current dividend yield of 0.67%. The highest dividend yield from CNQ in recent history was 2.15% while the lowest dividend yield was 0.37%. With that range in mind, CNQ’s current dividend yield is a full 46.57% below its median dividend yield historically. This is a negative from our perspective.
Top Stocks For 2010
Top 10 Stocks for 2010 from America's Leading Advisors marks the eleventh edition of NewsletterAdvisors.com's complimentary signature publica-tion. Each and every edition brings the best in investment ideas from the brightest minds in investing today to individual investors just like you.
Since NewsletterAdvisors.com was launched in November 2005, tens of thousands of individual investors from all over the world have visited the site and downloaded copies of our reports. We thank all of those who have downloaded previous editions of the report for their overwhelmingly positive feedback. As you evaluate your portfolio into 2009 we hope that you will turn to this special report from NewsletterAdvisors.com for ideas and inspiration. If this is your first time requesting a free report from us, you can also look forward to receiving 24/7 Investor's Daily Profit email newsletter, Featuring timely stock recommendations and analysis on the news that's really moving the market, plus interviews with investment experts, including contributors to NewsletterAdvisors.com special reports, Daily Profit is your indispensable guide to navigating a challenging market.
Enjoy this special report and the outstanding investment ideas from our hand selected investment experts. We also encourage you to consider some of the special offers from the contributors to this special report, including free trial memberships, subscription discounts, and additional bonus reports. Please see page 13 of this report for complete details, or click here to take advantage of these free offers today!
Thanks again for turning to NewsletterAdvisors.com, your trusted source for investment information.
Top Stocks For 2010 No.1 Atlas Pipeline Partners
by Addison Wiggin
I've been involved in investing and financial markets for the past 15 years. In that time, I've met every kind of investor... and heard about every kind of investing strategy and stock opportunity you can imagine. Here at Agora Financial, we scour the globe looking for hidden investment opportunities often over looked by Wall Street. Capital &Crisis editor Chris Mayer uncovers these opportunities and delivers them to you. Chris is called by some "the best financial journalist you've never heard of ..."
And on behalf of Chris Mayer... I'll gladly put every minute of my hard work and reputation building on theline. His Capital & Crisis subscribers have benefited greatly from his unique recommendations. His globetrotting letter knows no bounds and goes wherever profits can be found. Over to Chris… Finding the Great Investments He's BeenSearching for His Whole Career I'm going to show you how you can start collecting a 20%-plus yield -- on one overlooked energy stock --right away. Besides these plumpdividends, you'll get a good shot at tripling your money. And there's good reason to believe you could make nine times your money -- if Wall Street wakes up and smells hard assets, and pays exactly what they're worth.
The market isn't rewarding Exxon, Chevron or even Gazprom. And now is not the time to start taking risks on wildcat energy explorers. Right now, I'm looking at a stock that's trading under $6. And today, it's showing signs of a climb -- so I wouldn't wait on this opportunity. Just let me give you the bare bones of its business and a nod from a very smart billionaire investor who knows tough markets.
The company's secret is that it doesn't drill for a drop of oil and it doesn't frack a single foot of shale gas. What it does is keep companies who do at its mercy.
Atlas Pipeline Partners (APL:nyse) owns 1,600 miles of pipeline connected to nearly 6,000 wells and is adding over 800 new wells per year in Appalachia. It also operates a growing interstate pipeline system in the Fayetteville Shale. Plus, it has a great deal with one of the most active drillers in America: Atlas Energy. Every well that Atlas Energy drills has to be connected to Atlas Pipeline's system. These are low-risk assets. Now let's talk dividend. Since 2000, APL's average dividend increase clocked in at 7 cents a year. A plump year offered a 107% increase. While it's true that 2008 was a tough year for natural gas, NGLs (APL's primary product) are up 50% from their December lows. Aside from price recovery, there's another catalyst for dividend growth. Given the prime location of its pipelines in Appalachia, you have every reason to expect an increased dividend payout down the road.
War horse Leon Cooperman, shares my interest in APL. He is one of the great living investors. At a recent Manhattan value investors' conference, Cooperman confessed, "This is the most difficult environment I've lived through. And I've been doing this for 41 years." But when he got to talking about getting 20%-plus on your money with APL, he had this to say: "At my age, it's better than sex, but that's just me."
Why does he think Atlas is on sale? Thank collapsing hedge funds the most. These guys have been forced to sell even their best positions to cover losses in other areas. Cooperman thinks this stock is worth $46 easily. My original estimate was $48. That's nine times what it trades at today. So why not consider a stock trading at so steep a discount to book?
Don't forget the great yield -- that's poised to increase. Even if that dividend stays right where it was last quarter, you could still make back today's investment in under four years -- just through the dividend alone.
Recommendation: Buy Atlas Pipeline Partners (APL: NYSE).
Top Stocks For 2010 No.2 U.S. Cellular 8.75% Senior Notes due 11/1/2032 (NYSE: UZG, $20.25)
by Nilus Mattive
Famed investor Warren Buffett made a telling remark on the kind of returns he hopes to achieve in today's tough markets: "We would be very happy if we earned +10%, pre-tax," he told shareholders at Berkshire Hathaway's (NYSE: BRK-B) annual meeting last May. Co-Chairman Charlie Munger quickly concurred, "You can take what Warren said to the bank... and I suggest you adopt the same attitude."
Well, my recommended security for this market bests Warren Buffett's benchmark. It offers secure yields of better than 16%. And we do mean secure -- as in legal obligation.Although this security trades like a stock every day on the New York Stock Exchange, it's actually a bond, not a stock. That means your quarterly interest payments have top claim on the company's assets, ahead of any common or preferred share dividends if the company runs into trouble. That kind of security is comforting in today's turbulent times, but it's hardly necessary for America's sixth biggest wireless firm. In fact, credit rating agency Standard & Poor's is so confident in this firm's financial position, it just upgraded the company's credit quality to investment grade "with positive out look," meaning the rating could be raised in one to three years.
The upgrade and positive outlook mean that any such bonds the company may issue in the future will most likely offer a lower interest rate than this high-yielding security. That's because today's featured security was issued in 2002, when the company was considered higher risk and needed to offer a higher rate in return.
Consider, too, that this security is now trading at around a -19% discount from its $25 par value. It matures in 24 years and can be called at any time. Either way, sooner or later you will be getting back $25 per share plus any unpaid interest. Meanwhile, you'll be paid amply to wait. If this all sounds too good to be true, read on and decide for yourself...
Snapshot: These exchange-traded notes were issued in 2002 by regional wireless operator U.S. Cellular (NYSE: USM). The company is the sixth-largest wireless carrier in the country by number of customers. Its wireless networks serve 6.2 million customers, for an estimated 3% share of the U.S. wireless market. Headquartered in Chicago, the telecom carrier focuses on smaller regional markets mainly in the Midwest, including Illinois, Indiana, Iowa, and Wisconsin.
Key Statistics:
Security Type: Exchange-Traded Debt
Annual Dividend: $2.1875
Dividend Yield: 10.8%
Frequency: Quarterly
Credit Rating: Baa3/BBB
Wireless services account for about 93% of revenues, while equipment sales contribute the balance. Roaming revenues from other wireless carriers using USM's networks provide a 7% chunk of the company's wireless service revenue. U.S. Cellular is a subsidiary of rural fixed-line phone operator Telephone & Data Systems (NYSE: TDS), which owns 80.8% of the company.
Performance: U.S. Cellular has seen earnings grow an average of +50.2% a year over the past three years through December 31, 2007. U.S. Cellular has a strong balance sheet, which is supported by funding from parent company TDS. Its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio, a measure of leverage, is less than 1.0. Meanwhile, debt is only around 20% of total capitalization. Both those measures are well below its regional wireless peers. Rival Leap Wireless (Nasdaq: LEAP), for example, carries a debt-to-EBITDA ratio of 6.4 times, and debt is 60% of total capitalization.
Top Stocks For 2010 No.3 Strike Gold with SPDR Gold Shares (GLD)
by Ian Wyatt
If the gains gold has made are any indicator of profits to come, I think SPDR Gold Shares (NYSE:GLD) is the golden ticket investors need to expose their portfolio to the safety and profits of the precious yellow metal.
Gold has been one of the best performing investments in a down market, and was one of the only investments to post gains in 2008, proving to be an excellent safe haven. Like U.S. Treasuries, the price of gold has rallied as investors fled equities and bonds, and sought safe investments. SPDR Gold Shares is an ETF that trades at one-tenth the price of an ounce of gold, and tracks the price movement of the commodity. The metal has most notably been on the rise, jumping 31% to $923 an ounce from the recent Nov. 13 low of $700 an ounce. As I mentioned in my weekly letter on Monday, I had been considering buying the Market Vectors Gold Miners Index (NYSE:GDX). However, this higher-risk, higher-reward investment has soared an astounding 74% from a recent Oct. 27 low, making it much riskier than GLD.
Through SPDR Gold Shares, I intend to take a cautious approach to gaining exposure to gold, given the big gains that the ETF has already experienced in the last few months. I plan to start with a small position of $2,000, and may add to the position in the future. I don't intend to have more than 5% of my portfolio invested in this position at any time.
For any Goldfingers out there, investing in SPDR Gold Shares is much like buying gold bars or coins, minus the headache of having to hold them in a safe or hide them under your bed. Using the fund, you have the added flexibility of being able to buy or sell at any time. The fund is backed by physical gold reserves, giving investors the security of buying the real commodity.
Many commodity prices dropped in 2008, including gold, which fell briefly in October and November of 2008. Don't let this brief decline fool you though - this is a long-term bull market for commodities, and gold will continue to perform well. As investors ditch low-yield U.S. Treasuries and seek other inflation-protected investments that can provide safety, gold appears to be the perfect investment.
The reckless monetary policy of the U.S. Federal Reserve will have its day of reckoning in the future, and investors who are long-gold and have investments that aren't tied to the greenback will be smiling in the years to come.
Let's face it: once the economy picks up, deflation will change into inflation. And hyper-inflation isn't far off, as a result of a U.S. government that continues to spend aggressively and issue more curren cy in a thus far failed attempt to jumpstart the U.S. economy. This anti-inflation investment allows investors in the United States to diversify out of the dollar and own an asset backed by a physical commodity that is likely to see greater demand with limited additional supply coming on line in the coming years.I plan to begin with a small position, which I may add to if I see a breakout in the price of gold. I'll also look to add to my position if prices consolidate, which I think is quite possible given the recent jump in price.
Top Stocks For 2010 No.4 How One Tiny Drug Developer Could Take Down The Industry Leaders
by Greg Guenthner
Grab Your Share of a $31 Billion Market In 2007, the global pharmaceutical pain relief market was worth approximately $31 billion. In the U.S., two-thirds of the dollar volume of the prescription pain medication market is for drugs used to treat chronic pain, with the remainder going toward drugs used for acute pain.
