Four Stocks for 2009

After surveying the carnage that was 2008, it's necessary to regroup and have a game plan for the coming year. The temptation to wait on the sidelines is great - after all, the losses in some sectors have been tremendous. But investors who sit this year out could be forfeiting some of the strongest gains of their career.

A healthy amount of cash is probably wise for all but the most aggressive accounts to start out this year. Some short positions are also in order as not every sector will rally over the coming months. But there are a few trends that I believe that any opportunistic investment account should consider.

The alternative energy theme will likely come back to the forefront. This is a function of both the new administration's policies, as well as an inflationary environment which makes traditional energy sources more expensive. Secondly, infrastructure plays will be in focus as Obama has made it clear that nearly $1 trillion will be plowed into this area. Investors will be better served buying small infrastructure names with more room for growth than large headline names. Third, the shipping industry will not roll over and die. We should see some sharp rebounds and while it may take years to reach the highest levels seen over the past year, the stocks are now at very attractive valuations. Finally, medical technology will continue to perform well as an aging population and a higher standard of living requires more health care service of a higher quality.

In consideration of all four of these trends, I have outlined a stock in each category that I think will outperform during the current year:

1. JA Solar Holdings (JASO)
   Alternative energy is set to be a hot item in the coming year. The sector has been absolutely decimated during the second half of 2008 due to lower traditional energy prices and the financial crisis. Low oil prices makes it more difficult for solar energy to compete. But as raw material costs come down and technology helps manufacturers become more efficient, solar will once again be a viable alternative. The credit crisis made it difficult for solar manufacturers to increase production. But firms are finally beginning to see light in this area and find alternative means for getting jobs done. Finally, the Obama administration has made alternative energy a top priority and will likely add billions in stimulus packages to support the industry. JA Solar should be a strong beneficiary of rising trends in this area.
2. AECOM Technology Corporation) (ACM)
   Infrastructure is another sector that will garner much attention. As billions are spent on construction projects, bridges, roads and more, AECOM will generate a significant amount of new business. The company is large enough to be recognized as a top tier contractor and will be invited to bid on most every competitive job. But at the same time, this company is small enough to be able to support growth over the coming year. The company has a significant backlog of signed contracts, so any new business will simply be icing on the cake. The stock is trading at a healthy multiple which shows the market has confidence in the prospects. But I believe this multiple could see significant expansion over the next 12 months.
3. TBS International (TBSI)
   Investors in shipping stocks reacted fearfully to the global recession. Day rates have dropped sharply, cutting into profits and in some cases requiring shippers to take a loss in order to charter vessels. TBSI was one of the more aggressive companies in the business, operating primarily on spot rates instead of locking customers into long-term contracts. This strategy helped the company produce record profits during 2007 and early 2008 because day rates were out of sight. The aggressive business decision also caused huge pain when day rates plummeted. The company is expected to see 2009 earnings drop 71% from 2008 levels and the stock certainly shows this pessimism. My expectation is that any unexpected news will be positive for this company since the market is pricing in only negative occurrences. If we see any recovery at all in this sector, TBSI should rebound sharply!
   
4. China Medical Technology (CMED)
   In its most recent quarterly report, ChinaMed announced that it would be selling its HIFU tumor therapy business line. While the market reacted somewhat negatively to the news, the business decision is likely going to allow the company to operate with stronger margins over the coming year. The remaining diagnostic business is very well respected and growing rapidly across China. Management is talented at finding and integrating new business lines and it would not surprise me if another big acquisition was made in 2009. The balance sheet appears to be under control with a manageable amount of debt, and the stock is now trading for less than 10 times expected earnings for this year. The future looks bright for China Medical!

These four stocks have strong fundamentals and should show significant gains over the coming months. In fact, subscribers to the ZachStocks Growth Model will likely be trading all four of these names from time to time. Please take a look at the model as I believe this could be a valuable tool as you manage your investments this coming year.

Disclosure: Long CMED, TBSI, ACM, JASO

Comments

[je:]

Thanks for the leads.

Jan 01 08:29 AM

[tginomorebush:]

jaso will soar in 2009...... best run of the solars

Jan 01 09:04 AM

[Zachary Sch...:]

JE - you got it - that's my job :-)

If you guys get a chance, drop by ZachStocks and take a look at the links to the other blogs in the competition - Hopefully it gives you some additional leads.

Happy New Year and here's to a profitable 2009!
Zach
zachstocks.com

Jan 01 09:23 AM

[silverwood:]

Hey Zach, wish you the best of luck with these picks, they just are not my cup of tea. Happy New Year!

Jan 01 01:38 PM

[Glenn McSpa...:]

Concerning your 1st item, you said it all with "Low oil prices makes it more difficult for solar energy to compete." I just don't see Solar or Wind energy for that matter making much of a splash until oil and coal really surge again.....

Jan 02 10:02 AM

[madmilker:]

don't overlook VCTPF.OB.....

Jan 02 11:12 AM

[Dividend Gr...:]

Thanks for the link to the Best High Yield Stocks for 2009!

