I think the fundamental investment thesis that led me to recommend TripAdvisor is still in place. With improving economies around the world and retiring boomers looking for something to do, strong companies operating businesses that cater to the travel industry should continue to do well.

Naturally, airlines are the first companies one thinks of when it comes to travel. But I've never had a good experience investing in that group other than a recent trade on American Airlines that worked out okay. It was a quick move in and out since good news in the airline industry is often fleeting.

Hotels are another group that should do well and I recently invested in Starwood (NYSE: HOT) and others in the group like Marriott, Wyndham, and Hilton. They should have improving earnings over the next few years.

Also, there are a number of players in the online travel group that make sense. Like TripAdvisor, they will benefit from the increasing trend of people to do their own travel planning and booking without the benefit of a travel agent.

Naturally, the credit card companies are worth considering as well particularly American Express (NYSE: AXP) and I well cover them in detail in future columns.

But the group that I want to focus on this month is the car rental companies. They should do very well going forward and benefit from this macro trend not only in leisure travel but business travel as well. Additionally, there are number of catalysts peculiar to Hertz (NYSE: HTZ) and Avis (NYSE: CAR) that makes an investment in these names even more interesting.

Up until a few years ago, the automobile manufacturers or conglomerates owned the major car rental companies. Ford owned Hertz and Chrysler owned Dollar Thrifty whereas Avis was owned by Cendant and Budget was owned by Transamerica Corporation. Both Avis and Budget were spun off to private equity groups, as was Hertz. So it wasn't until relatively recently that Hertz and Avis had the chance to operate as single-purpose businesses, not driven by either a desire to push excess inventory onto the market or by financial engineering.

Since they became independent they have been very busy on the acquisition side. Hertz was able to buy Dollar Thrifty Automotive Group for $2.3 billion after a long process that included a major battle with Avis over the property. Meanwhile, Avis had already acquired Budget while it was still owned by Cendant. I should mention that there were a number of other transactions involving these companies over the last couple of decades but I'm compressing the history in the interest of time and space.

The bottom line is that we now have coherent ownership and focused management and to some degree a duopoly (not counting Enterprise which is privately held). This should enable these companies to experience pricing power and margin expansion. Slim margins have been an issue for the rental agencies over the years but they should finally be able to expand them going forward.

Recently, Avis announced that it had raised prices by 4% in North America during the first quarter leading to an adjusted profit that exceeded Wall Street's expectations. That in turn prompted Avis to increase its full-year estimates. In fact, Avis has been able to raise its prices a total of six times year-to-date. Hertz was also able raise rates by similar amounts and volumes for both companies were up as well.

Both companies have continued to acquire additional related businesses. Avis bought out car sharing pioneer Zipcar in March and has begun expanding that franchise into more cities in North America. Avis also acquired Apex Car Rentals which helped their international revenue rise. Meanwhile, Hertz continues to digest their recent purchase of Dollar Thrifty and expanded their competition to Zipcar with hourly rentals of their own which they are calling the 24/7 platform.

So far Hertz is showing better results. The company reported a first-quarter profit of $18 million compared with a loss over the same quarter the previous year of $56.3 million (figures in U.S. dollars). Revenue jumped by 24%, to $2.4 billion. The average number of Hertz-operated cars was 757,100, up 27% from the prior year. That was mostly driven by the Dollar Thrifty acquisition.

Avis reported that quarterly earnings declined 33% from the prior year quarter although revenue increased by 4% to $1.69 billion. As mentioned, Avis revised its outlook to reflect the acquisition of Zipcar and forecast revenue increases year-over-year of between 6% and 9%.

Both stocks tend to trade in lockstep. I consider both as buys but based on the recent results I give a slight edge to Hertz but even though on a p/e basis it looks to be more expensive. Both stocks are up over 40% year-to-date but, as we discovered with our Boeing recommendation, waiting for a pullback can prove expensive.

If you want to hedge your bets, I recommend taking a half position now. You can add more later when and if we eventually get the long predicted market correction. It seems that everyone has been waiting for it, but so far it's been like waiting for Godot.

Action now: Buy Hertz Global Holdings with a target of $30. The shares closed in New York on Friday at $24.85.