Javelin Pharmaceuticals Inc. (JAV: AMEX) designs products to fulfill unmet and underserved medical needs in the pain-management niche. The company is particularly focused on breakthrough cancer, post-operative, back, orthopedic injury and burn pains. Despite the advances in medicine, the company insists treatments for these types of pain continue to be an underserved medical need. That's where Javelin's lucrative new contract comes into play…
The company penned an agreement in January worth up to $71 million that includes double-digit royalties on future sales of its new pain drug, Dyloject. Javelin will receive roughly $12 million in upfront cash payments from European pharmaceutical developer Therabel for the commercialization rights for Dyloject, the flagship product in Javelin's current pipeline. Dyloject is an injectable form of diclofenac, which is a prescription anti-inflammatory drug often prescribed to treat postoperative pain.
Dyloject is undergoing Phase 3 clinical development in the United States - the drug is already available in the United Kingdom. During its pivotal U.K. registration trial, Dyloject's efficacy and safety were shown to be significantly superior to standard intravenous treatments currently marketed in the U.K.
A Faster, Better Treatment
The competition for Dyloject requires dilution and slow infusion into the patient. But Dyloject comes ready to use for immediate IV administration. Anti-inflammatory drugs such as Dyloject, along with opioids like morphine, are often used post-operatively. They help reduce opioid doses by as much as 50%, thereby decreasing morphine-related side effects on the patient.
Dyloject's most significant U.S. competitor in the injectable antiinflammatory category is ketorolac tromethamine. In January 2006, Javelin announced the results of a Phase 2b U.S. study in which Dyloject showed superior onset of action compared with ketorolac five minutes after intravenous injection.
Bottom line: This drug does what it is supposed to do. And it does it better than all of the leading competitors. That's the ringing endorseent for Dyloject…especially since it's awaiting approval in the U.S. U.K. Sales and European Agreement Are Signs of Things to Come Dyloject is already on the market in the United Kingdom, and sales have been growing at an impressive pace. The drug is now on the formularies of 73 hospitals in the U.K., 58 of which were considered gold accounts and 15 silver accounts. In the first nine months of its availability, Dyloject was accepted at 40% of their targeted accounts. The drug has been accepted at 95% of the institutions to which it's been presented. This, Driscoll believes, shows that Dyloject has value to clinicians. It will prove valuable to shareholders, too…
Since Dyloject was introduced to the market, sales of the drug have doubled each quarter. Although that may be a small sample size, it shows the growth potential of the product once it is introduced into a wider market.Javelin is on schedule to complete its studies on Dyloject and submit applications in late 2009 for approval in the U.S. and European markets. The partnership with Therabel helps Javelin accelerate this process.Javelin's a Bargain at Current Prices Javelin has put itself in a fantastic position to succeed. The company currently has $34.6 million in cash and equivalents and no long-term debt whatsoever. Its burn rate during the first three quarters of 2008 was $8.6 million. With $12 million in upfront cash from Therabel, the company is well positioned to wait out approval in the U.S. Javelin feels that the self-medication segment is an area of possible growth. It generally takes 15-20 minutes and sometimes as long as 40 minutes for commercially available oral pain medications to provide any meaningful relief. Javelin says that all three of its product candidates appear to work faster than the oral formulations of currently available prescription pain products. Dyloject has shown to relieve pain in as little as five minutes, a mark that has not been achieved by current injectable anti-inflammatory drugs.
Recommendation: Buy Javelin Pharmaceuticals Inc. (JAV: AMEX).
Top Stocks For 2010 No.5 Abercrombie & Fitch
by Bernie Schaeffer
At Schaeffer's Investment Research, we employ a 3-tiered analysis approach known as Expectational Analysis® (EA) that was created more than 2 decades ago. EA utilizes traditional methods of fundamental and technical analysis and combines these with a third, crucial look at investor sentiment. It is this third layer of analysis that provides a critical edge in selecting stock and option plays. Both anecdotal and quantifiable measures of investor sentiment provide a window into how the investing crowd perceives reality. These perceptions serve as powerful contrarian indicators, as the crowd tends to move as a herd and is, to paraphrase the venerable contrarian Humphrey Neill, "right during the trend but wrong at both ends." A look into the psyche of the collective investing masses, while also taking into account important technical and fundamental variables, can offer a reliable recipe for trading success.
The latest opportunity found by the EA methodology is Abercrombie & Fitch (ANF). According to Hoover's, Abercrombie & Fitch (A&F) sells upscale men's, women's, and kids' casual clothes and accessories. The firm has 1,000-plus stores in North America (mostly in malls) and also sells via its catalog and online. It targets college students, and has come under fire for some of its ad campaigns, as well as for some of its short-run products. The company also runs a fast-growing chain of some 450 teen stores called Hollister Co., and a chain targeted at boys and girls ages 7 to 14 called abercrombie. RUEHL, a Greenwich Village-inspired concept for the post-college set, debuted in 2004.
In early February, earnings rolled in from the trendy retailer, surpassing the consensus estimate. For the fourth quarter, the company posted a profit of $68.4 million, or 78 cents per share, compared to its year-ago profit of $216.8 million, or $2.40 per share. Excluding impairment charges and costs tied to a new employment agreement with its CEO, the retailer boasted a profit of $1.10 per share, beating the Street estimate for a profit of $1.01. Sales fell 19% to $998 million, said the company. ANF stated that it would not issue an earnings forecast for fiscal 2009, citing a tough year ahead. The company said it expects a difficult selling environment to continue.
Abercrombie forecasts capital expenditures of $165 million to $175 million in fiscal 2009, a major portion of which is tied to new stores and remodeling.
Technically speaking, the security gapped sharply higher on the earnings report, gaining more than 10% amid broad market weakness.What's more, this significant bullish gap has placed the equity above resistance at its 80-day moving average. This short-term trendline had capped the shares' recent rally attempts.
As followers of the EA method, we ideally like to see solid price action persist against a backdrop of skepticism, as this implies that there could be additional money waiting on the sidelines that hasn't yet been committed to the bullish cause. It seems as though there is plenty of room on the bullish ANF bandwagon. Options players have leveled some heavy bearish bets against the stock in an attempt to call a top to its uptrend. The Schaeffer's put/call open interest ratio for ANF stands at 1.28, as put open interest outweighs call open interest among near-term options. This reading is also higher than two-thirds of those taken during the past year, indicating extreme skepticism among short-term options speculators.Meanwhile, Wall Street has yet to fully jump on this outperforming security. According to the latest data from Zacks, 14 of the 19 analysts following ANF rate it a "hold" or worse. Any upgrades from these remaining holdouts could help to propel the shares higher during the long term.
Overall, this combination of pessimistic sentiment against the stock's backdrop of improving earnings and strong technicals has bullish implications from a contrarian perspective. As investors unwind their bearish bets and jump on the stock's bandwagon, they will help to push the security even higher.
Top Stocks For 2010 No.6 Redefining Pharmacy Benefit Managment
by Ian Wyatt
The way I see it, even through current market malaise, SXC Health Solutions (Nasdaq:SXCI) is standing firm with its two corporate feet firmly planted in two complementary arenas: it's providing pharmacy benefits management services and developing the technology engine needed to keep costs under control.
Bringing down health-care costs remains a hot-button issue, as the baby boomers reach retirement age, Medicaid and Medicare grow, and drug costs continue to rise.
SXC Health, formerly known as Systems Xcellence, is a niche player in the benefits marketplace. Headquartered outside Chicago, SXC Health is a provider of health-care information technology solutions and services to providers, payers and other participants in the pharmaceutical supply chain in North America.
SXC Health is redefining pharmacy benefit management (PBM) by providing a broad range of pharmacy spend management solutions and information technology capabilities. The company is a leader in delivering an innovative mix of market expertise, information technology, clinical capability, scale of operations, mail order and specialty pharmacy offerings to a wide variety of healthcare payor organizations including health plans, Medicare, managed and fee-for-service state Medicaid plans, long-term care facilities, unions, third-party administrators and self-insured employers. In essence, the company's services allow customers to make good decisions and save money.
SXC Health's informedRx business sells management services mostly to government and universities, while its Healthcare IT Group develops the technology behind the services and provides a revenue stream via software licensing.
SXC's recent acquisition of National Medical Health Card Systems expanded its informedRx services, which is a broad, flexible suite of à la carte PBM services, which provide flexible and cost-effective alternative to traditional PBM offerings. The acquisition is an essential step in SXC Health's strategic evolution toward being a leader in pharmacy spend management, and gives the company's customers the chance to pick and choose what services are right for them. SXC Health is the only company in the PBM space to offer its clients such a broad portfolio of solutions SXC Health's technology touches close to 1 in every 4 of the estimated 3.5 billion prescriptions written in the United States annually - a plus considering that the health-care sector and health-care IT industry will outperform the market for the next few years.
The company also stands to benefit from demographic and political trends, in that the population is aging and pharmaceutical companies will need SXC's products and services. Also, the new administration has vowed to digitize the health-care system. Both of these trends will positively influence SXC Health's earnings.
In the quarter ended Sept. 30, 2008 earnings were $3.5 million, or $0.15 per share, up from $2.7 million, or $0.12 a year ago. Revenue increased to $318.1 million from $22.2 million. SXC increased full-year EPS guidance to $0.54 to $0.58 a share, from its previous estimate of $0.41 to $0.50. Additionally the company narrowed revenue estimates to $840 to $855 million, from $825 million to $875 million. We forecast the company will earn $0.59 EPS in 2008 and grow EPS 50% in 2009 to $0.88. We expect revenues will be $854 million this year and increase 52% to $1.3 billion next year. The company has made brilliant acquisitions in recent years, which have made it one of the primary players in pharmacy spend management services and information technology solutions.
The company was recently trading at 32 times current year EPS and 22 times forward EPS. These are high multiples in the current environment, but SXCI shares are worth every penny. In fact, shares are worth more. We estimate fair value to be $28 based on EPS and revenue growth projections.
Top Stocks For 2010 No.7 Power Lines and Trees: A Dynamic Duo for Income And Growth
By Justice Litle
They may not be sexy, but it's hard to go wrong with trees and power lines. In fact, we'll be using that unlikely duo to execute this "perfect inflation hedge."
Brookfield Infrastructure Partners (BIP:NYSE). BIP is a limited partnership (though its cash flows are not subject to the same tax treatment as MLPs, or Master Limited Partnerships).
Brookfield Infrastructure Partners (BIP) is a spin-off from a much larger mother ship, Brookfield Asset Management (BAM:NYSE).While little BIP is small and scrappy at $316 million, mother BAM boasts a far larger market cap of $9.5 billion.As a publicly traded partnership, 50% of BIP is owned by investors like you and me. Forty percent is owned by BAM, the parent, and the last 10% is owned by Brookfield directors and management.
BIP was spun off from the BAM mother ship with the intent of being a "pure infrastructure play." The far larger BAM has all sorts of assets on its balance sheet; through the creation of a stand-alone entity, BIP offers a way to pick up direct infrastructure exposure.BIP's primary assets are electricity transmission lines and timber, and they are distributed across North and South America. On the electricity side, BIP owns roughly 5,500 miles worth of transmission lines (power lines) in Chile and Canada (Northern Ontario). Additional power lines in Brazil were sold at a considerable profit in the third quarter of 2008.