Jan 02 12:34 PM

[1977°C:]

When you put this stocks and compare them with any index, let's say SP500, you will see that their beta (correlation) is almost same as SP500 which means they only can go up if SP will go up.

Jan 02 12:57 PM

[Zachary Sch...:]

Glenn - you may be right. The sector certainly does have ties to traditional energy. But I think the political scene could circumvent some of that relationship as the new administration will push for subsidies to alternative energy as a matter of principal regardless of traditional energy prices.

1977 - Be careful with beta statistics. Beta measures the average amount that an index move will affect the stock (very rough description). But that totally ignores alpha (ie - the seeking alpha platform). Alpha is tricky because its the STOCK SPECIFIC returns that have nothing to do with the market. Hopefully I am able to turn up some names that have value in excess of just how the market moves the stock.

271917 - that's good - hopefully this just gives you a good spot to start your own research - no one knows it all. especially me!

Thanks All for your comments! Happy New Year
Zach

Jan 02 01:45 PM

[aware:]

Oh,Happy New Year to Zach.

Jan 02 01:57 PM

[David White:]

Good article. However, LDK is a better bet, especially in the short term. It has fixed rate long term contracts for virtually all of its 2009 production (and much of its 2010 production). In fact its long term contracts go out 5 years or more, although they are less fixed in price the farther out they get. LDK has excellent mulitples (PE= 4.85, FPE= 3.51, and PEG = .1). These are much better than JASO's (FPE=9.8, PEG=.27). Plus LDK didn't lose money due to Lehman. Further there is a current short squeeze situation on LDK. If the market keeps rallying in the early weeks of January (due to the Obama stimulus package positive economic effects expectations), LDK should rise dramatically because all of the shorts will want to cover. LDK is still suffering from its Comptroller scandal of 2007. LDK was proven to be completely above board in their accouting practices. However, the stigma (and the venom from some mistaken analysts like Jesse Pichel) has been keeping the price down. Eventually this will wear off. If a big rally, this stock has huge upside potential.

Jan 02 02:02 PM

[jepittman:]

Then what are you doing here? You are being rude sir. This is a forum for investors - you may be bullish or bearish but being swineish is not appreciated.


On Jan 02 01:52 PM User 271917 wrote:

> They hide my comments so they sucker you into buying a stock they
> pump up.To these people everything is fine.I rather take my money
> and go to AC I have a better chance,and at lease some fun for my
> money.

Jan 02 04:30 PM

[Stock till ...:]

^ Right on!


On Jan 02 04:30 PM jepittman wrote:

> Then what are you doing here? You are being rude sir. This is a forum
> for investors - you may be bullish or bearish but being swineish
> is not appreciated.

Jan 02 05:00 PM

[stox2buy:]

There aren't many companies that can grow revenue 10-20% this year and turn profitable for the 1st time in this economy.

No debt, plenty of cash.

Look at Thermogenesis (KOOL), the leader in cell/stem-cell processing and preservation with no competition.

Tax loss sale has created an once in a life time buying opportunity. Do your dd before investing as always.

Jan 02 10:52 PM

[NOWHEREMAN:]

Most of the Solars' have bright futures(pun intended), my feeling has always been that the vertically integrated are the best.

so, YGE and TSL are my picks.

LOL to everyone.

Jan 03 06:38 AM

[Bhakta:]

I like Linn Energy.... Aleady up 54% from my buy point and think it will double from here in 2009. I'm not jumping on the solar bandwagon again right now.

Jan 03 08:50 AM

[poor&unempl...:]

TBSI ???? Again???? What is your position in the company? How did you reach that conclusion apart from speculations and wishful thinking?

Jan 03 12:58 PM

[Anthony Dad...:]

The Obama administration may actually help all solar stocks. I would keep my eye on first solar as well. FSLR.

I am a contributor on www.thecreatingwealthb...

Jan 04 08:01 AM

[cencewolf:]

my solar bid can be upheld by three little letters. STP (rather not have to choose first-solar which i believe is still overpriced), as outrageous as that claim sounds at the present.

Jan 05 01:51 AM

[Jason Rines...:]

Well put. Also, admire writers whom are putting themselves out there with specific picks. I am more interested in seeing what Washington fiscal policy will be before investing one dime. Between earnings release at the end of Q1 and Washington policy, should have a much clearer picture on value investing.


On Jan 02 04:30 PM jepittman wrote:

> Then what are you doing here? You are being rude sir. This is a forum
> for investors - you may be bullish or bearish but being swineish
> is not appreciated.

Jan 05 03:05 PM

[JasonK:]

I know it sounds cliche but I beilieve the solar stacks have come and gone much like a passing fad. I have come across other trends that have followed much the same path. I have a few contrarian ideas I look at as well as indicators for when these things come along. I keep tabs on their status and post them on my website for others to see.

Jan 05 06:36 PM

[Market Folly:]

interesting selections zach, thanks for the write-up. we track hedge funds on our blog and just noted in today's write up that hedge fund Farallon Capital Management added CMED as a new position to their portfolio last quarter: www.marketfolly.com/20...

always interesting to watch the big money movers in addition to everything else affecting an investment.

