Bryan Gomez's  Instablog

The lighting market that is expected to be completely transformed years from now is currently worth $119B. There are many players in this industry who are fully aware that the penetration rate of a potential full scale LED lighting transformation is only 1%. Leading the way is Cree Inc and here below is an excerpt of my interview with them.


For full access to the interview you can check out www.stockinvestingcoach.com or click on this link: Cree Inc.

Stockinvestingcoach.com interviews Raiford Garrabrant, CFA, Director of Investor Relations of Cree Inc. (CREE). He is an alumnus of University of Carolina at Chapel Hill and became a mutual fund manager before joining Cree Inc. five years ago all because of the belief that LEDs are the future in lighting. Cree Inc. is one of our megatrend companies because it promotes the efficient use of energy through its lighting products.

For more information about the buzz in what the company does, log on towww.creeledrevolution.com

Here is an excerpt of the interview.

Stockinvestingcoach.com:

The very first time I encountered CREE is in an article five years ago that talks about disruptive technologies, as coined by Clayton Christensen, and its potential to change the market place. Modesty aside, how disruptive are the products of CREE then and at present looking forward?
Raiford Garrabrant: It’s quite a coincidence that you first encountered Cree five years ago because that is right around the time I joined the company, and the reason I joined is my belief in the disruptive nature of LEDs in lighting. Five years ago, using LEDs for general purpose white lighting was really just an idea. We could see the potential, but there was virtually no adoption of LEDs for general purpose white lighting. Today, we are seeing that potential turned into reality. One example is the city of Los Angeles deciding to replace 140,000 city street lights with LEDs. You can check that out at this website: www.lacity.org/BSL/. We think LED adoption is still no more than one percent of the lighting market, but it is starting to gain momentum. Looking forward, we think the LED Lighting Revolution will continue, and Philips Lighting, one of the largest lighting companies in the world, if not the largest, predicts that approximately ninety percent of lighting will be LED based by 2020.

 

To access the full interview, email me at bryan.gomez@gmail.com.

Strong presence overseas. EEI has been present in the overseas construction scene since thelate 90’s and this will allow it to profit from the strong demand for construction services abroad,especially the Middle East. EEI currently has several projects in Saudi amounting to Php20.4 Bil, of which Php10 BIl is attributable to EEI. EEI will continue to win more projects in Saudi as its Jubail Industrial City 2 is expected to attract US$35 Bil oflocal and foreign investments by the time it is completed in 2022. EEI has bid on two major prjects this year and expects to beawarded at least one.
Huge backlog gives earnings visibility. Based on our estimates, EEI has an attributablebacklog of around Php10 Bil Saudi, which will translate to Php900 Mil in net earnings from associates. This means that around 80% of EEI’s earnings for FY09 and FY10 are already secured.
Cheap valuation. At the current price of Php2.36/sh, EEI is trading at 4.37X 09 P/E. We believethe market is not taking into account the earnings potential of EEI coming from ARCC. We also consider our fair value estimate of Php3.10/sh is still conservative as this translate to just 5.2X FY10 P/E. This is a discount to the average 9.4X FY10 P/E of regional peers.
(Taken from CitisecOnline.com Philippine Equity Research available if you open a CitisecOnline account.)
For the full CitisecOnline.com Research report on EEI Corp., click on this link: EEI Corporation)

The government's first estimate of U.S. gross domestic product showed the economy expanded at an annual rate of 3.5 percent in the third quarter, suggesting it was emerging from the worst recession in 70 years. The quarter of growth was the first after more than a year of contraction in GDP.
The S&P bounced off its bullish intermediate trendline with extra oomph from better than expected GDP data.  The easy money has been made and this news is, in hindsight, late. For what its worth, I hope this would quell at least a significant amount of negativity that has been hounding the markets. No more double-dips hopefully.

Advance-decline indicators tell a lot about the characteristic of the markets' breadth, whether most of the stocks are going up along with the index or just a few. The trend of more ups than downs had been broken last week and it seems that last night's broad strength was first after how many days of general weakness. The weekly NYSE advance-decline trend tells us that we are close a resistance in terms of broad market strength.  I expect volatility in the coming weeks.  That is my expectation but without outsmarting the market, the weekly chart tells us that the broad strength trend may even try to break 2 year highs.

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The spread between the 3 month LIBOR and the 3 month US treasury had been below its 3 decade average of 55 basis points. This collapse in spread coincided with the markets stabilization last year and with this year's rally. This only meant that banks' cost of borrowing from another bank is currently almost the same as the cost of borrowing of the government.  Weird stuff but nevertheless, it seems that we have seen the lows in spread and it is bound to go up. 

As we all know, the US Treasury will continue to issue coupon securities in record number because it needs the cash to pay a lot of debt it owes. As the Treasury competes with the private sector for funds, this will cause rates to rise and thus crowd out investments in other important things like housing and infrastructure. Theoritically, that is the case and currently we are seeing crowding out from all sectors but still the rates remain low.  How could this be?
The crowding out theory can only rear its ugly toe if only the source of the liquidity that funds its coupons come from within the US. And as we all know by now, that cannot be and the only source of funds that can absorb their record issuance are petrodollars and the Chinese. These funds goes to the US Treasury's right pocket.
The left pocket is the government agency debts that the US Treasury is trying to pay off. These debts are bonds issued by government agencies like Fannie Mae or Sallie Mae that are backed but not guaranteed by the US government. From the right pocket, the money goes to the left pocket that is why rates have been kept low whereas naturally if not supported by the Treasury, lack of funds would have caused rates to sky rocket.
Therefore, from a bird's point of view, a collapse in oil price and a slowdown in China's growth will decrease the ability of the Treasury to pay off debts and thus cause a rise in rates. Investment risk increases, risk averseness increases, which will cause rates and spreads to rise. US dollar rises not because of economic strength but because of heightened risk allergy. US Treasury will have to look elsewhere to fund these payments and the last resort I can think of is by increasing taxes next year. A vat of VAT if I can say so.

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