October 31, 2007: New ETFs...spooky

I have not addressed ETFs for quite a while, being satisfied with the older ones that I have had in my portfolios for quite some time. As we all know, there have been so many ETFs introduced this year - and so many eclectic reasons for launching them - that it has been hard to keep up, let alone understand them. One thing, except for Vanguard, there has been little attempt to hold fees to a minimum. Many ETFs, once all expenses are factored in, cost as much as many mutual funds. Indexing has become way too complex for the average investor to understand - and there is a complex index for just about everything now. Indexes of indexes are not uncommon. What is one to do?

My advice. Pass on ETFs you do not understand. Stock with the vanilla ETFs (Barclay's iShares come to mind) and keep your portfolio balanced, international in scope and filled with investments you truly understand.

For grins, here are some recent ETF additions that have been recently launched:

Proshares introduced the Short(EFZ) and UltraShort(EFU) MSCI EAFE Index. Thus, you can short and double short the international markets as a basket. Proshares will also have an UltraShort China ETF and Japan ETF out in November. Remember that short gives you 100% exposure to a market headed south. UltraShort gives you 200% exposure to a downward market.

My experience has been that the Short and UltraShort funds have whipsawed many investors this year. I had one in my portfolio, and I got rid of it after a modest profit. I just am not comfortable with double downs in securities. I prefer them in blackjack.

Claymore has introduced a Dividend Rotation ETF (IRO) which to me simply churns the portfolio by as much as 50% monthly while also adding a 20 basis point markup to the iShares Dividend ETF. I am not sure how churning stocks and a higher fee will beat a dividend index. The top holdings in this portfolio are risky financials, imo. Too complex for me. And too expensive for a nominal chance at slightly better performance. Pass.

ProShares has filed to introduce forty eight new commodity and currency ETFs. Anyone care to parse through this?

Deutsche Bank presented a novel introduction, the ELEMENTS Wide Moat Focus ETN -exchange traded note (WMW) featuring companies "with sustainable competitive advantages". A Warren Buffett comment now is an ETN. Look up the criteria for this new fund and see if your socks go up and down. I wonder if Warren Buffett will thrown a few hundred million into this ETN? Actually, this ETN looks better on paper than almost all of the other ETFs going into the market recently.

When will enough be enough? In my opinion, never. There will always be individuals (like us, sometimes) who think they are brilliant enough to parse the market and squeeze the last drop of profit from some whacked index.

The KISS formula (keep it simple, stupid) makes a lot more sense to investors than getting caught up in marketing techniques designed to bring an Edsel into your portfolio.

October 29, 2007: Aero defense and commercial aviation notes

A few notes and a list of stocks that have appeal as a new cold (soon to called "warm") war era begins with China, Russia and their minions.

The tide has turned in Iraq, and unless Congress finds a way to snatch defeat from victory before Christmas, US and coalition partners will begin reducing troops significantly by early Spring. Why? Superb tactics in rooting out terrorists, gaining local popular support, and the mass deployment of unmanned aircraft (see previous posts) capable of seeing and destroying anyone doing terrorist things 24/7. Iraq and a significant part of Afghanistan will be blanketed to the detail of every square inch by mid 2008. The technology is presently having a chilling effect upon our adversaries.

Even better, Iran has lost many operatives in Iraq and on the Iran-Iraq border areas where these aircraft can operate with impunity. Ditto for western Pakistan and the Taliban as Pakistani forces (wink, wink) are also said to be using these aerial weapons to vaporize our common terrorist zealots.

It is a shame the Democratic Party is invested in defeat, when almost all aspects of the War on Terror are looking positive.

News:

Practically all large cap defense names reported higher than expected earnings this past week.

RTN bought Oakley, a leader in cyberwarfare ops.

DOD sent Congress a $43.b supplemental request that included $19.9b for wheeled anti-explosive vehicles including $10.4b for WRAPs.

The first commercial A380 Airbus flight by Singapore Airlines was successfully completed.

Stocks:

Allaint Techsystems (ATK)
BE Aerospace (BEAV)
Boeing (BA)
Ceradyne (CRDN)
DRS Technologies (DRS)
Dyncorp (DYN)
Embraer (ERJ)
Easterline Technologies (ESL)
Flour (FLR)
Force Protection (FRPT)
General Dynamics (GD)
General Electric (GE)
Goodrich (GR)
KBR (KBR)
Precision Castparts (PCP)
Spirit Aerosystems(SPR)

October 26, 2007: Citigroup, not much to like, but....