Jan 05 08:17 PM

[jrs87sch:]

Read my article on eHealth (EHTH)! This company is going to rocket straight up in the next two to three years.

Go to www.InvestorPitStop.co... and click on the "Stock that Will Make Your Portfolio Healthy" or search "eHealth: the Road to Recovery" here on SeekingAlpha.

Great suggestions for 2009! I am just adding a little more diversification.

Jan 06 12:01 AM

[Tony R.:]

JASO?
Not JASO!
You must have missed this:

finance.yahoo.com/news...

"The China-based company lowered its revenue forecast to 843 million RMB ($124 million), from an earlier estimate of 1.3 billion RMB to 1.5 billion RMB ($191.5 million to $220.9 million). The company said gross margin should be in the range of 5 percent to 7 percent."

That is a giant warning.

Also, you note, "The credit crisis made it difficult for solar manufacturers to increase production."
That's incorrect. Solar companies have already expanded 3-4 times. They have just had to hold back on the next expansion, that's all.

YGE and SOL are the way to go!

Jan 06 12:49 AM

[Zachary Sch...:]

There are quite a few solar names that will trade well this year. YGE, STP and FSLR are all good names (although FSLR scares me a bit with its higher multiple). But since I was limited in the competition I had to pick just one.

I certainly understand that JASO is facing challenges. But the low stock price appears to fully discount this. At this point, investors are likely to be pleasantly surprised and bid shares higher rather than sell (the selling has already taken place.)

Market Folly - that is definitely interesting about CMED. It has been a widely held position for some time, but there has been some confusion as to what product line will drive future growth. Management is becoming more focused (although less diversified) and I expect the market to reward this focus in the coming months. Good to know someone smarter than me agrees!

jrs87sch - I'll keep my eye on EHTH - thanks for the heads up...

Thanks guys for the comments!
Zach
zachstocks.com

Jan 06 09:04 AM

[Savage Capital:]

i would be wary of betting on solar and infrastructure on the back of obama's stimulus. solar cant exist profitably given current energy economics. infrastructure will benefit at the private, govt and too small for stock pickers too benefit level. home builders, certain banks and the life insurers are where you want to be if you believe the global stimulus will work. if you put a gun to my head, i would take FSLR over JASO and MR over CMED.

Jan 06 11:48 AM

[RomanFinancial:]

Well, I own a truck load of JASO with a cost basis of $10.80 a share. If this stock rises to $20 where it belongs by Q3 I'l buy seeking alpha a new 7 series BMW with fitted logos. This stock could be the life or death of my fortune

Jan 07 12:21 PM

[walk on wave:]

CMED is a Ponzi scheme that has been going on since the very beginning. HIFU never had any real market in China and the rest of the world. The IVD business that CMED "has" is a joke. Most people in Chinese diagnostics industry would never mention CMED as a viable player. Most clinical lab managers in China have never heard of China Medical Technologies (even in its native Chinese name as Yuande). Its acquisitions of FISH and HPV-SPR were laughable. Why do you need a label-free SPR for HPV? SPR is the most suitable technology for diagnostics. GE-Biacore as the first company in the world to commercialize SPR technology might be so confused now. There is not a single IVD product in China today could generate $50M sales a year, not even Roche or Abbott. If CMED is unchecked, the entire Chinese IVD industry and the hardworking folks here will be hurt.

Jan 07 01:53 PM

[walk on wave:]

CMED is a Ponzi scheme from the beginning. HIFU has never been adopted widely in China. CMED's IVD business is just a joke. Most people in China's IVD industry would never mention CMED as a viable player. If you ask Chinese clinical lab managers, nine out of ten would say they had never heard of China Medical Technologies, not even in its native Chinese name Yuande. CMED's acquisitions of FISH and SPR-HPV business were so laughable. I bet GE/Biacore as the first guy to commercialize SPR technology for life sciences about 20 years ago would be so confused now. CMED's Ponzi skill is much worse than Madoff, but Wall Street seems blinded. If this lie keeps on, eventually the entire Chinese IVD industry and many hard working folks will be hurt.

Jan 07 02:01 PM

[walk on wave:]

One more piece of information: the entire Chinese IVD business is about $700 million a year. No IVD product from a single company is bigger than $20M a year in China. Ask Roche or Abbott about it. CMED is cooking...

Jan 07 02:09 PM

[junkbondswap:]

Hey nice picks...
JASO down 14+% today
TBSI down 13+% today
ACM down 7% today
CMED down 7+% today

Jan 07 04:02 PM

[Zachary Sch...:]

RomanFinancial - Can I get a 7 series with ZachStocks logos? - maybe the dealer will give you a bargain on two :-)

Walk-on-wave... I think CMED is a bit more legitimate than you allude to. Obviously fraud can still happen, but at this point things look kosher - there are plenty of analysts that follow - documentation that is filed with the SEC etc. I'm sticking with it for now.

Junkbondswap - good thing we still have 358 days left!

All the best guys!
Zach
zachstocks.com

Jan 07 08:19 PM

[User 337585:]

Thanks for the leads.

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Jan 14 08:50 PM