May 27, 2007: To our family....a genealogy of service

From the Ustoks of Senj and Zumberak (Croatia) fighting against the Ottoman Turks to World War 1, World War 2 until the present, our family has chosen to serve. Over seven hundred years of family history have produced a most interesting and honorable family tree in many occupations, especially the military. God bless all who serve.
Without their sacrifice, our investments would truly be worthless.

Salute.

May 26, 2007: Aero defense and two airlines clean up in the Democrats' war funding bill

The pictures are not all that relevent, but why not do weekend chuckles in addition to news.





A few bits from aero defense:

The Iraq Emergency Supplemental totalled $120b, including $3b for the WRAP program.

The Navy awarded 5-year ID/IQ contracts for upwards of $600m to HON, LMT, NOC and RTN for anti-terror force protection.

GD/Gulfstream won an order for 20 G450s worth more than $700m from Saudi Arabia.

GSA is scheduled to award 25-30 prime contracts for the $50b ID/IQ Alliant contract in June - stay tuned.

The Boeing 787 is poised to be right on schedule. BA is expected to hike earnings guidance significantly in late July.

Air France announced an order for 18 Boring 777s and 2 Airbus A380s.

SPR secondary offering is priced at $33.50 share.

TDG secondary offering is priced at $36.25 share.

COL received awards from Cessna, Gulfstream, Lynx Aviation and Nav Canada for cabin mgmt. and heads-up guidance systems. I like Rockwell Collins (COL) very much at this time.

Stock picks in this sector are the same as my last aero defense post...except, Rockwell Collins is really doing a superb job winning contracts and seems poised for continued growth in sales and on the bottom line.

OINK OINK: American Airlines (AMR) and Continental Air (CAL) received gifts from God .

The Iraq bill included a pension funding break for both carriers. AMR and CAL were successful in getting some "technical corrections" to last year's pension bill so that they will now be able to use a higher discount rate of 8.25% to calculate their pension funding liability rather than the 6% used currently. In last year's bill, Northwest and Delta were allowed to use a discount rate of 8.85% to calculate their own funding liability. AMR and CAL's lobbying efforts with far left Senators Sherrod Brown from Ohio and Ed Rendell from Pennsylvania paid off, it is said.

These airlines will benefit from increased financial flexibility - or to build cash to form a consolidation war chest.

Separately, the US and China have agreed to increase daily flights by US carriers into China by thirteen by 2012 to total twenty three. No big deal here. Only three US airlines will participate, probably American, Continental and United. Air China, China Southern and China Eastern will also accelerate their rt flights into North America. Swire Pacific is a peripheral beneficiary (SWRAY) as well as Singapore Airlines with their stake in China Eastern.

May 19, 2007: Aero Defense tidbits

Here are some recent developments in the sector that may be of interest:

ATK has won the Precision Guidance Kit over BAE. Worth $800m as a total package over five years.

USAF has released a draft RFP to UTX,LMT and BA for the $15B CSAR-X program, which BA initially had won before a protest of the bid by competitors. Contract to be awarded by October, 2007.

SPR and GKN are in talks to take over the Airbus plant at Filton, western UK.

BA has reached agreement with the machinist union. Full speed ahead.

BA announced the final major assembly for the 787 was delivered to Everett, WA.

Airbus had its best year ever for business jets 4/06-4/07; total? 17.

A reader of Roger's blog asked me to comment about a small cap aero space stock AVAV.Reader's may want to check this stock out. I try to follow some stocks very well, and other slip through. This may be one of those slips.

Recommended:

BE Aerospace (BEAV)
Goodrich (GR)
Precision Castparts (PCP)
Spirit Aero Systems (SPR)
TransDigm (TOG)
Boeing (BA)
Esterline Tech (ESL)
Dyncorp Int. (DYN)
EDO Corp. (EDO)
General Dynamics (GD)
L-3 Communications (LLL)
Raytheon Company (RTN)

May 17, 2007: ETF thoughts

Scores of ETFs have hot the market over the past month. I am a strong believer of maximum opportunities for choice as it benefits the investor seeking to balance and tweak portfolios to personal taste. Whereas a short time ago, ETFs were breaking new ground (water, dividend tracking, share buyback, currency, sector and country blends, etc.), we are now looking at what was unique ground being inhabited by more than one ETF, mimicking to a large degree what has/had occurred in the mutual fund industry.

The main difference with replication ETFs is the "index" they choose to follow and how holdings of the fund are dispersed regionally and globally. Size also matters. Replication ETFs may hold primarily large cap in one ETF and primarily medium/small cap in another.