LESS OF THAT






MORE OF THIS



Once in a while, I will focus on a stock or two. For this post, Citigroup (C) is my stock.

Citigroup (C) is a stock many love to hate. Its basis revenues were down 14% quarter to quarter. Expenses are pretty high compared with other quality financials. Operating margins are pathetic in most areas, especially consumer finance, consumer lending and retail. Poor performance in credit issues worldwide are alarming. The share repurchase plan is likely to be dormant. And then, there is the management. My God, the management! Watch Cramer every time some innocent novice mentions Citigroup. He explodes. And who can blame him?

A relatively short time ago, I mentioned that I thought Citigroup a buy at $44.00/share. It is now flirting with $41. My cost basis is $45.75 (yes, I bought a chunk several days ago -I was trying to catch a falling knife, it appears).

Of the twenty five independent research firms covering Citigroup according to the Jaywalk Consensus, sixteen have a hold to strong sell rating on the stock. Looking at the nine who have a "buy" or "strong buy" on the stock, I can only assume it is on a valuation basis.

I AGREE with the minority. On a valuation basis and looking at the fifty-day moving average, Citigroup is oversold and, with that great over 5% dividend, an excellent choice for the current market situation. IF, IF, IF, the Board of Directors get smart and gives the axe to current upper management and brings in a fresh, productive team to enhance shareholder value, the stock could double even under mediocre market conditions over the next two years.

I can understand why many hate Citigroup. But I think that the value of this franchise, appropriately managed, could be a big winner for the patient investor who is also being rewarded with a fat dividend to boot.

October 24, 2007: Alternative Energy: The comprehensive list of desirable stocks

About four months ago, I posted a comprehensive list of Alternative Energy stocks worldwide (since we have quite a few readers outside the US). Here is the updated list of stocks you may want to pick and choose from in this sector, which will see more failures than successes. The stocks below stand a good chance of being winners. ADRs are available for several Asian and European securities.

Pollution Control:
ADA-ES (ADES)
International Fuel Technology (IFUE)
Fuel Tech (FTEK)
Sulphco (SUF)
URS Corp. (URS)

Alternative Coal:
Evergreen Energy (EEE)
Headwaters Inc. (HW)

Nuclear:
Cameco (CCO)
USEC (USU)

Natural Gas:
Anandarko Petroleum (APC)
Chesapeake Energy (CHK)
XTO Energy (XTO)

GeoThermal:
ORMAT (ORA)

Wind:
Babcock and Wilcox (BBW)
Japan Wind Development (2766 -Japan)
NEPC Limited (NEPM - India)
Viridis Clean Energy Group (VIR -Austrailia)

Asian:

Biofuels:
Boustead Holdings (BOUS -Malaysia)
Golden Hope Plantations (GHP -Malaysia)
Hyflux Ltd. (HYF -Singapore)
Kuala Lumpur Kepong (KLK-Malaysia)
Astra Agro Lestari (AALI - Indonesia)
PP London Sumatra (LSIP- Indoneia)
Sime Darby (SDY- Malaysia)

Solar:
Motech Industries (6244-Taiwan)
Tokuyama Solar (4043-Japan)
Trina Solar Ltd. (TSL)

Capital Goods:
Aisin Seiki (7259-Japan)
Bharat Heavy Electricals (BHEL - India)
JTEKT (6473-Japan)
Komatsu (6301 -Japan)
Shanghai Electric Group (2727- Hong Kong)
Shinko Elerctric Industries (6967 - Japan)
Toshiba (6502 - Japan)
Motor Industries (MICO - India)
Toyota Motor (7203 - Japan)

European:

Solar:
Manz Automation (M5Z-Germany)
Q-Cells (QCE - Germany)
Roth and Rau (R8R-Germany)
Renewable Energy (REC -Norway)

Utilities:
Centrica (CNA -London)
EDF Energy Nouvelles (EEN -France)
E.ON. AG (EOA - Germany)
International Power (IPR - London)
Scottish and Southern Energy (SSE - London)