BIP's transmission lines are part of a regulated monopoly, which means no competitor can muscle in. As of March 2008, these assets had a recorded book value of $330 million -- more than the value of BIP's current market cap. Using the Brazilian asset sale as a benchmark -- in which BIP fetched a 40% gain over book price -- its likely current holdings have a far, far higher value than the old numbers reflect.
A Toll Road for Electrons
Power lines are a great business. Just as you have to drive to work each day (unless you're retired or work from home), the electricity has to move from the power plant to your house (or the office building, the factory and so on).
Here's why you want to own power lines:
They require very little maintenance and upkeep, so most of the cash flow goes right into the owner's pocket.
Because people and businesses are steady in their use of electricity, those cash flows are very stable.
As inflation rises, steady price increases can be pushed through as part of the contract.
Additionally, BIP will have the chance to build out its electricity transmission networks at attractive rates of return over time. The only thing better than a strong, stable, cash-flow-producing business is a business that can expand on the same great terms. As emerging markets resume their upward trends, electricity use will go up too... and this can only be good news for BIP.
An Infinite Resource
The other thing BIP owns is timber -- more than 1.2 million acres in Oregon,Washington state, and coastal British Columbia. The nice thing about timberland is that, when managed properly, it's an infinite resource. Unlike metals or fossil fuels -- which eventually run out and leave a site in decline -- trees can grow back.
As with electricity, BIP's parent company (and 40% owner) offers four decades of experience owning and operating timberlands. This gives BIP an edge in key areas like harvest planning and managing the product mix.
BIP's acreage is concentrated in premium timbers like Douglas fir and hemlock. In addition, the close proximity to the coast gives BIP an edge on the export side of the business.
Timberland tends to rise in value over time because, unlike the currency spit out of a printing press, they just aren't making any more of it. Timber's uses are many and varied for the global economy, and, like power lines, timber has the advantage of being a high-margin, low-upkeep business.
When prices are high, BIP can cut more timber. When prices are low, they can cut less (saving costs) and let the acreage value appreciate. The timber itself is a renewable resource, and BIP has the ability to book capital gains through the occasional sale of choice parcels for land redevelopment.
An Exceptional Value
Investors are coming back to their senses, snapping up assets that got insanely cheap. BIP's parent could well be buying back shares too, figuring it's crazy to leave them out on the market at such a tempting price. Back in March of 2008, management gave an estimate of BIP's book value (the value of the underlying transmission and timber assets) at $24 per share. I think that is not only a reasonable estimate; it is more than likely a conservative estimate. BIP could easily be worth $25 to $30 per share.
As we prepare for a central-bank-induced inflation deluge, stable, cashflow producing infrastructure assets will only increase in value. Power lines and trees will never go out of style... and the stream of income collected from those assets will only keep ticking up year after year. Buy Brookfield Infrastructure Partners (BIP:NYSE) at $18 per share or better.
Top Stocks For 2010 No.8 Big Profits from Downsizing
by Stephen Rawls
All Americans are changing their spending habits as the economic recession hits home. We're adjusting to the idea of driving the car an extra year or more, to buying clothes at Sears instead of Joseph A Banks, that sort of thing. And while our change in spending habits hurts some, it helps others. As investors, we need to focus on those companies well positioned to profit from these changes. Those companies well positioned to profit from the fundamental changes in the American lifestyle.
One of the major changes that we're seeing now is a turn by the American consumer to private label brand foods to feed their family. As a result, one of the big beneficiaries of this move is American Italian Pasta Company (AIPC), the nation's largest manufacturer of dry pasta. Sales are booming. And so is the stock.
What makes American Italian Pasts so interesting is that it's booming because of several trends. The first is the aforementioned transition to private label foods. A second favorable trend is that consumers are moving away from a meat and potatoes diet to something less expensive, like pasta. And, finally, the low-carb "Atkins diet" fad is now history. Even more amazing in the recession of 2009, American Italian Pasta has actually been able to raise their prices while sales increased! Sales of pasta products in the United States rose 5% last year to $6.4 billion. During that time, American Italian was able to raise prices faster than their costs increased.
For the first quarter 2009, American Italian Pasta earned a whopping $1.23 EPS, up from 2008's first quarter EPS of 43 cents. Retail revenue for the quarter rose 56% to $136.1 million, while cost of goods sold rose only 40%. Overall volume for the company was up some 13%.
From a technical standpoint, American Italian Pasta seems to defy the overall market, making new highs as recently as February 25th. The company is a newly listed issue on the NASDAQ, beginning trading there on November 14, 2008. The company is trading above its 50-day moving average and gapped higher on February 12th after releasing its first-quarter earnings. Since then, the stock hasn't looked back.
With no upside resistance to speak of, the critical technical support level comes in the gap between $27.00 and $29.19. Given the strong earnings report on February 11th, I wouldn't expect the stock to violate this gap. Prospects for the company seem very strong and the company appears able to deliver on those prospects.
Pricing power is something almost unheard of in the economic climate of 2009. And that's one of the things that impresses me the most about American Italian Pasta - it has the ability to increase sales, while raising prices.
One other factor that hasn't yet been considered by most analysts, I believe, is that the cost of raw ingredients, which had been going up for most of 2008, are now in retreat.With higher prices already in effect, any fall in cost of goods sold will reflect directly in higher profitability for the company.
In summary, with American Italian Pasta, you have a company that's benefiting from multiple trends working in its favor. Fundamentally, the ability to raise prices and not affect sales is amazing. With more Americans "trading down" their eating habits, this trend to higher sales shows every indication of continuing. And with their raw ingredient prices now falling, the company will not have to raise prices in the near future to stimulate growth. Rather, the profits for the second quarter of 2009 will come from higher prices already in place, accompanied by falling ingredient prices.From where I sit, American Italian Pasta Company looks like a rare winner in 2009.
Top Stocks For 2010 No.9 Looking for Safe Stocks? Try Channeling Ben Graham
by John Reese
When I began conducting extensive research into the strategies used by some of history's greatest investors some 12 years ago, one thing quickly became apparent: Many of these Wall Street stars, including Peter Lynch, Warren Buffett, and Benjamin Graham, built their fortunes and reputations not by relying on some sort of investing "sixth sense", but instead by using approaches that were mostly or completely quantitative. They stuck to the numbers, never letting emotion influence their decisions.
That was great news to me. Because of my background in computer science and artificial intelligence, I was able to develop sophisticated but easy-to-use models based on these gurus' quantitative approaches.
Today, these models power the research and analysis on my web site, Validea.com, allowing everyday investors to take advantage of the strategies that some of history's most successful stock-pickers used. Since I started tracking them nearly six years ago, portfolios built using each of my eight original "Guru Strategies" have all significantly outperformed the market.
For some top picks in today's market, let's turn to my top-performing strategy -- one that, interestingly, is inspired by what is far and away the oldest of these methodologies, the approach of the late, great Benjamin Graham. Known as the "Father of Value Investing" -- and the mentor of Warren Buffett -- Graham detailed his strategy in his 1949 classic The Intelligent Investor. Six decades later, my conservative Graham-based model is up almost 70 percent since its July 2003 inception, while the S&P 500 has fallen more than 22 percent. Last year, while the market tumbled close to 40 percent, my Graham-based model sustained well less than half of that decline.
One stock my Graham model is particularly high on right now:
Ameron International Corporation (AMN), a California-based firm that makes water transmission lines, fiberglass-composite pipe for transporting oil, and infrastructure-related products like ready-mix concrete and lighting poles -- just the kind of company that could benefit from the federal stimulus package's infrastructure funding.
Having lived through both his own family's fall from financial grace (following his father's death when Benjamin was a young man), and, later, through the Great Depression, it's no surprise that Graham focused as much on preserving capital and limiting losses as he did on producing big gains. He liked stable, conservatively financed companies, not speculative gambles, and Ameron fits the bill. One example of why: its strong current ratio of 2.87. Graham used the current ratio (current assets/current liabilities) to get an idea of a company's liquidity (and the credit crisis has shown us all how important liquidity is).
Companies with current ratios of at least 2.0 were the type of financially secure, defensive, low-risk plays he liked, and Ameron makes the grade.Another way Graham targeted conservative firms was by making sure long-term debt was no greater than net current assets. Ameron has just $36 million in long-term debt and almost $300 million in net current assets, a great sign.
The other main part of Graham's approach was making sure a stock had what he termed a "margin of safety" -- that is, its price was low compared to his assessment of the intrinsic value of its underlying business. Stocks with high margins of safety have downside protection -- they're already selling at a discount compared to their real value, so even if problems occur and earning power declines a bit, the stock still might gain ground because it's so undervalued to begin with.
To find undervalued stocks, Graham looked at both the price/earnings ratio (the model I base on his approach requires the greater of the stock's current P/E or its three-year average P/E to be no greater than 15) and the price/book ratio (which, when multiplied by the P/E, should be no greater than 22). Ameron's P/E (using the higher three-year figure) is just 8.2, and its P/B is just 0.99, indicating that the stock is a great value.
In addition to Ameron, here are a couple more of myGraham model's current favorites:
Schnitzer Steel Industries (SCHN): Hammered when commodity prices began to tumble last summer, this Oregon-based firm has made a big rebound since late November, and my Graham model thinks it has a lot more room to grow. It has a current ratio of 3.2, just $106.1 million in long-term debt vs. $338.5 million in net current assets, and bargain-level P/E and P/B ratios of 5.8 and 1.01, respectively.
National Presto Industries (NPK): Talk about an eclectic group of business segments. This Wisconsin-based firm's housewares division makes small appliances and pressure cookers; its defense segment makes ammunition, fuses, and cartridge cases; and its absorbent products division makes adult incontinence products and baby diapers. Its fundamentals are exceptional -- current ratio of 5.23, P/E ratio of 14.5, P/B ratio of 1.49 -- and, the firm has no long-term debt.
Top Stocks For 2010 No.10 Hedged Investing with Hussman Strategic Growth
by Ian Wyatt
When I recently discovered the Hussman Strategic Growth fund, it was love at first sight. Hussman acts like a hedge fund, providing the fund managers much flexibility in the investment instruments and strategies utilized to capitalize on rapidly changing markets like those we are currently experiencing. Manager John Hussman's disciplined strategy has navigated the mutual fund toward calmer waters amid choppy market conditions, a testament to the fund's ability to achieve remarkable performance in down markets.
Although Hussman receives the advice of key personnel on the fund's board of trustees and at Hussman Econometrics, this mutual fund depends heavily on Hussman himself. He also invests all of his personal liquid assets (outside of cash and money market accounts) in his two funds, clearly aligning his personal interests with those of fund shareholders. Hussman Strategic Growth invests primarily in U.S. stocks with the objective of longterm capital appreciation. It currently has 116 long holdings that include the likes of Johnson & Johnson (NYSE:JNJ), Nike, Inc. (NYSE:NKE ), Amazon.com, Inc. (Nasdaq:AMZN), Coca-Cola (NYSE:KO) and Best Buy Co. (NYSE:BBY). Hussman goes long on individual positions, and can leverage using equity call options. Ninety percent of the fund's net assets are tied up in stocks while the remaining 10% is sitting in cash.