Disclosure: I am long [[CAR]].

Originally recommended on Feb. 21/11 (#21107) at $122.80. Closed Friday at $85.08. (All figures in U.S. dollars.)

Baidu is China's equivalent of Google. It is the leading Chinese language Internet search engine, covering nearly 80% of its market.

The stock was recommended in February 2011 when it was trading at $122.80. After that it moved up to nearly $160 per share and then proceeded to bounce around before starting a steep decline which has taken it to a two-year low of $85.08.

Apart from being the dominant search engine in China, the company also has a large suite of security software offerings. China has nearly 500 million Internet users and one of the few constants in the relatively new web age has been the success of search engines. Almost nothing comes close in terms of the sheer volume and necessity that they provide.

Currently, the company is trading at a substantial discount my projected fair market value of $136. The decline in the share price reflects investor uneasiness about the ability of the Chinese to negotiate a soft landing from their real estate bubble as well as increasing competition from Qihoo 360 Technology (NDQ: QIHU). Additionally, there is some question as to whether the search engine business will be negatively impacted by increasing traffic from mobile devices.

Personally, I think that BIDU will hold on to most of its market share and will continue to grow revenues in excess of 40% in 2013 with earnings per share increasing at a compound annual growth rate of 29% over the next three years. Gross margins are very high, exceeding 70%.

The company reported revenue of $3.58 billion in 2012, an increase of 53.8% over the year before. Operating profit was $1.77 billion, up 45.9% from 2011, while net earnings were $1.68 billion ($4.79 a share), a 57.5% improvement.

If all this continues to hold, there should be significant upside in the shares even though the chart looks very scary right now.

This stock is definitely not for widows and orphans and is highly volatile but there is tremendous opportunity for growth and price appreciation should follow.

Action now: Buy with a target of $120.

Disclosure: I am long [[BIDU]].

Originally recommended on April 19/10 (#20115) at $37.14. Closed Friday at $53.58. (All figures in U.S. dollars.)

Another stock that has done well for us is drugstore chain CVS Caremark. It was originally recommended in April 2010 at $37.14 and closed Friday at $53.58.

The company reported fourth-quarter and year-end results in February and they were very good. Net revenues were $123.1 billion, a 15% improvement over the year before. Net income rose to $3.03 per share compared to $2.59 in 2011.

The stock has recovered well from its low of below $25 in March 2009. However, it is now trading at an all-time high so we're going to ring the till and take our profits. Including dividends we have a total return of 50.2%.

Action now: Sell.

Originally recommended on Nov. 23/09 (#2942) at $15.68. Closed Friday at $41.54. (All figures in U.S. dollars.)

Bermuda-based Textanier Group was recommended in November 2009 when the stock was trading at $15.68. It has had its ups and downs since but lately it has been on the rise with the shares hitting a 52-week high of $43.96 on Feb. 12. It has pulled back a little since, ending the week at $41.54 but that still leaves us with more than a double on this one.

The company reported good 2012 financial results with revenue up 15.2% to $487.1 million. Adjusted net income was $201.2 million ($3.85 per share, fully diluted), an increase of 12.9% from 2011.

That said, the chart is looking a little tired here. Even though the stock doesn't look overly expensive with a forward p/e ratio of 9.3 and a dividend yield of 4.3%, I suggest we cash in our chips and move along. Including dividends of $4.35 per share, we have a total return of 192.7%.

Action now: Sell.

The housing stocks and their related ETFs, such as iShares Dow Jones Home Construction Fund (NYSE: ITB), have been on a tear. So have a number of related stocks like Home Depot (NYSE: HD) and Whirlpool (NYSE: WHR), which closed on Friday at $85.22 and has gained 10.9% since my last update in March at $76.84 (prices in U.S. dollars). In fact, as of the close of trading on Sept. 18, the S&P Supercomposite Homebuilding Sub Industry Index had risen 77% for 2012 against only a 16% rise for the S&P 500. The performance has been so good that I am worried that they may be getting overextended here.