Capital Goods:
Alstom (ALO - France)
Continental AG (CON-Germany)
GKN (GKN - London)
Rolls Royce (RR - London)
Schneider Electric (SU - France)
Siemens (SIE - Germany)
Enodis (ENO -London)
IMI (IMI-London)
Lonmin (LMI-London)

Natural Gas:
Gax de France (GAZ - France)

North American Companies:

Geothermal:
Rentech (RTK)

Capital Goods:
Borgwarner (BWA)
Cooper Industries (CBE)
Emerson Electric (EMR)
General Electric (GE)
Johnson Controls (JCI)
United Technologies (UTX)
Air Products and Chemicals (APO)
Boeing (BA)
Bunge (BG)
Deere and Company (DE)
Fluor (FLR)
Hexcel (HXL)
Intel (INTC)
Quanta Serices (PWR)

Solar:
Applied Materials (AMAT)
First Solar (FSLR)
Sumpower Corp (SPWR)

Biofuels:
Pacific Ethanol (PEIX)
Nova Biofuels (NBF)

Utilities:
American Electric Power (AEP)
Constellation Energy (CEG)
Entergy (ETR)
FPL Group (FPL)


A very helpful source was the first rate team of analysts at CSFB. This research arm is the very best with Alternative Energy.

October 23, 2007: Alternative Energy notes

Picture: oil palm plantation in Malaysia

Snooping around some alternative energy issues. Algore (one name as many of my conservative friends call him) lies notwithstanding, readers know I believe that alternative energy technology and application into our the lives of the world population is a foregone conclusion. Here are some insights:

Yesterday, a leading CSFB analyst predicted a continuing tight supply of poly silicon. Thin film PV technology is coming back in the context of the poly shortage. The best stock to own is Motech (6244.TWO) of Taiwan. Other stocks include Trina ADR (TSL) and Tokuyama (4043.JP)

Salya Kumar, considered the best analyst of the solar power sector has broke with the street consensus and has raised his target price on Sunpower (SPWR) from $80 to $110. He believes, and justifies, strong end demand in solar during 2008 as higher ASP regions (European Sunbelt and Korea) ramp faster, and pull-ins even in Germany ahead of steeper feed-in tariffs (FIT) declines in 2009. He also states that better silicon utilization will upgrade efficiency of new Sunpower units by 23%.

Iberian utility Energias de Portugal (EDP.LS) is a strong buy with their wise acquisition of Horizon Wind Energy (the third largest company in the high-growth US wind energy market). Energias may also IPO their renewable energy business next year.

Palm oil, a favorite of mine, has a strong player to consider. Boustead Holdings Bhd. (BOUS.KL) has 71,000 hectares of crude palm oil plantations which are being ramped up for higher production and yield. Boustead also owns real estate and fabrication yards. Boustead is 60% owned by LTAT (Malaysian Armed Forces Pension Fund). This is an undiscovered gem.

Hyflux (HYFL.Si) is in a joint venture with BP and the Dalian Institute of Chemical Physics to use zeolite membranes to separate water from bio-ethanol. This Singapore company will have the Asian market to itself with this proprietary process and product.

All companies listed may well show a 300% increase in stock price over the next two years (except Sunpower).

Hopefully you may be able to locate more information on the internet. I am most interested in Boustead.

October 22, 2007: Beating the mutual funds as they sanitize their portfolios

Most readers know that during the November and December, mutual funds houseclean. Not wanting to have out of favor stocks in the published portfolio has developed into a mania. Overselling of stocks with potential presents a great opportunity for investors to pick up some bargains.

Here is the criteria:

Stocks that have fallen from their peak, trading at or below 30% of their 52 week high for large and mid-car and 40% for small cap.

Eliminating stocks that have had a recent reversal. Stocks trading 15% above their 52 week low for large and mid-cap and 10% for small cap are eliminated.

Stocks with an above average valuation on both an absolute and relative basis. Eliminate stocks with traditional and relative value alpha generator decile rankings of less than five.

Now, the list that should be considered for purchase towards mid-December.