Hussman was down only 9% in 2008, a performance that was the envy of most fund managers, especially in light of the 37% drop in the S&P 500. In the previous bear markets of 2001 and 2002, the fund was up a whopping 14% in each of those years. Because the fund is so risk-averse, its short-term track record may limp in bullish environments, but its long term performance is where investors begin to see solid profits. Given the current state of the market, and the fact that my outlook calls for a range bound and volatile stock market in 2009, Hussman Strategic Growth fund is a solid place to have capital invested.
John Hussman develops a risk versus reward profile for the current market climate, identifying economic trends and valuing individual stocks based on their expected streams of cash flow. For much of the past decade, Hussman has considered most stocks overvalued and did not think they were providing enough reward given their high level of risk.To preserve capital, he hedged the portfolio against market risk by shorting indexes such as the S&P 100. As a result, the fund has been fairly uncorrelated to the whims of the market and has been shielded from the heavy losses many funds have faced.
Since its July 2000 inception, the fund's 8.9% annualized return has outpaced the S&P 500, which lost 4.4% annually over the same period.Performance in 2009 appears to be holding up, with year-to-date returns of 0.25% versus a loss of 8% for the S&P 500 index. Morningstar calls Hussman "one of the steadiest and cheapest options in the fledgling long-short category," and gives the fund a 3-star rating.
Hussman's claimed approach of "investing for long-term returns while managing risk" is in perfect alignment with my aggressiveapproach to conservative investing. I, too, aim to find opportunities for long-term capital appreciation, while limiting downside risk through portfolio diversification and aggressive risk management. The fund is currently taking a very conservative approach to equities, which makes sense given the performance last year. With the bleak prospects for global growth in 2009, this fund should perform well in horizontal or down markets, making it a nice fit within the equity portion of my Recovery Portfolio. Additionally, the fund's flexibility should allow it to perform nicely once stocks begin their recovery.
Since NewsletterAdvisors.com was launched in November 2005, tens of thousands of individual investors from all over the world have visited the site and downloaded copies of our reports. We thank all of those who have downloaded previous editions of the report for their overwhelmingly positive feedback. As you evaluate your portfolio into 2009 we hope that you will turn to this special report from NewsletterAdvisors.com for ideas and inspiration. If this is your first time requesting a free report from us, you can also look forward to receiving 24/7 Investor's Daily Profit email newsletter, Featuring timely stock recommendations and analysis on the news that's really moving the market, plus interviews with investment experts, including contributors to NewsletterAdvisors.com special reports, Daily Profit is your indispensable guide to navigating a challenging market.
Enjoy this special report and the outstanding investment ideas from our hand selected investment experts. We also encourage you to consider some of the special offers from the contributors to this special report, including free trial memberships, subscription discounts, and additional bonus reports. Please see page 13 of this report for complete details, or click here to take advantage of these free offers today!
Thanks again for turning to NewsletterAdvisors.com, your trusted source for investment information.
Top Stocks For 2010 No.1 Atlas Pipeline Partners
by Addison Wiggin
I've been involved in investing and financial markets for the past 15 years. In that time, I've met every kind of investor... and heard about every kind of investing strategy and stock opportunity you can imagine. Here at Agora Financial, we scour the globe looking for hidden investment opportunities often over looked by Wall Street. Capital &Crisis editor Chris Mayer uncovers these opportunities and delivers them to you. Chris is called by some "the best financial journalist you've never heard of ..."
And on behalf of Chris Mayer... I'll gladly put every minute of my hard work and reputation building on theline. His Capital & Crisis subscribers have benefited greatly from his unique recommendations. His globetrotting letter knows no bounds and goes wherever profits can be found. Over to Chris… Finding the Great Investments He's BeenSearching for His Whole Career I'm going to show you how you can start collecting a 20%-plus yield -- on one overlooked energy stock --right away. Besides these plumpdividends, you'll get a good shot at tripling your money. And there's good reason to believe you could make nine times your money -- if Wall Street wakes up and smells hard assets, and pays exactly what they're worth.
The market isn't rewarding Exxon, Chevron or even Gazprom. And now is not the time to start taking risks on wildcat energy explorers. Right now, I'm looking at a stock that's trading under $6. And today, it's showing signs of a climb -- so I wouldn't wait on this opportunity. Just let me give you the bare bones of its business and a nod from a very smart billionaire investor who knows tough markets.
The company's secret is that it doesn't drill for a drop of oil and it doesn't frack a single foot of shale gas. What it does is keep companies who do at its mercy.
Atlas Pipeline Partners (APL:nyse) owns 1,600 miles of pipeline connected to nearly 6,000 wells and is adding over 800 new wells per year in Appalachia. It also operates a growing interstate pipeline system in the Fayetteville Shale. Plus, it has a great deal with one of the most active drillers in America: Atlas Energy. Every well that Atlas Energy drills has to be connected to Atlas Pipeline's system. These are low-risk assets. Now let's talk dividend. Since 2000, APL's average dividend increase clocked in at 7 cents a year. A plump year offered a 107% increase. While it's true that 2008 was a tough year for natural gas, NGLs (APL's primary product) are up 50% from their December lows. Aside from price recovery, there's another catalyst for dividend growth. Given the prime location of its pipelines in Appalachia, you have every reason to expect an increased dividend payout down the road.
War horse Leon Cooperman, shares my interest in APL. He is one of the great living investors. At a recent Manhattan value investors' conference, Cooperman confessed, "This is the most difficult environment I've lived through. And I've been doing this for 41 years." But when he got to talking about getting 20%-plus on your money with APL, he had this to say: "At my age, it's better than sex, but that's just me."
Why does he think Atlas is on sale? Thank collapsing hedge funds the most. These guys have been forced to sell even their best positions to cover losses in other areas. Cooperman thinks this stock is worth $46 easily. My original estimate was $48. That's nine times what it trades at today. So why not consider a stock trading at so steep a discount to book?
Don't forget the great yield -- that's poised to increase. Even if that dividend stays right where it was last quarter, you could still make back today's investment in under four years -- just through the dividend alone.
Recommendation: Buy Atlas Pipeline Partners (APL: NYSE).
Top Stocks For 2010 No.2 U.S. Cellular 8.75% Senior Notes due 11/1/2032 (NYSE: UZG, $20.25)
by Nilus Mattive
Famed investor Warren Buffett made a telling remark on the kind of returns he hopes to achieve in today's tough markets: "We would be very happy if we earned +10%, pre-tax," he told shareholders at Berkshire Hathaway's (NYSE: BRK-B) annual meeting last May. Co-Chairman Charlie Munger quickly concurred, "You can take what Warren said to the bank... and I suggest you adopt the same attitude."
Well, my recommended security for this market bests Warren Buffett's benchmark. It offers secure yields of better than 16%. And we do mean secure -- as in legal obligation.Although this security trades like a stock every day on the New York Stock Exchange, it's actually a bond, not a stock. That means your quarterly interest payments have top claim on the company's assets, ahead of any common or preferred share dividends if the company runs into trouble. That kind of security is comforting in today's turbulent times, but it's hardly necessary for America's sixth biggest wireless firm. In fact, credit rating agency Standard & Poor's is so confident in this firm's financial position, it just upgraded the company's credit quality to investment grade "with positive out look," meaning the rating could be raised in one to three years.
The upgrade and positive outlook mean that any such bonds the company may issue in the future will most likely offer a lower interest rate than this high-yielding security. That's because today's featured security was issued in 2002, when the company was considered higher risk and needed to offer a higher rate in return.
Consider, too, that this security is now trading at around a -19% discount from its $25 par value. It matures in 24 years and can be called at any time. Either way, sooner or later you will be getting back $25 per share plus any unpaid interest. Meanwhile, you'll be paid amply to wait. If this all sounds too good to be true, read on and decide for yourself...
Snapshot: These exchange-traded notes were issued in 2002 by regional wireless operator U.S. Cellular (NYSE: USM). The company is the sixth-largest wireless carrier in the country by number of customers. Its wireless networks serve 6.2 million customers, for an estimated 3% share of the U.S. wireless market. Headquartered in Chicago, the telecom carrier focuses on smaller regional markets mainly in the Midwest, including Illinois, Indiana, Iowa, and Wisconsin.
Key Statistics:
Security Type: Exchange-Traded Debt
Annual Dividend: $2.1875
Dividend Yield: 10.8%
Frequency: Quarterly
Credit Rating: Baa3/BBB
Wireless services account for about 93% of revenues, while equipment sales contribute the balance. Roaming revenues from other wireless carriers using USM's networks provide a 7% chunk of the company's wireless service revenue. U.S. Cellular is a subsidiary of rural fixed-line phone operator Telephone & Data Systems (NYSE: TDS), which owns 80.8% of the company.
Performance: U.S. Cellular has seen earnings grow an average of +50.2% a year over the past three years through December 31, 2007. U.S. Cellular has a strong balance sheet, which is supported by funding from parent company TDS. Its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio, a measure of leverage, is less than 1.0. Meanwhile, debt is only around 20% of total capitalization. Both those measures are well below its regional wireless peers. Rival Leap Wireless (Nasdaq: LEAP), for example, carries a debt-to-EBITDA ratio of 6.4 times, and debt is 60% of total capitalization.
Top Stocks For 2010 No.3 Strike Gold with SPDR Gold Shares (GLD)
by Ian Wyatt
If the gains gold has made are any indicator of profits to come, I think SPDR Gold Shares (NYSE:GLD) is the golden ticket investors need to expose their portfolio to the safety and profits of the precious yellow metal.
Gold has been one of the best performing investments in a down market, and was one of the only investments to post gains in 2008, proving to be an excellent safe haven. Like U.S. Treasuries, the price of gold has rallied as investors fled equities and bonds, and sought safe investments. SPDR Gold Shares is an ETF that trades at one-tenth the price of an ounce of gold, and tracks the price movement of the commodity. The metal has most notably been on the rise, jumping 31% to $923 an ounce from the recent Nov. 13 low of $700 an ounce. As I mentioned in my weekly letter on Monday, I had been considering buying the Market Vectors Gold Miners Index (NYSE:GDX). However, this higher-risk, higher-reward investment has soared an astounding 74% from a recent Oct. 27 low, making it much riskier than GLD.
Through SPDR Gold Shares, I intend to take a cautious approach to gaining exposure to gold, given the big gains that the ETF has already experienced in the last few months. I plan to start with a small position of $2,000, and may add to the position in the future. I don't intend to have more than 5% of my portfolio invested in this position at any time.
For any Goldfingers out there, investing in SPDR Gold Shares is much like buying gold bars or coins, minus the headache of having to hold them in a safe or hide them under your bed. Using the fund, you have the added flexibility of being able to buy or sell at any time. The fund is backed by physical gold reserves, giving investors the security of buying the real commodity.