So this month, I thought I'd introduce a related sector that is also showing strong evidence of recovery: lumber and building supplies. Barron's recently wrote a very positive article on the sector and on Weyerhaeuser (NYSE: WY) in particular even though the stock has risen 79% from its 12-month low of $14.82. However, that appreciation was against historic lows so doesn't necessarily mean you missed the entire party if you have not had a position.

A number of analysts believe that the stock could rise from where it is currently at $26.53 to over $30 within the next 12 months. This call is really based on housing starts ramping up over the next couple of years from the low, by historical standards, where we are now in the 600,000 to 700,000 range, to somewhere closer to one million. Even then we would still be significantly below the peak when the U.S. was producing 1.6 million houses a year.

This does not seem far-fetched since the U.S. needs to produce around one million housing starts just to replace and maintain the number of new houses needed for immigrants and family creation along with replacement of destroyed homes from wildfires, tornadoes, etc.

If you agree that a slow, steady recovery is in the cards then it should have a positive effect on lumber prices. Given the cost-cutting most of the timber companies have done the last two years, any price boost should fall directly to the bottom line. There are indications that lumber dealers do not have adequate supply to meet the increasing demand - orders for British Columbia softwood lumber are on the upswing and this should also help prices firm.

Weyerhaeuser converted to a REIT in 2010, as did most of the timber asset companies, which makes them good dividend play. Currently, Weyerhaeuser is yielding 2.3% but if the positive improvement in demand pricing unfolds they will be able increase that over time. Converting to a REIT dropped the level of taxation on earnings to 15% from the 35% rate applied to corporations. This should set up well for income investors over the long haul assuming that Congress does not do something crazy as the fiscal cliff approaches. Personally, when I think it gets right down to the crunch, whoever wins the White House will end up cutting some kind of deal with the House and the Senate, which will enable us to dodge financial Armageddon.

Weyerhaeuser has been slowly divesting itself of underperforming assets including spinning off their fine paper business to Domtar back 2006. Later it sold its packaging business to International Paper for $6 billion. The result is that they are even more heavily leveraged to the housing market which, as Barron's pointed out, is not a bad thing at this moment in time.

Another operation I like in the same sector is Plum Creek Timber Company Inc. (NYSE: PCL). It pays out an even higher dividend than Weyerhaeuser at $1.68 a year and is yielding 3.8%. Plum Creek trades at a slightly less lofty p/e ratio then does Weyerhaeuser although both companies look pricey by that measure because their profits have been so squeezed in recent years.

Plum Creek owns over 6.6 million acres of timberlands across 19 states. This makes it the largest and most geographically diverse private landowner in the nation. In addition to simply selling timber the company also has some high-value products like plywood and fiberboard, which will benefit from increased housing construction.

The company recently announced quarterly results. Second-quarter earnings were $36 million, or $0.22 per diluted share, on revenues of $294 million. These results fell short of the second-quarter profits in 2011, which came in at $44 million ($0.27 per share) on revenues of $284 million. The outlook the company provided was in line with what economists are predicting, which is a gradual recovery in domestic demand over the course of the year with slowly improving fundamental performance of the various business segments within the company.

I think with improving housing sales and a generally improving economy, and with very little exposure to international markets, these companies offer good income-producing plays over the next couple of years.

Finally, a quick note on the taxation of U.S. REITs in Canadian accounts. Dividends paid to a non-registered account will be subject to a withholding tax of 15%, which may be recovered by claiming a foreign tax credit. They will not qualify for the dividend tax credit. Capital gains distributions will also face a 15% withholding tax and do not qualify for the 50% exclusion. Both dividends and capital gains distributions will be treated as foreign income and taxed at your marginal rate. Therefore, it is better to hold these securities in a registered plan.

Action now: Buy Weyerhaeuser at $26.53 with a target of $33 and/or buy Plum Creek Timber at $44.76 with a target of $46.

Disclosure: I am long [[WY]].

Additional disclosure: wy

Lithium is a strange commodity. It is the lightest known metal and has the lowest density of any solid element. It never occurs freely in nature but is found in crystalline minerals, clay, and ocean water. It is not traded on any exchange and, similar to the potash market, lithium production is dominated by four companies which together control about 95% of global lithium production. Those companies are Talison (TSX: TLH, OTC: TLTHF), Rockwood Holdings Inc. (NYSE: ROC), FMC Corp. (NYSE: FMC), and Sociedad Quimica Minera de Chile SA (NYSE: SQM).