Acxiom Corporation (ACXM)
Aeropostale (ARO)
Ambac Financial Group (ABK)
AmeriCredit (ACF)
Apria Healthcare (AHG)
Axcelis Technologies (ACLS)
Bankunited Financial (BKUNA)
Brunswick (BC)
Building Materials Holding (BLG)
CB Richard Ellis Group (CBG)
CEC Entertainment (CEC)
Centex (CTX)
Central Garden and Pet Company (CENTA)
Central Pacific Financial (CPF)
Charlotte Russe Holdings (CHIC)
Charming Shoppes (CHRS)
Chesapeake Corp (CSK)
Chicos FAS (CHS)
Circuit City (CC)
Coachman (COA)
Coldwater Creek (CWTR)
Collective Brands (PSS)
Community Health Systems (CYH)
Cpi Corp (CPY)
Dean Foods (DF)
Dillards (DDS)
Discover Financial Services (DFS)
Downey Financial (DSL)
DR Horton (DHI)
Duke Realty (DRE)
Entercom Communications (ETM)
Fidelity National Financial (FNF)
First Horizon National (FHN)
Flagstar Bancorp (FBC)
Foot Locker (FL)
Franklin Bank (FBTX)
Gannett Corp. (GCI)
Getty Images (GYI)
Harte-Hanks (HHS)
Headwaters (HW)
Health Management Associates (HMA)
Herman Miller (MLHR)
Hot Topic (HOTT)
Imation Corp. (IMN)
Independent Bank (IBCP)
JC Penney (JCP)
JetBlue Airways (JBLU)
KB Home (KBH)
Kelly Services (KELYA)
Kindred Healthcare (KND)
King Pharma(KG)
K-Swiss (KSWS)
LandAmerica Financial (LFG)
LCA-Vision (LCAV)
Lee Enterprises (LEE)
Limited Brands (LTD)
Liz Claiborne (LIZ)
M.D.C. Holdings (MDC)
M/I Homes (MHO)
Macy's (M)
Maidenform Brands (MFB)
MarineMax (HZO)
Media General (MEG)
Meritage Corp (MTH)
Mylan Labs (MYL)
National City Bank (NCC)
Nautilus Group (NLS)
Navigant Consulting (NCI)
NVR (NVR)
Office Depot (ODP)
Office Max (OMX)
Oxford Industries (OXM)
P.F. Changs China Bistro (PFCB)
PMI Group (PMI)
Polo Ralph Lauren (RL)
Pulte (PHM)
Radian Group (RON)
Rc2 Corp (RCRC)
Regions Financial (FR)
Rent-A-Center (RCII)
Ruby Tuesday (RT)
SCP Pool Corp. (POOL)
Sears Holding (SHLD)
Select Comfort (SCSS)
Sonoco Products (SON)
Stein Mart (SMRT)
Sws Group (SWS)
Symmetricon (SYMM)
Tenet Healthcare (THC)
The Finish Line (FINL)
Timberland Company (TBL)
Toll Brothers (TOL)
Triad Guaranty (TGIC)
Tuesday Morning Corp. (TUES)
Universal Forest Products (UFPI)
Vulcan Materials (VMC)
Willshire Bancorp (WIBC)
YRC Worldwide (YRCW)

This extensive roster fits the criteria. Many of these stocks I do not like, some I know nothing about, and others are likely being dumped by mutual funds for other reasons. However, the criteria does not lie.There are a number of gems listed. We just need to find them and give our portfolios a nice Christmas present.

October 18, 2007: Don't pass on Gas

Credit Suisse First Boston released a comprehensive analysis of the Natural Gas Infrastructure sector that , true to CSFB quality, appears outstanding. Here is the summary:


Liquid Natural Gas flows collapsed. Fourth quarter estimates are only 1.0 Bcfd.
Liquid natural gas is heading nowhere through the first quarter of 08.

However, three stocks are highly recommended out of the universe of fifteen companies that CSFB follows.

Williams Companies (WMB) is a buy. Strong processing margins, closure of the sale of Power to Bear Stearns, execution of top tier performance of its E & P division bode well for Williams.

Southern Union Company (SUG). Valuation will be increased by as much as 20% due to the sale of its under performing LDC operations and the high likelihood of MLPing both its midstream and interstate pipeline division over the next twelve months.

CenterPoint Energy (CNP). CNP is to roll out a superb smart meter program in both its electric and Houston gas service territory by year-end. Better cost recovery will amount to as much as $146m in overdue income to be adjudicated favorably by the second court of appeals - more realistically business friendly than the politically convenient initial court ruling. CNP offers over 24% total return with little or no commodity exposure.