Recent ETFs focusing upon such investment themes as water resources, dividend plays, bonds, developing economies, currency baskets, alternative energy and parsed groups of securities of a certain nature defined by the ETF(s) are using proprietary indexes to gain an edge - ever so slight- on competitors. The individual investor should be proceeding more carefully into ETFs and make sure, by examining the holdings of the fund, that the portfolio is what you want it to be. There is a great variance in like-minded ETFs. Look at the offerings in water resources and alternative energy (Green and social ethically themed funds count here as well) to see how very different ETFs can be...same theme but vastly different securities in the portfolio, and very different indexes trying to gauge a similar result.

I am looking at ETFs differently than months/years ago, and I recommend that you investigate an ETF in depth before you make a purchase.

May 16, 2007: Alternative energy stocks/Green stock sector observations and picks

A few e-mails to me requested timely data on Alternative Energy and Green stocks and stock sectors. My view is well known - Global warming is highly problematic. That said, let's make some money on the Gorebasm.

Recent opinions by well-respected analysts:

The poly market will go into oversupply sometime in 2008. That means semiconductors are not a good bet, or their suppliers.

There will be an ethanol surplus this year (while Central and South American peasants riot due to high corn prices). I recommend selling ethanol producers and take profits over the next two months. Other bio fuels are receiving more legislative support and subsidies. They are a better bet, especially young proprietary companies (they can render any carcass into clean fuel for diesels) such as Nova Biofuels, a recent entry on the AMEX (NBF) at about $3.00/share. A Brazilian company, Sao Martinho (SMTO3), is a sugarcane bio fuel extractor that is on the right track here.Technology may well make sugarcane and palm oils a better fuel than ethanol, due to the corn price crisis in Latin America.

Air travel carbon emissions legislation coming to the airline industry. Look for airlines to speed up delivery of new planes meeting the standards. Great news for Boeing (BA), Goodrich (GR) and others.

Verasun (VSE) recognizes that the feedstock market (corn oil) is more lucrative than being an integrated bio diesel producer as others have what appears to be more profitable extraction processes.

Emissions restrictions in the US are proving to be a grand opportunity for companies such as NGK (5333) which manufactures and sells electrical insulators, industrial ceramic products, environmental systems and electronic parts. This stock trades in Japan.

Now here are some stocks worldwide to watch, based upon a compilation of research, primarily the excellent research team at Credit Suisse First Boston, which is covering Alternative Energy better than anyone, IMO. JUST NAMES TODAY DUE TO MANY BEING AVAILABLE ONLY OVERSEAS. Look 'em up!

Q-CELLS
Renewable Energy Corp AS
ACEA Spa
AEM Spa
Centrica Plc
EDF Energies Nouvelles SA
EON. AG
RWE AG
Alston
Bateman Litwin
Continental AG
GKN PLC
Morgan Crucible Company Plc
Rolls Royce
Schneider Electric SA
Siemens AG
Wair Group,The Plc
CRH, Inc
Lonmin Plc
Compagnie de Saint-Gobain
Statoil ASA
Applied Materials, Inc.
Sunpower Corp - Class A
Borgwarner, Inc.
Cooper Industries
Emerson Electric
General Electric
United Technologies Corp.
Air Products and Chemicals
Boeing
Deere and Company
Hexcel, Inc
Kinder Morgan
Manhattan Scientifics
Nova Biofuels
Anandarko Petroleum
EnCana
XTO Energy, Inc
Cameco Corp.
E-Ton Solar Tech Coc Ltd.
Sino-American Silicon Production
Suntech Power Holdings
Tokuyama Corp
Golden Hope Plantations Bhd
IOI Corporation Bhd
Kuala Lumpar Kapong Bhd
Wilmar International Ltd
Contact Energy Ltd.
Aisin Seiko Co Ltd.
Shanghai Electric Group
Sharp Corp.
Toyato Motor Company
Woodside Petroleum Ltd.

May 15, 2007: Master Limited Partnership recommendations and a taste of Aero Defense

Pictures: Macquarie's first major acquisition, the Chicago Skyway, and an MLP pipeline terminal.




Well selected Master Limited Partnerships (MLPs) should be included in your portfolio for performance, tax advantaged income and a high yield which likely will protect the floor of the security.

I will be adding a few to my portfolio shortly, in addition to what I already own. Brevity today allows me to list the stock,dividend,target price and estimated total return a few months hence...you do your diligence. Each of these partnerships appear to be very well run and have a stong finances.