Lithium's use in technology has been growing by about 20% a year for the past decade. That growth is likely to remain strong as battery manufacturers continue to turn to lithium in preference to the traditional nickel cadmium batteries that auto makers have been using for years because lithium batteries generate more electricity per cell than competing technologies.

Lithium is also used in cell phone batteries, particularly smart phones. Over 600 million units are expected to be shipped this year alone and that demand should steadily increase over the next several years. Demand for lithium batteries has growing at about 25% a year and has been outpacing the 4% to 5% overall gain in lithium supplies.

Increasing demand and limited supply usually leads to price increases and that's certainly the case here, with prices tripling since 2000. Pricing power should remain quite strong for the four major producers over the next few years since it should be some time before new supplies begin to meet a steady increase in demand. Chile has just announced that it will auction off exploration areas which will be suitable for lithium production and several companies are exploring new sources of supply in other regions but it will take some time before this new production comes online.

I should note that lithium has a number of other chemical applications, including pharmaceuticals where it is widely used as a treatment for bipolar disorder as well as other products. It's also used in lubricants as a thickener to reduce power consumption in aluminum smelting, and as an air treatment medium for industrial applications. Also, lithium can be used in glass and ceramic applications since it has durability and corrosion resistant properties. These are useful in high temperature applications like cook tops and cooking ware.

Now for a cautionary note. A couple of years ago, there was a similar speculation on rare earth suppliers, a commodity dominated by Chinese production. Speculation drove Molycorp (NYSE: MCP) to a huge spike in valuation, which IWB readers profited from after I recommended the stock at US$30.34 in November 2009 and then advised selling five months later at US$75.22. Since then the stock has dropped dramatically and is currently trading near its 52-week low at US$19.69. The message is that so-called "story stocks" can be propelled beyond their correct valuations with disastrous results for your portfolio if you don't get out in time.

With that said, aggressive investors could consider taking a speculative position in Talison, which is based in Perth, Australia even though it trades on the Toronto Stock Exchange. This company is the largest pure play lithium producer and the new CEO, Peter Oliver, was recently quoted as saying he expects at least a doubling of demand over the next two years. Should this in fact happen, Talison could benefit greatly.

The company just announced that it has completed an expansion of its main property in South West Australia, which doubles its production capacity. Talison also announced record sales results in the recent quarter, up 27% over last year, and a first half price increase of 15%. Results for the 2012 fiscal third quarter (to March 31) showed net profit of $8.2 million ($0.076 per share), more than double the results from the previous year.

Subsequently, on July 12, Talison announced it had reached agreement with its customers for a further 10% price increase in the second half of this year. That means the total price hike for 2012 is 25%, which bears out my point about the impact of the increased demand and tightening supply.

Talison is the smallest player of the four leading producers so its share price is the most vulnerable to market swings. The other three companies are larger and more diversified plays which should offer protection if this story turns upside down and for some reason lithium prices tank. However, you should not buy any of these stocks if you are a conservative investor as all have made big moves in the past couple of years. Talison is the best choice for aggressive investors as it appears to have the most upside potential. This appears to be a suitable entry point as the stock is down 21% from its 52-week high of $5.06. The shares closed on Friday at C$3.99. The last over-the-counter trade on the U.S. Grey Market was on July 12 at US$3.68.

There is another more diversified play in the form of an exchange traded fund. It is the Global X Lithium ETF (NYSE: LIT) and it includes the shares of all the above mentioned companies. It also provides some exposure to the battery producers like A123 Systems, which has been hammered this past year. Since A123 is 6.14% of the fund's holdings, it has negatively affected the overall performance of the ETF which is up 3.2% this year compared to 11.2% for Talison. To continue the comparison, FMC is up 17.1%, ROC has gained 14.5%, and SQM brings up the read with a loss of 0.7 %.

Action now: Buy Talison with a target of $5.

Disclosure: I am long [[TLTHF.PK]].