I'm fascinated by networks. The very means by which information and resources travel throughout the world is both surprising and powerful. Significant benefits exist for those who can place themselves at strategic "hubs" within complex network structures. Three stocks that are well positioned to benefit from their key locations within complex network structures are as follows:
Burlington Northern Sante Fe (BNI). As the economy continues to grow, railway companies will continue to benefit from their existing infrastructures and key locations within the complex network structure we know as the US railway system. I like BNI in particular because of its key access to strategic west coast ports. As products come into the US from China and other Eastern Asia countries, they are loaded up on BNI railways and delivered throughout the rest of the US. The recent move toward double stacked railcars makes the industry increasingly attractive versus competition from the trucking industry. Approximately, 17% of BNI's revenue comes from agricultural product transportation (corn, wheat, soybeans, ethanol). This is encouraging especially as the ethanol industry grows and because according to the USDA this year represents the single largest corn planting in the US since 1944. I'm encouraged by the 4.3 million share repurchase in Q1'07. BNI shareholders are in good company as both Warren Buffett and George Soros are large shareholders. From a valuation standpoint, BNI trades at a 14.65 forward P/E (in line with peers), and I believe the recent dip in share price over the last two weeks creates a very tempting time to buy.
BNI 1-yr chart
ValueClick (VCLK). I love the Internet Advertising industry. Apparently, so do Google and Microsoft as is evidenced by their recent acquisitions of DoubleClick and aQuantitative, respectively. Internet advertising companies are extremely powerful because of their ability to efficaciously direct advertisements throughout the complex network structure know as the Internet. As more businesses (small and large) continue to look toward the Internet to reach customers, proven Internet advertisers stand to make a lot of money. The entire industry grew 35% last year, and is expected to do the same in 2007. Shares of VCLK have dropped significantly over the last two weeks as the company has reiterated that it is not a buyout target and no sale of the company is imminent. In my opinion, this share price drop creates a very good opportunity to buy.
VCLK 1-yr chart
Goldman Sachs (NYSE:GS). Goldman Sachs sits right in the center of one of the most complex network structures in the World. The global financial marketplace is huge, and GS has access to all of it (e.g. brokerage, IPO underwriting, financial derivatives, research, hedge funds, foreign investments, mergers and acquisitions). Further, GS people are first class. GS employs many of the smartest hardest working people in the industry. On top of all of these things, GS stock is still cheap. From a valuation standpoint, the company trades at a forward P/E (10.01) below most of the other major investment banks. GS gross (91%+) and operating (39%+) margins are some of the best in the business. GS announced earning last week, which were up and better than analyst estimates, and the stock price still fell $8 (mostly an over reaction to sub-prime mortgage woes). Even without the $8 drop, I'd still be a bull on Goldman Sachs because it sits right in the middle of a huge and complex network structure known as the capital markets.
GS 1-yr chart