Thus, the summary, after pouring through thirty odd pages of data. I hope I got it right.

To me, CNP looks the most interesting, and I may decide to seriously look at a purchase. SUG comes in a close second, based upon today's data.

October 15, 2007: Stocks, real estate, Alberta energy stocks

A few random thoughts as the week begins.

Thank you for the e-mails regarding the sample of my portfolio holdings. I always appreciate comments, both positive and negative. Many seem reluctant to respond "on line" within the blog, and I understand that. I am as well, except for two that I regularly comment upon on site.

For those holding Canadian energy stocks, especially with exposure to the Alberta oil sands region, beware that the Province of Alberta is seriously considering an addition large royalty tax on all profits. Several energy companies working the fields there feel this grab by the Alberta politicians is nothing short of extortion, and have threatened to cut back on exploration and extraction of petroleum products. While the companies are correct - this is simple extortion - I do not think they will curtail operations, as this region holds too much potential profit, and, if they did curtail operations, where would the go? Venezuela? Bolivia? Russia? At least Canada is safe from confiscation by the government. I would be a net buyer of Canadian energy shares, especially Encana (ECA). Oil trusts? Well, not right now. Talisman Energy has opened up large projects in Viet Nam, Malaysia and off the coast of Indonesia. Talisman Energy, with their wonderful energy portfolio, may be the Canadian energy stock with the most potential.

I think Citibank (C) could be purchased if it falls to around 45 as a dividend and company turnaround play. Yes, the management at the top is suspect, but how long are shareholders going to tolerate sub-par performance on the earnings and stock price fronts? The yield provides a nice floor.

The military may need upwards of $45b to retool after the Iraq conflict is ended. As we are now winning the war, some may be tempted to sell defense stocks. Don't. We have plenty of enemies to go around. I like the sector as a whole. Individual stocks I list every week or so. I am confident my information regarding DoD expenditures and contract awards are correct.

Although I have been a buyer of stocks, I have concentrated on those paying a hefty dividend. The market is frothy. I would not quarrel with anyone taking some money off the table, or, at the very least, repositioning assets for yield.

Real estate at the right price is a BUY BUY BUY. I cannot state strongly enough that rental real estate should be in your portfolio, so long as you can stomach tenants.
I have answered many e-mail questions on this topic, and I know that several readers have jumped in and and are very happy they did so. If you are a "flipper", forget it. You will be killed. If you are in investor with rental income in mind over the intermediate to long term (five-thirty years), go for it.

October 11, 2007: The Army - what's up with new stuff and stock picks

Sometimes information just falls on your lap. The annual Association of the United States Army (AUSA) conference was held in Washington, DC yesterday. This is the largest ground symposium of the year. As other services are in attendance because of system overlap, their informed views are of importance to some defense stock pickers.

Here is what I gleaned.

Contractors have submitted bids for the MRAP 11 program, including CRDN/OSK, Blackwater and FRPT (Cheetah vehicle). The Army, importantly, is allowing MRAP 1 contractors to modify their vehicles for competition in the stage two procurement. Troops will be relieved to know that the Army has an in-house developed solution to the Iran-manufactured explosively armed penetrators. Some contractors such as BAE and FRPT have their own solutions. FRPT is considered the most versatile, as it can outfit different classes of vehicles.

Likely winners of the MRAP 11 awards will be FRPT/GD, NAV and BAE. NAV's armor is provided by an Israeli firm, Plasan Sasa. CRDN/OSK may be in line to win a later award (Jan/Feb.). Most of the MRAP prototype vehicles are now at the Aberdeen Proving Grounds in Maryland. Nine companies delivered vehicles.

The JLTV program is still grinding forward. Next spring two-four prototype awards could be made.

The DCPs CIVPOL contract has been extended to February and there is a chance it will not be re-bid at all. The LOGCAP IV program is on hold as two companies that protested the award had their protests upheld by the GAO, through this has not been revealed publicly (at least until now). The Army will probably just add the two contractors and proceed forward.

The Boeing C-17 program is proceeding ahead with ten on order. Money is still tight on the Senate side. The House gave Boeing the appropriate funds to work with. The C-17 is designed to land on unimproved runways - quite a feat for a large aircraft.

The CREW 3.1/3.2 award is funded through 2009.