Boardwalk Pipeline Partners (BWP)/target $40.00/y5.5%/tr 17.7%
Enbridge Energy Partners (EEP)/t$62.00/y6.1%/tr 8.9%
Enterprise Product Partners (EPO)/t$35.00/y5.8%/tr 12.5%
Kinder Morgan Energy Partners (KMP)/t$58.00/y6.0%/tr 8.3%
Macquarie Infrastructure (MIC)/t$48.00/y5.3%/tr 13.4%
NuStar (NS)/t$75.00/y5.5%/tr 16.8%
TEPPCO (TPP)/t$50.00/y5.9%/tr 14.6%


Aero Defense notes:

Almost all companies are beating street estimates. Small caps are performing better. I admit that I thought the Democrats would have found a way to declare victory and leave Iraq to a large degree by July. I am glad to be wrong on prediction made last fall. The Islamo-fascists need not win in Iraq and spread like a virus on steroids elsewhere- such as in the US. Getting off topic....

Opportunity seems to abound on the commercial aviation side, with strong performances across the board. The best this far has been Boeing (BA). What a marvelous success story at the expense of AirBUST. Goodrich (GR), a large core holding of mine for a few years, has been outstanding with no end in sight. BA and SPR did not raise guidance, but I suspect both are being very conservative with a large upside earnings surprise next quarter. COL also has greater than expected hope for a nice earnings surprise upside. Opportunities for growth in the business jet market are also fueling research and development as an area of focus for both COL and SPR. GR in my view still is a very attractive value. The most expensive in the group, BEAV, has a growth model that fully justifies its price, IMO and is a good momentum play (not my style of investing).

Recent quarterly EPS performance of some Aero Defense stocks that exceeded expectations of the street by 9% or greater:

AH (16.1%)
BA (10.8%)
BEAV (25%)
EDO (20.8)
GR (9.9%)
PCP (14.3%)
RTN (9.9%)
SPR (16.3%)
TDG (23.3%)

That said, I still maintain that a mutual fund or ETF is not the way to play this market. One should take a selective group of positions with individual securities. There are too many land mines out there for "one weapon" stocks.

May 13, 2007: Aero defense tidbits

Picture: US MRAP vehicle


Here are some up to date observations on the Aero defense sector.

BAE has acquired Armor Holdings at $88/share

The DOD'S MRAP requirements have risen to over 13,250 vehicles due to US Army increasing its need to over 8,000 vehicles.

Upcoming contracts next week are USAF ETASS, US Air $5b aircraft order,USAF A-10 wing replacement, Joint Cargo Aircraft (JCA) and the Navy Multiband Terminal.

Force Protection (FRPT) is now rumored to be a potential takeover target. Valuation is tough to estimate, but I suspect it might be sold at a premium of about $35.00/share if a suitor is serious. I now do a mea culpa on this stock. My analysis was correct, but our presence in Iraq was not anticipated by me to last beyond July. Bush wins. Dems loose. I am happy to be wrong for two reasons. Bush is correct, and the FRPT shareholders are big winners.

NOC lost the Lawrence Livermore management contract ($6.8b over seven years). A Cal/Bechtel team won it.As a consolation prize, NOC won a US State Department contract for $200m over five years for a program entitled the Global Peace Initiative (GPOI). I want to see THAT brilliant scheme from our grade D- Department of State lifers accomplish something.

SPR won a seven year helicopter component contract from Sikorsky worth about $175m.

Italy is buying fifty Airbus 350s at a steep discount to cost production. You get what you pay for.

Hellenic Air Force selected GR air reconaissance system for F-16s. Goodrich is doing very, very well.

Boeing (BA) revealed it received 48 unidentified orders for 737s.

Recommended stocks at this time:

BE Aerospace (BEAV)
Goodrich (GR)
Precision Castparts (PCP)
TransDigm (TDG)
Boeing (BA)
Esterline Tech (ESL)
Dyncorp (DYN)
EDO Corporation (EDO)
General Dynamics (GD)
L-3 Communications (LLL)
Raytheon (RTN)

A few of these are approaching full value, but I am confident that all listed have upside - not a bad thing in this richly priced market.

May 11,2007: Housing, lending, CHR and NVBDF opinions

As of May 9, 2007, MLS listings covering fifty-five major markets, representing roughly 1/3 of the nation's existing inventory showed that listings increased 0.8% wek-to-week and represents the 16th increase in the past 17 weeks. There were over 1.286 million units for sale in the top fifty-five markets, which is the highest level ever recorded. Last week Atlanta (9%), San Jose (8%), Cincinnati (7%), San Francisco (3%) and Salt Lake City (3%) posted the largest weekly increases. For Meyers (-3%), the Inland Empire (-3%) and Tampa (-2%) were the few decliners in listings week to week.

For the week ended May 4, 2007, the purchase application index was up %5 year over year agaist a -21% comparison (this is really dismal, IMO). Refinancing posted a 48% gain year to year, given a drop in rates.

I posted a prediction of a bottom being at hand come late summer. I stand by that prediction, especially on the coasts. That said, wonderful deals are available for the investor with good credit and some cash NOW.