Many commodity prices dropped in 2008, including gold, which fell briefly in October and November of 2008. Don't let this brief decline fool you though - this is a long-term bull market for commodities, and gold will continue to perform well. As investors ditch low-yield U.S. Treasuries and seek other inflation-protected investments that can provide safety, gold appears to be the perfect investment.
The reckless monetary policy of the U.S. Federal Reserve will have its day of reckoning in the future, and investors who are long-gold and have investments that aren't tied to the greenback will be smiling in the years to come.
Let's face it: once the economy picks up, deflation will change into inflation. And hyper-inflation isn't far off, as a result of a U.S. government that continues to spend aggressively and issue more curren cy in a thus far failed attempt to jumpstart the U.S. economy. This anti-inflation investment allows investors in the United States to diversify out of the dollar and own an asset backed by a physical commodity that is likely to see greater demand with limited additional supply coming on line in the coming years.I plan to begin with a small position, which I may add to if I see a breakout in the price of gold. I'll also look to add to my position if prices consolidate, which I think is quite possible given the recent jump in price.
Top Stocks For 2010 No.4 How One Tiny Drug Developer Could Take Down The Industry Leaders
by Greg Guenthner
Grab Your Share of a $31 Billion Market In 2007, the global pharmaceutical pain relief market was worth approximately $31 billion. In the U.S., two-thirds of the dollar volume of the prescription pain medication market is for drugs used to treat chronic pain, with the remainder going toward drugs used for acute pain.
Javelin Pharmaceuticals Inc. (JAV: AMEX) designs products to fulfill unmet and underserved medical needs in the pain-management niche. The company is particularly focused on breakthrough cancer, post-operative, back, orthopedic injury and burn pains. Despite the advances in medicine, the company insists treatments for these types of pain continue to be an underserved medical need. That's where Javelin's lucrative new contract comes into play…
The company penned an agreement in January worth up to $71 million that includes double-digit royalties on future sales of its new pain drug, Dyloject. Javelin will receive roughly $12 million in upfront cash payments from European pharmaceutical developer Therabel for the commercialization rights for Dyloject, the flagship product in Javelin's current pipeline. Dyloject is an injectable form of diclofenac, which is a prescription anti-inflammatory drug often prescribed to treat postoperative pain.
Dyloject is undergoing Phase 3 clinical development in the United States - the drug is already available in the United Kingdom. During its pivotal U.K. registration trial, Dyloject's efficacy and safety were shown to be significantly superior to standard intravenous treatments currently marketed in the U.K.
A Faster, Better Treatment
The competition for Dyloject requires dilution and slow infusion into the patient. But Dyloject comes ready to use for immediate IV administration. Anti-inflammatory drugs such as Dyloject, along with opioids like morphine, are often used post-operatively. They help reduce opioid doses by as much as 50%, thereby decreasing morphine-related side effects on the patient.
Dyloject's most significant U.S. competitor in the injectable antiinflammatory category is ketorolac tromethamine. In January 2006, Javelin announced the results of a Phase 2b U.S. study in which Dyloject showed superior onset of action compared with ketorolac five minutes after intravenous injection.
Bottom line: This drug does what it is supposed to do. And it does it better than all of the leading competitors. That's the ringing endorseent for Dyloject…especially since it's awaiting approval in the U.S. U.K. Sales and European Agreement Are Signs of Things to Come Dyloject is already on the market in the United Kingdom, and sales have been growing at an impressive pace. The drug is now on the formularies of 73 hospitals in the U.K., 58 of which were considered gold accounts and 15 silver accounts. In the first nine months of its availability, Dyloject was accepted at 40% of their targeted accounts. The drug has been accepted at 95% of the institutions to which it's been presented. This, Driscoll believes, shows that Dyloject has value to clinicians. It will prove valuable to shareholders, too…
Since Dyloject was introduced to the market, sales of the drug have doubled each quarter. Although that may be a small sample size, it shows the growth potential of the product once it is introduced into a wider market.Javelin is on schedule to complete its studies on Dyloject and submit applications in late 2009 for approval in the U.S. and European markets. The partnership with Therabel helps Javelin accelerate this process.Javelin's a Bargain at Current Prices Javelin has put itself in a fantastic position to succeed. The company currently has $34.6 million in cash and equivalents and no long-term debt whatsoever. Its burn rate during the first three quarters of 2008 was $8.6 million. With $12 million in upfront cash from Therabel, the company is well positioned to wait out approval in the U.S. Javelin feels that the self-medication segment is an area of possible growth. It generally takes 15-20 minutes and sometimes as long as 40 minutes for commercially available oral pain medications to provide any meaningful relief. Javelin says that all three of its product candidates appear to work faster than the oral formulations of currently available prescription pain products. Dyloject has shown to relieve pain in as little as five minutes, a mark that has not been achieved by current injectable anti-inflammatory drugs.
Recommendation: Buy Javelin Pharmaceuticals Inc. (JAV: AMEX).
Top Stocks For 2010 No.5 Abercrombie & Fitch
by Bernie Schaeffer
At Schaeffer's Investment Research, we employ a 3-tiered analysis approach known as Expectational Analysis® (EA) that was created more than 2 decades ago. EA utilizes traditional methods of fundamental and technical analysis and combines these with a third, crucial look at investor sentiment. It is this third layer of analysis that provides a critical edge in selecting stock and option plays. Both anecdotal and quantifiable measures of investor sentiment provide a window into how the investing crowd perceives reality. These perceptions serve as powerful contrarian indicators, as the crowd tends to move as a herd and is, to paraphrase the venerable contrarian Humphrey Neill, "right during the trend but wrong at both ends." A look into the psyche of the collective investing masses, while also taking into account important technical and fundamental variables, can offer a reliable recipe for trading success.
The latest opportunity found by the EA methodology is Abercrombie & Fitch (ANF). According to Hoover's, Abercrombie & Fitch (A&F) sells upscale men's, women's, and kids' casual clothes and accessories. The firm has 1,000-plus stores in North America (mostly in malls) and also sells via its catalog and online. It targets college students, and has come under fire for some of its ad campaigns, as well as for some of its short-run products. The company also runs a fast-growing chain of some 450 teen stores called Hollister Co., and a chain targeted at boys and girls ages 7 to 14 called abercrombie. RUEHL, a Greenwich Village-inspired concept for the post-college set, debuted in 2004.
In early February, earnings rolled in from the trendy retailer, surpassing the consensus estimate. For the fourth quarter, the company posted a profit of $68.4 million, or 78 cents per share, compared to its year-ago profit of $216.8 million, or $2.40 per share. Excluding impairment charges and costs tied to a new employment agreement with its CEO, the retailer boasted a profit of $1.10 per share, beating the Street estimate for a profit of $1.01. Sales fell 19% to $998 million, said the company. ANF stated that it would not issue an earnings forecast for fiscal 2009, citing a tough year ahead. The company said it expects a difficult selling environment to continue.
Abercrombie forecasts capital expenditures of $165 million to $175 million in fiscal 2009, a major portion of which is tied to new stores and remodeling.
Technically speaking, the security gapped sharply higher on the earnings report, gaining more than 10% amid broad market weakness.What's more, this significant bullish gap has placed the equity above resistance at its 80-day moving average. This short-term trendline had capped the shares' recent rally attempts.
As followers of the EA method, we ideally like to see solid price action persist against a backdrop of skepticism, as this implies that there could be additional money waiting on the sidelines that hasn't yet been committed to the bullish cause. It seems as though there is plenty of room on the bullish ANF bandwagon. Options players have leveled some heavy bearish bets against the stock in an attempt to call a top to its uptrend. The Schaeffer's put/call open interest ratio for ANF stands at 1.28, as put open interest outweighs call open interest among near-term options. This reading is also higher than two-thirds of those taken during the past year, indicating extreme skepticism among short-term options speculators.Meanwhile, Wall Street has yet to fully jump on this outperforming security. According to the latest data from Zacks, 14 of the 19 analysts following ANF rate it a "hold" or worse. Any upgrades from these remaining holdouts could help to propel the shares higher during the long term.
Overall, this combination of pessimistic sentiment against the stock's backdrop of improving earnings and strong technicals has bullish implications from a contrarian perspective. As investors unwind their bearish bets and jump on the stock's bandwagon, they will help to push the security even higher.
Top Stocks For 2010 No.6 Redefining Pharmacy Benefit Managment
by Ian Wyatt
The way I see it, even through current market malaise, SXC Health Solutions (Nasdaq:SXCI) is standing firm with its two corporate feet firmly planted in two complementary arenas: it's providing pharmacy benefits management services and developing the technology engine needed to keep costs under control.
Bringing down health-care costs remains a hot-button issue, as the baby boomers reach retirement age, Medicaid and Medicare grow, and drug costs continue to rise.
SXC Health, formerly known as Systems Xcellence, is a niche player in the benefits marketplace. Headquartered outside Chicago, SXC Health is a provider of health-care information technology solutions and services to providers, payers and other participants in the pharmaceutical supply chain in North America.
SXC Health is redefining pharmacy benefit management (PBM) by providing a broad range of pharmacy spend management solutions and information technology capabilities. The company is a leader in delivering an innovative mix of market expertise, information technology, clinical capability, scale of operations, mail order and specialty pharmacy offerings to a wide variety of healthcare payor organizations including health plans, Medicare, managed and fee-for-service state Medicaid plans, long-term care facilities, unions, third-party administrators and self-insured employers. In essence, the company's services allow customers to make good decisions and save money.
SXC Health's informedRx business sells management services mostly to government and universities, while its Healthcare IT Group develops the technology behind the services and provides a revenue stream via software licensing.
SXC's recent acquisition of National Medical Health Card Systems expanded its informedRx services, which is a broad, flexible suite of à la carte PBM services, which provide flexible and cost-effective alternative to traditional PBM offerings. The acquisition is an essential step in SXC Health's strategic evolution toward being a leader in pharmacy spend management, and gives the company's customers the chance to pick and choose what services are right for them. SXC Health is the only company in the PBM space to offer its clients such a broad portfolio of solutions SXC Health's technology touches close to 1 in every 4 of the estimated 3.5 billion prescriptions written in the United States annually - a plus considering that the health-care sector and health-care IT industry will outperform the market for the next few years.
The company also stands to benefit from demographic and political trends, in that the population is aging and pharmaceutical companies will need SXC's products and services. Also, the new administration has vowed to digitize the health-care system. Both of these trends will positively influence SXC Health's earnings.
In the quarter ended Sept. 30, 2008 earnings were $3.5 million, or $0.15 per share, up from $2.7 million, or $0.12 a year ago. Revenue increased to $318.1 million from $22.2 million. SXC increased full-year EPS guidance to $0.54 to $0.58 a share, from its previous estimate of $0.41 to $0.50. Additionally the company narrowed revenue estimates to $840 to $855 million, from $825 million to $875 million. We forecast the company will earn $0.59 EPS in 2008 and grow EPS 50% in 2009 to $0.88. We expect revenues will be $854 million this year and increase 52% to $1.3 billion next year. The company has made brilliant acquisitions in recent years, which have made it one of the primary players in pharmacy spend management services and information technology solutions.