Stocks: All recommended for examination

Boeing (BA)
Ceradyne (CRDN)
Dyncorp (DYN)
Force Protection (FRPT)-- getting its production ramped up
General Dynamics (GD)
Oshkosh (OSK)
Shaw Group (SGR)

October 10, 2007: Master Limited Partnerships are a good thing, now

Pictures: TEPPCO system and,below,Enbridge system

Master Limited Partnerships, or MLPs, are poised to outperform other high yielding investments. In my opinion, several MLPs provide a compelling valuation for investors relative to other yield investments, including high yield debt, utilities and REITs.

Better still, parity of MLPs with other high yield investments would imply an approximately 40% upside from their present value. Plus several brokerage houses insist that MLPs will increase their return to unit holders by an average of 5.1% through at least 2010. In the most conservative report, published recently by Credit Suisse, MLPs have a 17% upside.

Recent weakness provides a good entry point into liquid names with strong growth and high dividend yields. I have looked for several weeks to invest free cash from real estate operations. I have decided to increase my stake in a few of the MLPs today, not finding a whole lot of value elsewhere.

The best of the lot, imo, are EEP, EPD, KMP, MIC (barely),NS, BWP and TPP - all having large capital expenditure programs that should drive distribution growth.

Here is a simple list of MLPs for your review:

Atlas Pipeline Partners (APL) 7.4% yield
Boardwalk Pipeline Partners (BWP) 5.8% yield
Crosstex Energy (XTEX) 6.6% yield
Enbridge Energy Partners (EEP) 7.4% yield -- I bought this security
Energy Transfer Partners (ETP) 5.9% yield
Enterprise Product Partners (EPD) 6.0% yield
Holly Energy Partners (HEP) 6.1% yield
Kinder Morgan Energy Partners (KMP) 6.7% -- perhaps the best managed company
Macquerie Infrastructure (MIC) 5.9% yield -- infrastructure asset play
NuStar (NS) 6.0% yield
Plains All America Pipeline (PAA) 5.9% yield
TEPPCO (TPP) 6.9% yield -- added to my existing position
Williams Partners (WPZ) 4.7% yield

This is a sample of MLPs. There are many more that you may wish to explore for yield and performance, plus the tax advantaged distributions that make these securities even more worthwhile to purchase.

October 9, 2007: Aero defense and commercial aviation and, where is the mainstream media on Iraq now that we are winning

Pictures: On the offensive in Western Iraq and the new US Sniper rifle that is killing the bad guys in droves using pre-placed arms caches as bait for the enemy to try and steal.


Here is a summary of recent significant activity in the sector:

The Senate approved the DOD appropriations bill of $463b. A veto is likely due to Democrat efforts to backdoor social engineering schemes into the defense bill.

General Dynamics is the big winner in the Stryker vehicle program, worth several billions of dollars spread over four years.

RTN signed the $1.30B Australian destroyer contract.

BA delivered 109 aircraft in September, in line with forecasts. The 787 may be delayed by a few weeks, which throws behind a very aggressive production schedule. There is a rumor that the 787 has a few safety concerns. This is viewed by most as payback from a terminated employee.

Jet Airways, of India, placed an order for twenty BA 737-800s.

As expected, US Air took the freebie and finalized a deal with Airbus for 92 aircraft worth $10b. Just what I need, more relatively uncomfortable aircraft to tolerate. With this purchase, they should be able to afford every dollar of the union's pay demands.

A Thales-led team with Boeing as a key player has been selected for the FRES system-of-systems integrator (SOSI) role, potentially worth billions.

All stocks mentioned in the previous Aero defense update remain on my recommended list.

Finally, THE BEST KEPT SECRET BEING IGNORED BY MAJOR MEDIA: WE ARE WINNING IN IRAQ, BIG TIME. Troops will be reduced as additional drone warplanes are deployed. Casualties will continue to decrease, the Iraqi government is stepping up to succeed, Iran is in the process of being neutralized (one way or the other), and this issue could be a non-issue during the latter stages of the 2008 campaign for the Democrats. This is why you are hearing more about domestic issues and taxes on the campaign trail. Once the average US citizen understands who is finding the far left Democratic agenda, and why, the Republicans, given their steady and thoughtful election tactics and programs, may actually have a shot at winning the White House in 2008 - unthinkable a few months ago.