CHR (Converium) a holding of mine has agreed to be bought by SCOR. I sold out gradually over the past two months and sold the final shares today for a 73% pre-tax profit over eighteen months.

Nova Biofuels (NVBDF) a recommeneded speculative holding bought last month at around 2.25/share has been accepted for listing on the AMEX. It shot up to 3.10/share today.
Anything south of 3.00 share is a steal now, IMO.I like this little gem of a company very much.

May 4, 2007: Real estate on the cheap and Petroleum refiners: It's a gas.

I spent the forty-eight hours on two interesting real estate projects. I was coordinating a large restoration project on a multi-unit property which required three fire investigators, the media, insurance companies and acquiring temporary lodging for all the residents. Everything was accomplished and everybody was cooperative. I now have a large project beginning with a thirty day deadline imposed by me on the restoration coordinator. I will be providing all the subcontractors and fine tuning the thirty seven page insurance settlement to make sure everything is demolished, repaired and/or cleaned. The new roof goes on tomorrow.A complete roof.
After seven 40 yard dumpsters of fire damaged goods, the place is cleaned out and ready. More on this later, if it is worthwhile to write about.

The second project was a 6500 square foot circa 1922 brick store/apartment building with two full adjacent vacant, buildable lots purchased for $35,000.It needs a total rehab, but has outstanding potential. It looks as though the city is even going to ante up interest free repair monies and outright grants. When finished, the building may be worth $500,000. Beats trying to get an extra 10% return on an ETF.

I read so many financial blogs and every bean counter seems obsessed with only stocks or funds. What a huge mistake for the serious investor. And how one dimensional. Real estate is a wonderful place to be right now. Like every other investment, you had better know how to get out of an investment before purchasing it.


What's with gas prices?

Despite the increase in gas prices,consumer demand remains strong, up 1.7% last week vs. last year. Price is not enough to illicit a negative demand response from consumers; it is high price and a relatively long duration that will do so. One analyst predicts that stagnation rather than a fall in demand is the most likely scenario over the next two months. As refineries return to operation from maintenance, import levels return in spite of a greater gas need for the EU (so much for global warming curbs), the markets should rebalance and by early June gas prices will begin to moderate.

To cash in on BIG OIL (sic), here are a few companies to consider longer term:

Royal Dutch Shell (RDS)
Hess (HES)
Statoil (STA)
Alon USA (ALJ)
Tesoro (TSO)
Valero (VLO)

and in Europe,
Helenic Petroleum (HEPr.AT)
ERG (ERG.MI)
OMV (OMVV.VI)

May 2, 2007: Terror risks and the market - a disconnect waiting to blow up.

"Useful idiots" - Stalin


It is so obvious, yet so ignored by western financial markets and the usual far left crowd on the street in 2007: TERRORISM.


What one large act or series of coordinated acts can do to negatively impact stock markets and financial systems in civilized societies is immense. We are presently in a Goldilocks economic scenario. Low interest rates, booming stock markets, huge international trade. In short, the good life. Even the poor have never had it so good.

But do a google search with the phrase "terror risks 2007" and you will see the tip of the iceberg headed our way. Some headline grabbers include Terror Risks of Nuclear Fuel, Chlorine Bombs Pose New Risk, Worries of Terrorism on Asian Shipping Lanes, Terrorist Risks in Constructed Facilities, Terror Risk on Waterways,Terrorist Risks from Unmanned Aircraft, Shopping Malls Weigh Terrorist Risks.......

Of course, many google sites examined placed the blame for terrorism at the feet of the United States, and especially the President, G.W. Bush. But that is not my point of contention for today. The point is,

Markets are not factoring in the increased likelihood of a major terrorist attack on the West, and specifically the United States. I believe that investors had better reckon that a major episode of terror is not if, but when and need to take prudent investment steps to both profit from the current terror-denial attitude and to recognize that it is likely this delusion is false.

I think that Proshares double shorts are a vastly under utilized form of portfolio insurance. Take your pick (www.proshares.com)I like the NASDAQ 100 double short.

Invest overweight in countries that do not tolerate terrorism or dissent within their borders. China, Russia, Malaysia,Singapore, Iceland, Sweden,Norway, etc.And place some assets in currency (Swiss Francs via the ETF) and metals (gold, copper again via a Fund). I like Swiss stocks and Singapore stocks because they have a blind eye to assets within their country and thus would probably not singled out for terrorist acts.

US Treasury Bills or GE Interest Plus are good stores for cash.

How much of your portfolio should be in the above? Pessimists, perhaps 25%. Optimists, perhaps 15%.

I am not recommending that you consider buying a gun, dried food and heading to the hills. I am bringing to your attention a scenario so obvious we are looking through it, and seeing nothing.