The company was recently trading at 32 times current year EPS and 22 times forward EPS. These are high multiples in the current environment, but SXCI shares are worth every penny. In fact, shares are worth more. We estimate fair value to be $28 based on EPS and revenue growth projections.
Top Stocks For 2010 No.7 Power Lines and Trees: A Dynamic Duo for Income And Growth
By Justice Litle
They may not be sexy, but it's hard to go wrong with trees and power lines. In fact, we'll be using that unlikely duo to execute this "perfect inflation hedge."
Brookfield Infrastructure Partners (BIP:NYSE). BIP is a limited partnership (though its cash flows are not subject to the same tax treatment as MLPs, or Master Limited Partnerships).
Brookfield Infrastructure Partners (BIP) is a spin-off from a much larger mother ship, Brookfield Asset Management (BAM:NYSE).While little BIP is small and scrappy at $316 million, mother BAM boasts a far larger market cap of $9.5 billion.As a publicly traded partnership, 50% of BIP is owned by investors like you and me. Forty percent is owned by BAM, the parent, and the last 10% is owned by Brookfield directors and management.
BIP was spun off from the BAM mother ship with the intent of being a "pure infrastructure play." The far larger BAM has all sorts of assets on its balance sheet; through the creation of a stand-alone entity, BIP offers a way to pick up direct infrastructure exposure.BIP's primary assets are electricity transmission lines and timber, and they are distributed across North and South America. On the electricity side, BIP owns roughly 5,500 miles worth of transmission lines (power lines) in Chile and Canada (Northern Ontario). Additional power lines in Brazil were sold at a considerable profit in the third quarter of 2008.
BIP's transmission lines are part of a regulated monopoly, which means no competitor can muscle in. As of March 2008, these assets had a recorded book value of $330 million -- more than the value of BIP's current market cap. Using the Brazilian asset sale as a benchmark -- in which BIP fetched a 40% gain over book price -- its likely current holdings have a far, far higher value than the old numbers reflect.
A Toll Road for Electrons
Power lines are a great business. Just as you have to drive to work each day (unless you're retired or work from home), the electricity has to move from the power plant to your house (or the office building, the factory and so on).
Here's why you want to own power lines:
They require very little maintenance and upkeep, so most of the cash flow goes right into the owner's pocket.
Because people and businesses are steady in their use of electricity, those cash flows are very stable.
As inflation rises, steady price increases can be pushed through as part of the contract.
Additionally, BIP will have the chance to build out its electricity transmission networks at attractive rates of return over time. The only thing better than a strong, stable, cash-flow-producing business is a business that can expand on the same great terms. As emerging markets resume their upward trends, electricity use will go up too... and this can only be good news for BIP.
An Infinite Resource
The other thing BIP owns is timber -- more than 1.2 million acres in Oregon,Washington state, and coastal British Columbia. The nice thing about timberland is that, when managed properly, it's an infinite resource. Unlike metals or fossil fuels -- which eventually run out and leave a site in decline -- trees can grow back.
As with electricity, BIP's parent company (and 40% owner) offers four decades of experience owning and operating timberlands. This gives BIP an edge in key areas like harvest planning and managing the product mix.
BIP's acreage is concentrated in premium timbers like Douglas fir and hemlock. In addition, the close proximity to the coast gives BIP an edge on the export side of the business.
Timberland tends to rise in value over time because, unlike the currency spit out of a printing press, they just aren't making any more of it. Timber's uses are many and varied for the global economy, and, like power lines, timber has the advantage of being a high-margin, low-upkeep business.
When prices are high, BIP can cut more timber. When prices are low, they can cut less (saving costs) and let the acreage value appreciate. The timber itself is a renewable resource, and BIP has the ability to book capital gains through the occasional sale of choice parcels for land redevelopment.
An Exceptional Value
Investors are coming back to their senses, snapping up assets that got insanely cheap. BIP's parent could well be buying back shares too, figuring it's crazy to leave them out on the market at such a tempting price. Back in March of 2008, management gave an estimate of BIP's book value (the value of the underlying transmission and timber assets) at $24 per share. I think that is not only a reasonable estimate; it is more than likely a conservative estimate. BIP could easily be worth $25 to $30 per share.
As we prepare for a central-bank-induced inflation deluge, stable, cashflow producing infrastructure assets will only increase in value. Power lines and trees will never go out of style... and the stream of income collected from those assets will only keep ticking up year after year. Buy Brookfield Infrastructure Partners (BIP:NYSE) at $18 per share or better.
Top Stocks For 2010 No.8 Big Profits from Downsizing
by Stephen Rawls
All Americans are changing their spending habits as the economic recession hits home. We're adjusting to the idea of driving the car an extra year or more, to buying clothes at Sears instead of Joseph A Banks, that sort of thing. And while our change in spending habits hurts some, it helps others. As investors, we need to focus on those companies well positioned to profit from these changes. Those companies well positioned to profit from the fundamental changes in the American lifestyle.
One of the major changes that we're seeing now is a turn by the American consumer to private label brand foods to feed their family. As a result, one of the big beneficiaries of this move is American Italian Pasta Company (AIPC), the nation's largest manufacturer of dry pasta. Sales are booming. And so is the stock.
What makes American Italian Pasts so interesting is that it's booming because of several trends. The first is the aforementioned transition to private label foods. A second favorable trend is that consumers are moving away from a meat and potatoes diet to something less expensive, like pasta. And, finally, the low-carb "Atkins diet" fad is now history. Even more amazing in the recession of 2009, American Italian Pasta has actually been able to raise their prices while sales increased! Sales of pasta products in the United States rose 5% last year to $6.4 billion. During that time, American Italian was able to raise prices faster than their costs increased.
For the first quarter 2009, American Italian Pasta earned a whopping $1.23 EPS, up from 2008's first quarter EPS of 43 cents. Retail revenue for the quarter rose 56% to $136.1 million, while cost of goods sold rose only 40%. Overall volume for the company was up some 13%.
From a technical standpoint, American Italian Pasta seems to defy the overall market, making new highs as recently as February 25th. The company is a newly listed issue on the NASDAQ, beginning trading there on November 14, 2008. The company is trading above its 50-day moving average and gapped higher on February 12th after releasing its first-quarter earnings. Since then, the stock hasn't looked back.
With no upside resistance to speak of, the critical technical support level comes in the gap between $27.00 and $29.19. Given the strong earnings report on February 11th, I wouldn't expect the stock to violate this gap. Prospects for the company seem very strong and the company appears able to deliver on those prospects.
Pricing power is something almost unheard of in the economic climate of 2009. And that's one of the things that impresses me the most about American Italian Pasta - it has the ability to increase sales, while raising prices.
One other factor that hasn't yet been considered by most analysts, I believe, is that the cost of raw ingredients, which had been going up for most of 2008, are now in retreat.With higher prices already in effect, any fall in cost of goods sold will reflect directly in higher profitability for the company.
In summary, with American Italian Pasta, you have a company that's benefiting from multiple trends working in its favor. Fundamentally, the ability to raise prices and not affect sales is amazing. With more Americans "trading down" their eating habits, this trend to higher sales shows every indication of continuing. And with their raw ingredient prices now falling, the company will not have to raise prices in the near future to stimulate growth. Rather, the profits for the second quarter of 2009 will come from higher prices already in place, accompanied by falling ingredient prices.From where I sit, American Italian Pasta Company looks like a rare winner in 2009.
Top Stocks For 2010 No.9 Looking for Safe Stocks? Try Channeling Ben Graham
by John Reese
When I began conducting extensive research into the strategies used by some of history's greatest investors some 12 years ago, one thing quickly became apparent: Many of these Wall Street stars, including Peter Lynch, Warren Buffett, and Benjamin Graham, built their fortunes and reputations not by relying on some sort of investing "sixth sense", but instead by using approaches that were mostly or completely quantitative. They stuck to the numbers, never letting emotion influence their decisions.
That was great news to me. Because of my background in computer science and artificial intelligence, I was able to develop sophisticated but easy-to-use models based on these gurus' quantitative approaches.
Today, these models power the research and analysis on my web site, Validea.com, allowing everyday investors to take advantage of the strategies that some of history's most successful stock-pickers used. Since I started tracking them nearly six years ago, portfolios built using each of my eight original "Guru Strategies" have all significantly outperformed the market.
For some top picks in today's market, let's turn to my top-performing strategy -- one that, interestingly, is inspired by what is far and away the oldest of these methodologies, the approach of the late, great Benjamin Graham. Known as the "Father of Value Investing" -- and the mentor of Warren Buffett -- Graham detailed his strategy in his 1949 classic The Intelligent Investor. Six decades later, my conservative Graham-based model is up almost 70 percent since its July 2003 inception, while the S&P 500 has fallen more than 22 percent. Last year, while the market tumbled close to 40 percent, my Graham-based model sustained well less than half of that decline.
One stock my Graham model is particularly high on right now:
Ameron International Corporation (AMN), a California-based firm that makes water transmission lines, fiberglass-composite pipe for transporting oil, and infrastructure-related products like ready-mix concrete and lighting poles -- just the kind of company that could benefit from the federal stimulus package's infrastructure funding.
Having lived through both his own family's fall from financial grace (following his father's death when Benjamin was a young man), and, later, through the Great Depression, it's no surprise that Graham focused as much on preserving capital and limiting losses as he did on producing big gains. He liked stable, conservatively financed companies, not speculative gambles, and Ameron fits the bill. One example of why: its strong current ratio of 2.87. Graham used the current ratio (current assets/current liabilities) to get an idea of a company's liquidity (and the credit crisis has shown us all how important liquidity is).
Companies with current ratios of at least 2.0 were the type of financially secure, defensive, low-risk plays he liked, and Ameron makes the grade.Another way Graham targeted conservative firms was by making sure long-term debt was no greater than net current assets. Ameron has just $36 million in long-term debt and almost $300 million in net current assets, a great sign.
The other main part of Graham's approach was making sure a stock had what he termed a "margin of safety" -- that is, its price was low compared to his assessment of the intrinsic value of its underlying business. Stocks with high margins of safety have downside protection -- they're already selling at a discount compared to their real value, so even if problems occur and earning power declines a bit, the stock still might gain ground because it's so undervalued to begin with.
To find undervalued stocks, Graham looked at both the price/earnings ratio (the model I base on his approach requires the greater of the stock's current P/E or its three-year average P/E to be no greater than 15) and the price/book ratio (which, when multiplied by the P/E, should be no greater than 22). Ameron's P/E (using the higher three-year figure) is just 8.2, and its P/B is just 0.99, indicating that the stock is a great value.
In addition to Ameron, here are a couple more of myGraham model's current favorites:
Schnitzer Steel Industries (SCHN): Hammered when commodity prices began to tumble last summer, this Oregon-based firm has made a big rebound since late November, and my Graham model thinks it has a lot more room to grow. It has a current ratio of 3.2, just $106.1 million in long-term debt vs. $338.5 million in net current assets, and bargain-level P/E and P/B ratios of 5.8 and 1.01, respectively.
