A Basket of Growth Stocks for a Troubled Economy

In talking to others about the current concerns facing our economy, I’m often asked questions such as how one should play the high oil prices, where do I see potential fallout from the financial sector, and, most often, how am I positioning my personal portfolio? My answers, like most solutions, are simple: Exposure to emerging markets, good fundamentals, deep value, and growth potential.

With a declining dollar, and a potential slowdown looming the in U.S. economy, exposure to emerging markets can still provide the type of steady, sometimes even explosive, growth you are looking for in your growth and value portfolio. While some prefer to play those markets directly, I prefer to temper my exposure by going through U.S. multinationals with strong overseas markets or through foreign companies who have listed on the NYSE. This strategy lends itself well to strong growth while providing a level of regulatory security and transparency. My favorite companies in this category are Cummins (CMI) and LDK Solar (LDK).

CMI is in the midst of the best year in company history, beating guidance and delivering stellar earnings. With a growing foreign market and improving fundamentals, CMI will be a strong asset providing steady growth to a portfolio over the next year.

LDK is a vertically integrated provider in the hot Chinese Solar sector. Enjoying strong margins and 100%+ growth, it is well positioned to be the big beneficiary of China’s push to develop alternative energy solutions within their borders. Recent allegations of a former employee coupled with strong short selling have made this company a strong discount to its peers. While bad news has been abundantly priced in, this stock could easily double in the next 6 months, and provides a real opportunity for a 4-bagger in 18 months with the completion of its new facility, and the addition of capacity that comes with this expansion.

Another strong play with a declining dollar is commodities. Again, I prefer to stick with equities rather than playing commodities directly. While there are several very strong companies, my favorite is Southern Copper (PCU). With PCU pulling back to less than 12 times P/E while offering better than a 7% yield, this company provides deep value with excellent growth. Recent sell-offs by financials sent them downward, thereby offering a great entry point. My 12-month target for PCU is 168 – offering a solid 30%+ return before dividend reinvestment.

With the current political environment, rising energy costs, and global warming, those who enjoy investing green are poised to reap great profits as well. While there are many plays out there, I prefer geothermal.

U.S. Geothermal (UGTH) is a producer of electricity and has already completed its first phase of testing for the new plant. It is slated to be online, at full production, by the late fourth quarter or early Q1 of ’08. This small company is ahead of the curve in this field already having wells drilled, a plant coming operational, and contracts in place. Financial backers of UGTH include Goldman Sachs (GS). With a rapid move to production and profitability, this is my penny pick of the bunch. Having closed at $3.98 Friday, this one should easily be at $15+ within 12 months.

So there you have it - the skinny on where my money will go this year:

Company ----- Current Price - One year target
CMI ------------ $112.62 ---------- $175
PCU ------------ $110.02 ---------- $168 – along with 7% yield
LDK ------------ $35.13 ----------- $135
UGTH ---------- $3.98 ------------ $15

Disclosure: The author has a long position in LDK.

Comments

[Mark Anthony:]

Commenting on your pick of PCU, I think this may not be the best choice. There are way much better metal players. I would recommend SWC and PAL, the only two North America procuders of platinum and palladium.

First the fundamental of copper looks troublesome here. If you look at the copper chart, it's down in the 30 days chart, 6 months chart and one year chart. So how could you still be bullish. If coper is no longer bullish there is no reason to be bullish on PCU.
www.kitcometals.com/ch...

In comparison, platinum and palladium looks way much bullish:
www.kitco.com/charts/l...
www.kitco.com/charts/l...

Now look at SWC and PAL. Any one interested in PGM metal plays HAS to buy these two, there are no other players in North or South America. These two do not have very good quarters laterly so that's why the stock prices are depressed. But looking at long term trend of the metal movements, they should soon be making a lot of money, and the stocks can at least double or triple within 12 months

My long term targets of SWC and PAL are they should return 20 to 40 folds within 3 to 4 years. See my analysis:
stockology.blogspot.co...
stockology.blogspot.co...

2007 Nov 21 02:41 AM

[michael sha...:]

It's interesting that you recommend SWC with EPS of (.13) and PAL with and EPS of (.47) versus PCU with EPS of 8.70 with a 2 dollar dividend. A twenty fold increase on negative earnings would be dire indeed or do you perhaps predict these two firms will do something they have never done - and earn a profit? Please don't use my articles to pump your speculative positions and I will afford you the same respect.

2007 Nov 21 11:20 AM

[geniuspup:]

negatives...
PCU - continuation of declining copper prices in 2008 due to decline in US residential construction
CMI - worldwide recession
LDK - can't trust the Chinese...if you see smoke there is always fire
UGTH - gamble

2007 Nov 27 11:56 AM