"Nothing is more uncertain than the favor of the crowd."--Marcus Tullius Cicero (Roman orator and politician, 106-43 B.C.)
As we approach the winding down of summer vacation season and the month (September) that has historically been the worst month of the year for the S&P 500, Dow Jones Industrial Average, and the NASDAQ, let me share with you a quote from Martin Zweig's book Winning on Wall Street:
Stocks are super-attractive when the Fed is loosening and interest rates are falling. In sum: Don't fight the Fed!
This has proven to be excellent advice the past 3 years, including 2012.
We've had a remarkable surge upward for the S&P 500 and the NASDAQ since the end of July, as this 3-month comparative chart makes colorful and clear:
But now we're facing some ominous headwinds and some big "gusts" from a couple of big names. The most prominent one is Jim Rogers, who recently gave an interview on CNBC. Mr. Rogers warned Americans to prepare for "Financial Armageddon," saying he fully expects the economy to implode after the U.S. election. If you care to read more about this be my guest.
Perhaps by coincidence hedge fund manager Dennis Gartman also announced that he's getting out of the stock market as of 08/23/2012. Gartman, author of the widely followed Gartman Letter, said on Friday (08/24) that he has "dumped his remaining long positions on stocks and is heading to the sidelines", according to a CNBC story. He cited as two of his reasons the notion that China's economy is weakening and comments that St. Louis Federal Reserve President Bullard made on Thursday (08/23). Many including Gartman were shocked by Bullard's comments in which the non-voting central bank official said the economy is growing slowly but sufficiently enough so as not to need more Fed stimuli.
Seems like that topic changes from day to day. On Friday Chairman Bernanke said in a letter dated Aug. 22nd to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee, that the central bank has the ability to take additional steps to boost the economy. "There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery," Bernanke reportedly wrote.
Bernanke also apparently repeated the statement from the Federal Open Market Committee's Aug. 1 meeting that the Fed will provide "additional accommodation as needed." He has a center-stage chance to speak more on his plans during an upcoming Aug. 31 speech at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming. That's coming up this Friday!
Let's begin with WPRT. Tell me again why you'd want to own this company when it has no EBITDA earnings, a negative trailing-twelve-month operating cash flow (-$42 million) and a negative, 5-year expected PEG ratio (-1.26). Don't get me wrong. I like what they do (build engines that run on natural gas and related technologies) and that they have very nice working collaborations with companies like Ford (F), General Motors (GM) and Cummins (CMI).
Westport had a good 2nd quarter, growing their revenues by 136%. They've also maintained their outlook for a 50% revenue growth in fiscal 2012. But they're still not making a profit and won't for at least another year!
That's part of the reason WPRT dropped 3.6% by the end of Friday's trading session. Yet they still have a market cap of $1.9 billion. Why?
Right now there are 10 analysts that rate Westport a buy, one analyst that rates it a sell, and three that rate it a hold. If one or more of the 10 who says "buy" lowers their ratings, what do you suppose will happen to the share price?
Perhaps we need to look at an annual chart to see what can happen. I've included the 200-day Moving Average, and you can see what happened the last time WPRT dropped below that level.
The stock dropped to as low as $21.93 on June 4, 2012, and there's no reason to believe it won't drop below $25 again. Why take the risk?
Now how about Clean Energy Fuels? I believe in CLNE, what they do and how promising their future looks. The company designs, builds, operates, and maintains fueling stations, as well as supplies compressed natural gas (CNG) and liquefied natural gas (LNG) fuel for medium and heavy-duty vehicles.
But it will take years to get to the point where there will be enough vehicles needing their fueling stations to buy their compressed natural gas. The stock has been cruising below its 200-day Moving Average for over 3 months now, and the short-term outlook is dicey at best.
Love the company and love what they do. But why not wait and see if you can buy it on a dip below $12, and if it goes below $10 back up the truck (as long as the truck runs on compressed natural gas).
Someday CLNE and WPRT will be reeling in the dough and paying shareholders a dividend. But "someday" isn't here yet. In the meantime enjoy CLNE's website which is well worth the time to explore.
If you want to roll the dice, you might as well get paid for your efforts with at least a 3% yield on a company that is making truckloads of profits.
Consider U.K.-based Metals and Mineral Resource giant Rio Tinto Ltd. (RIO), which if you can buy for $46 or less you'll be earning a 3.2% dividend on a company that trades for less than 6 times forward earnings. Remember, there's no rush to buy it. Perhaps nibble a bit.
At about the same risk level and sporting a 3.5% dividend is Freeport McMoRan Copper & Gold (FCX). It has a 32% payout ratio (manageable), $2.17 billion in levered free cash flow (trailing-twelve-months) and it's trading for around 7 times forward earnings.
Remember, FCX operates in some volatile areas of the world like The Democratic Republic of the Congo and Indonesia. But they're the world's largest publicly-traded copper company and they also produce gold and silver, which have been breaking higher of late.
Risk versus reward is what investing is all about. Again, unless you know for sure what, if anything, Dr. Bernanke and the Fed will do to energize the U.S. economy between now and election day, consider a "50-50 strategy". Put 50% of the money you've decided to invest in these kind of mineral-rich, profitable companies that pay a respectable dividend as soon as you like the price of the stock. Then wait until the Fed announces exactly what it's going to do and when it's going to do it (aka."QE3"), or, not do it, and then put the other 50% to work.
This will be an interesting week, beginning with the Dallas Fed's manufacturing index release on Monday and ending with Friday's Chicago purchasing managers index (PMI), which might be dismal.
Also on Friday we'll learn the final estimate of the Thomson Reuters/University of Michigan consumer sentiment index for August (think $4-to-$5-a-gallon gasoline prices for the Labor Day weekend and a very sluggish economy). Then, without a dramatic drum roll, Fed Chairman Bernanke will speak from the mountains of Wyoming, and either thrill us or leave us cold. Either way and by the way, this isn't a good time to be owning hype, hope and future earnings.
Yes I like WPRT and CLNE, but it seems to me that both their stocks and market caps need a haircut before they'll be in my portfolios. For the time being, let's keep a close eye on both these promising companies.
Disclosure: I am long FCX.