National Presto Industries (NPK): Talk about an eclectic group of business segments. This Wisconsin-based firm's housewares division makes small appliances and pressure cookers; its defense segment makes ammunition, fuses, and cartridge cases; and its absorbent products division makes adult incontinence products and baby diapers. Its fundamentals are exceptional -- current ratio of 5.23, P/E ratio of 14.5, P/B ratio of 1.49 -- and, the firm has no long-term debt.
Top Stocks For 2010 No.10 Hedged Investing with Hussman Strategic Growth
by Ian Wyatt
When I recently discovered the Hussman Strategic Growth fund, it was love at first sight. Hussman acts like a hedge fund, providing the fund managers much flexibility in the investment instruments and strategies utilized to capitalize on rapidly changing markets like those we are currently experiencing. Manager John Hussman's disciplined strategy has navigated the mutual fund toward calmer waters amid choppy market conditions, a testament to the fund's ability to achieve remarkable performance in down markets.
Although Hussman receives the advice of key personnel on the fund's board of trustees and at Hussman Econometrics, this mutual fund depends heavily on Hussman himself. He also invests all of his personal liquid assets (outside of cash and money market accounts) in his two funds, clearly aligning his personal interests with those of fund shareholders. Hussman Strategic Growth invests primarily in U.S. stocks with the objective of longterm capital appreciation. It currently has 116 long holdings that include the likes of Johnson & Johnson (NYSE:JNJ), Nike, Inc. (NYSE:NKE ), Amazon.com, Inc. (Nasdaq:AMZN), Coca-Cola (NYSE:KO) and Best Buy Co. (NYSE:BBY). Hussman goes long on individual positions, and can leverage using equity call options. Ninety percent of the fund's net assets are tied up in stocks while the remaining 10% is sitting in cash.
Hussman was down only 9% in 2008, a performance that was the envy of most fund managers, especially in light of the 37% drop in the S&P 500. In the previous bear markets of 2001 and 2002, the fund was up a whopping 14% in each of those years. Because the fund is so risk-averse, its short-term track record may limp in bullish environments, but its long term performance is where investors begin to see solid profits. Given the current state of the market, and the fact that my outlook calls for a range bound and volatile stock market in 2009, Hussman Strategic Growth fund is a solid place to have capital invested.
John Hussman develops a risk versus reward profile for the current market climate, identifying economic trends and valuing individual stocks based on their expected streams of cash flow. For much of the past decade, Hussman has considered most stocks overvalued and did not think they were providing enough reward given their high level of risk.To preserve capital, he hedged the portfolio against market risk by shorting indexes such as the S&P 100. As a result, the fund has been fairly uncorrelated to the whims of the market and has been shielded from the heavy losses many funds have faced.
Since its July 2000 inception, the fund's 8.9% annualized return has outpaced the S&P 500, which lost 4.4% annually over the same period.Performance in 2009 appears to be holding up, with year-to-date returns of 0.25% versus a loss of 8% for the S&P 500 index. Morningstar calls Hussman "one of the steadiest and cheapest options in the fledgling long-short category," and gives the fund a 3-star rating.
Hussman's claimed approach of "investing for long-term returns while managing risk" is in perfect alignment with my aggressiveapproach to conservative investing. I, too, aim to find opportunities for long-term capital appreciation, while limiting downside risk through portfolio diversification and aggressive risk management. The fund is currently taking a very conservative approach to equities, which makes sense given the performance last year. With the bleak prospects for global growth in 2009, this fund should perform well in horizontal or down markets, making it a nice fit within the equity portion of my Recovery Portfolio. Additionally, the fund's flexibility should allow it to perform nicely once stocks begin their recovery.
Gold's Best Worst-Case Scenario
Even at $1,200 an ounce, gold is still one of the safest investments you can make.
That's because, unlike 99.9% of other investment vehicles, gold has an intrinsic and universal value that has supported a strong market price throughout human history.
And now we have even more reason to remain confident in gold as a safe investment, thanks to a surge in mining production costs that may help buoy gold prices for decades to come. It all starts with the...
Rising Production Costs of Gold
Mining for gold is often romanticized as an adventurous, sometimes dangerous, way to get rich real quick. But as a business, it's very difficult to make a profit. And the real danger is financial.
Gold production is a very energy- and labor-intensive process, making it very expensive to operate a gold mine... especially now. Over the past few years, rising energy and labor prices have forced global gold production costs to increase quite dramatically.
In 2000, Barrick Gold (NYSE: ABX) was producing gold for $145 an ounce (inflation adjusted = $185/oz). During the first three quarters of 2009, the company's total cash cost were $463 an ounce — a 215% increase.
According to GFMS, a world authority on gold markets, Barrick's current production costs are about average. Data from GFMS shows world gold production costs for the first half of 2009 averaged $457/oz. This average cost is down from $623/ounce in the third quarter of 2008.
Gold production costs swelled over 150% in five years between 2003 and 2008. And due to recent increases in energy and labor prices in the second half of 2009, experts estimate global gold production costs may average up to $500 an ounce for the year. Take a look:
200911_global_gold_production_costs.png
In the long-run, the average gold production cost must increase.
The most easily accessible and cheapest gold resources will always be developed and exploited first. As these resources are diminished, producers will be forced to develop the next cheapest gold resources in line.
The ever-increasing nature of the cost of production may help support a growing valuation floor above $500 for gold prices. And it's one of the reasons that I think...
Gold Has the Best Worst-Case Scenario
The price of gold should always find price support near the average global cost of mine production.
That's because if the cost of production significantly exceeds the value of the yield, operators will likely halt output until market conditions improve. It's simply a matter of economics.
This halt will decrease the total supply of new mine production. And this decrease may ultimately help buoy gold prices to varying degrees depending on demand.
So if the average global cost to produce gold is $500 an ounce, I think gold's ultimate valuation floor may be near that level.
Conclusion
Indeed, a near 60% decline to $500 could be considered the worst-case scenario for gold. However, the worst-case scenario for currency-denominated asset classes like 2010 top stocks and bonds is a 100% decline. So gold is still one of the safest assets to own.
Aside from being the safest investment, I also believe gold will be one of the easiest ways to profit over the next 12 to 24 months. The bottom line: I don't believe that we've seen the biggest moves this gold bull market has to offer. And the time for gold to build up a head of steam and tackle is inflation-adjusted high of $2,500 has never been better.
In order to leverage gold's huge investment upside potential for members of my Hard Money Millionaire advisory service, I am currently building a brand-new portfolio of junior mining stocks. So far, I've recommended three best stocks for 2010 in the portfolio (with a fourth to be added sometime next week), but have already done quite well. In fact, you can take a peek at my junior mining portfolio just by clicking here.
If you're also interested in gold stocks to buy, you might want to check out these...
Three Low-Cost Gold Producing Stocks
In doing research for this article, I learned gold production costs currently average about $450 an ounce for companies, including Agnico-Eagle (NYSE: AEM) and Newmont Mining (NYSE: NEM).
As I looked through the financial statements of the individual companies, I noted those with the lowest gold production costs. Below I've list the three companies with low-cost gold production within the three major financial classes.
Goldcorp (NYSE: GG)
200911_goldcorp_gold_production_cost.png
Financial Class:
Senior Gold Producer
Share Price:
$44.50
Market Cap:
$32.5 billion
3Q Gold Production: 620,000 ounces
3Q Gold Production Costs:
$295/oz.
2009 Gold Production Guidance: 2.3 million ounces
2009 Gold Production Costs Guidance: $365/oz.
Goldcorp is one of the largest gold mining companies in the world. With 14 operations and development projects, Goldcorp expects to produce 2.3 million ounces this year at a total cash cost of $365 an ounce. During the third quarter of 2009, the company produced over 620,000 ounces for total cash cost of $295 an ounce.
Eldorado Gold (NYSE: EGO)
200911_elderado_gold_production_costs.png
Financial Class:
Mid-Tier Gold Producer
Share Price:
$13.75
Market Cap:
$5.5 billion
3Q Gold Production: 89,000
3Q Gold Production Costs:
$297/oz.
2009 Gold Production Guidance: 550,000
2009 Gold Production Costs Guidance: $340/oz.
Eldorado Gold is a mid-tier gold producer active in exploration and development in Brazil, China, Greece, Turkey, and surrounding regions. The company plans to produce a total of about 550,000 ounces of gold this year at a total cash cost of $340 an ounce. During the third quarter, Eldorado produced 89,000 ounces at $297 an ounce.
Minera Andes (TSX: MAI)
200911_minera_andes_gold_production_costs.png
Financial Class:
Small-Cap Gold Producer
Share Price:
$0.75
Market Cap:
$200 million
3Q Gold Production: 22,000 ounces
3Q Gold Production Costs:
$313/oz.
2009 Gold Production Guidance: undisclosed
2009 Gold Production Costs Guidance: undisclosed
Minera Andes is a small but successful gold and silver miner. The company producers almost an equal amount of gold and silver by value, but is worth mentioning here because it is currently one of the lowest-cost small-cap gold producers around.
Minera will produce over 75,000 ounces of gold this year at an estimated $330 an ounce, although there is no official guidance. During the third quarter, the company produced 22,000 ounces of gold at $313 an ounce.
That's because, unlike 99.9% of other investment vehicles, gold has an intrinsic and universal value that has supported a strong market price throughout human history.
And now we have even more reason to remain confident in gold as a safe investment, thanks to a surge in mining production costs that may help buoy gold prices for decades to come. It all starts with the...
Rising Production Costs of Gold
Mining for gold is often romanticized as an adventurous, sometimes dangerous, way to get rich real quick. But as a business, it's very difficult to make a profit. And the real danger is financial.
Gold production is a very energy- and labor-intensive process, making it very expensive to operate a gold mine... especially now. Over the past few years, rising energy and labor prices have forced global gold production costs to increase quite dramatically.
In 2000, Barrick Gold (NYSE: ABX) was producing gold for $145 an ounce (inflation adjusted = $185/oz). During the first three quarters of 2009, the company's total cash cost were $463 an ounce — a 215% increase.
According to GFMS, a world authority on gold markets, Barrick's current production costs are about average. Data from GFMS shows world gold production costs for the first half of 2009 averaged $457/oz. This average cost is down from $623/ounce in the third quarter of 2008.
Gold production costs swelled over 150% in five years between 2003 and 2008. And due to recent increases in energy and labor prices in the second half of 2009, experts estimate global gold production costs may average up to $500 an ounce for the year. Take a look:
200911_global_gold_production_costs.png
In the long-run, the average gold production cost must increase.
The most easily accessible and cheapest gold resources will always be developed and exploited first. As these resources are diminished, producers will be forced to develop the next cheapest gold resources in line.
The ever-increasing nature of the cost of production may help support a growing valuation floor above $500 for gold prices. And it's one of the reasons that I think...
Gold Has the Best Worst-Case Scenario
The price of gold should always find price support near the average global cost of mine production.
That's because if the cost of production significantly exceeds the value of the yield, operators will likely halt output until market conditions improve. It's simply a matter of economics.
This halt will decrease the total supply of new mine production. And this decrease may ultimately help buoy gold prices to varying degrees depending on demand.
So if the average global cost to produce gold is $500 an ounce, I think gold's ultimate valuation floor may be near that level.
Conclusion
Indeed, a near 60% decline to $500 could be considered the worst-case scenario for gold. However, the worst-case scenario for currency-denominated asset classes like 2010 top stocks and bonds is a 100% decline. So gold is still one of the safest assets to own.
Aside from being the safest investment, I also believe gold will be one of the easiest ways to profit over the next 12 to 24 months. The bottom line: I don't believe that we've seen the biggest moves this gold bull market has to offer. And the time for gold to build up a head of steam and tackle is inflation-adjusted high of $2,500 has never been better.
In order to leverage gold's huge investment upside potential for members of my Hard Money Millionaire advisory service, I am currently building a brand-new portfolio of junior mining stocks. So far, I've recommended three best stocks for 2010 in the portfolio (with a fourth to be added sometime next week), but have already done quite well. In fact, you can take a peek at my junior mining portfolio just by clicking here.
If you're also interested in gold stocks to buy, you might want to check out these...
Three Low-Cost Gold Producing Stocks
In doing research for this article, I learned gold production costs currently average about $450 an ounce for companies, including Agnico-Eagle (NYSE: AEM) and Newmont Mining (NYSE: NEM).
As I looked through the financial statements of the individual companies, I noted those with the lowest gold production costs. Below I've list the three companies with low-cost gold production within the three major financial classes.
Goldcorp (NYSE: GG)
200911_goldcorp_gold_production_cost.png
Financial Class:
Senior Gold Producer
Share Price:
$44.50
Market Cap:
$32.5 billion
3Q Gold Production: 620,000 ounces
3Q Gold Production Costs:
$295/oz.
2009 Gold Production Guidance: 2.3 million ounces
2009 Gold Production Costs Guidance: $365/oz.
Goldcorp is one of the largest gold mining companies in the world. With 14 operations and development projects, Goldcorp expects to produce 2.3 million ounces this year at a total cash cost of $365 an ounce. During the third quarter of 2009, the company produced over 620,000 ounces for total cash cost of $295 an ounce.
Eldorado Gold (NYSE: EGO)
200911_elderado_gold_production_costs.png
Financial Class:
Mid-Tier Gold Producer
Share Price:
$13.75
Market Cap:
$5.5 billion
3Q Gold Production: 89,000
3Q Gold Production Costs:
$297/oz.
2009 Gold Production Guidance: 550,000
2009 Gold Production Costs Guidance: $340/oz.
Eldorado Gold is a mid-tier gold producer active in exploration and development in Brazil, China, Greece, Turkey, and surrounding regions. The company plans to produce a total of about 550,000 ounces of gold this year at a total cash cost of $340 an ounce. During the third quarter, Eldorado produced 89,000 ounces at $297 an ounce.
Minera Andes (TSX: MAI)
200911_minera_andes_gold_production_costs.png
Financial Class:
Small-Cap Gold Producer
Share Price:
$0.75
Market Cap:
$200 million
3Q Gold Production: 22,000 ounces
3Q Gold Production Costs:
$313/oz.
2009 Gold Production Guidance: undisclosed
2009 Gold Production Costs Guidance: undisclosed
Minera Andes is a small but successful gold and silver miner. The company producers almost an equal amount of gold and silver by value, but is worth mentioning here because it is currently one of the lowest-cost small-cap gold producers around.
Minera will produce over 75,000 ounces of gold this year at an estimated $330 an ounce, although there is no official guidance. During the third quarter, the company produced 22,000 ounces of gold at $313 an ounce.
George Soros' Billion-Dollar Green Play
George Soros, like most of us, loves money and top stocks for 2010.
And he has a lot of it. With a net worth of $11 billion, Forbes ranks him as the 29th richest man in the world.
You don't get that rich by making bad financial decisions. . .
Recently, it was reported that Soros was connected to a tentative financing deal related to the sale of the St. Louis Rams to an investor group that counts Rush Limbaugh as a member.
That's a big change for a man who once said getting George W. out of office was the central focus of his life! I guess when it comes to making serious money, ideology takes a back seat to the bottom line.
This is, after all, the same man who reportedly made $1 billion betting on the devaluation of the pound sterling, the currency of his adopted nation.
And this is the same Soros who, in 2008, wrote about a 25-year "superbubble" that was about to burst.
So when this guy acts, you can bet he acts with calculated precision. . . And you'd better pay attention to what he's doing.
This week, Soros made his market presence known with a major energy announcement.
1.1 Billion Reasons Soros Loves Cleantech
Speaking in Denmark over the weekend, Soros announced his plans to invest more than $1 billion of his own money in clean technology.
He's just the latest member of the billionaire parade to march toward cleantech for its lucrative returns — even during a recession: Buffett, Khosla, Gates, Pickens, and Turner have all turned over million- and billion-dollar green leaves.
Soros, for his part, will look for "profitable opportunities" in the field through a $1 billion personal investment. He's also creating a foundation called the Climate Policy Initiative and will fund it to the tune of $100 million over the next decade.
Now we know that these men are not sandal-wearing hippies, keen on saving the world.
Instead, they're focused on turning a tidy profit. . . and they know cleantech is one of the easiest ways to do it.
They don't know anything we don't. I've been telling anyone who will listen to invest in clean technology. These billionaires are simply doing what they do best: recognizing profitable trends early. . . and capitalizing on them.
Venture Tested, Venture Approved
Consider this nugget from a recent Reuters report:
Clean technology has for the first time become the top category in U.S. venture capital investment, eclipsing biotech and software, as private money follows the government's lead, the Cleantech group reported.
In the third quarter, clean technology earned 27% of all venture investment, beating out biotech (24%), software (18%), and medical devices (17%). Logic indicates, then, that the world's most sophisticated investors regard clean technology as worth more than a cure for cancer or the next Google.
In total, there were 112 cleantech deals worth $1.9 billion in Q3. That's 60% better than the $1.2 billion that changed hands in the second quarter. If you remember, even Exxon is in on this action, having committed $300 to research algae biofuels a few months ago.
So far in 2009, over $4 billion worth of cleantech venture deals have been completed.
And the bullishness continues. . . right up the chain to private equity and onto the public markets.
In fact, The Cleantech Index (^CTIUS) has outperformed both the Dow Jones and S&P 500 so far this year. Take a look the best stocks for 2010:
Cleantech Index
These are all facts you can't afford to ignore. Cleantech, in all reality, could be the market's hottest sector. . . attracting billionaires and billions in venture capital alike.
As Soros has just proven, it's not too late to get a piece of this red-hot sector. His billion dollar investment, coupled with the billions in venture and global stimulus dollars, will help this bull run for years to come.
As it happens, Soros will be speaking later this week at The Buttonwood Gathering in New York, a sold-out summit of the world's leading economic minds. Our new analyst, Adam Sharp, has reserved his seat at this highly-secured event, where the theme is "Fixing Finance."
He'll be there reporting in person, as Soros, Ross, Geithner, and others offer their opinions on topics ranging from international regulatory schemes to golden parachutes for failed bankers. And Adam will pass along his findings — separating the truth from the hype — in a special report for Wealth Daily readers as soon as he gets back.
And he has a lot of it. With a net worth of $11 billion, Forbes ranks him as the 29th richest man in the world.
You don't get that rich by making bad financial decisions. . .
Recently, it was reported that Soros was connected to a tentative financing deal related to the sale of the St. Louis Rams to an investor group that counts Rush Limbaugh as a member.
That's a big change for a man who once said getting George W. out of office was the central focus of his life! I guess when it comes to making serious money, ideology takes a back seat to the bottom line.
This is, after all, the same man who reportedly made $1 billion betting on the devaluation of the pound sterling, the currency of his adopted nation.
And this is the same Soros who, in 2008, wrote about a 25-year "superbubble" that was about to burst.
So when this guy acts, you can bet he acts with calculated precision. . . And you'd better pay attention to what he's doing.
This week, Soros made his market presence known with a major energy announcement.
1.1 Billion Reasons Soros Loves Cleantech
Speaking in Denmark over the weekend, Soros announced his plans to invest more than $1 billion of his own money in clean technology.
He's just the latest member of the billionaire parade to march toward cleantech for its lucrative returns — even during a recession: Buffett, Khosla, Gates, Pickens, and Turner have all turned over million- and billion-dollar green leaves.
Soros, for his part, will look for "profitable opportunities" in the field through a $1 billion personal investment. He's also creating a foundation called the Climate Policy Initiative and will fund it to the tune of $100 million over the next decade.
Now we know that these men are not sandal-wearing hippies, keen on saving the world.
Instead, they're focused on turning a tidy profit. . . and they know cleantech is one of the easiest ways to do it.
They don't know anything we don't. I've been telling anyone who will listen to invest in clean technology. These billionaires are simply doing what they do best: recognizing profitable trends early. . . and capitalizing on them.
Venture Tested, Venture Approved
Consider this nugget from a recent Reuters report:
Clean technology has for the first time become the top category in U.S. venture capital investment, eclipsing biotech and software, as private money follows the government's lead, the Cleantech group reported.
In the third quarter, clean technology earned 27% of all venture investment, beating out biotech (24%), software (18%), and medical devices (17%). Logic indicates, then, that the world's most sophisticated investors regard clean technology as worth more than a cure for cancer or the next Google.
In total, there were 112 cleantech deals worth $1.9 billion in Q3. That's 60% better than the $1.2 billion that changed hands in the second quarter. If you remember, even Exxon is in on this action, having committed $300 to research algae biofuels a few months ago.
So far in 2009, over $4 billion worth of cleantech venture deals have been completed.
And the bullishness continues. . . right up the chain to private equity and onto the public markets.
In fact, The Cleantech Index (^CTIUS) has outperformed both the Dow Jones and S&P 500 so far this year. Take a look the best stocks for 2010:
Cleantech Index
These are all facts you can't afford to ignore. Cleantech, in all reality, could be the market's hottest sector. . . attracting billionaires and billions in venture capital alike.
As Soros has just proven, it's not too late to get a piece of this red-hot sector. His billion dollar investment, coupled with the billions in venture and global stimulus dollars, will help this bull run for years to come.
As it happens, Soros will be speaking later this week at The Buttonwood Gathering in New York, a sold-out summit of the world's leading economic minds. Our new analyst, Adam Sharp, has reserved his seat at this highly-secured event, where the theme is "Fixing Finance."
He'll be there reporting in person, as Soros, Ross, Geithner, and others offer their opinions on topics ranging from international regulatory schemes to golden parachutes for failed bankers. And Adam will pass along his findings — separating the truth from the hype — in a special report for Wealth Daily readers as soon as he gets back.
Subscribe to:
Posts (Atom)