Hans Wagner - Seeking Alpha 'Hans Wagner' Tag RSS Syndication from SeekingAlpha.com SeekingAlpha.com http://seekingalpha.com/author/hans-wagner Global Growth Trends: Asia and Brazil http://seekingalpha.com/article/168493-global-growth-trends-asia-and-brazil?source=feed 168493 In the last year, many analysts and investors have focused on China as the driver for global economic recovery. Actually, there are countries other than China that are experiencing significant economic growth, contributing to the global recovery. Many Asian countries and a few in South America are showing the world the way. The growth of these countries offers important export opportunities for the U.S.
In 2000, foreign business amounted to about 30% of the revenue for the S&P 500. Now it is up to approximately 50%. Within the S&P 500, this trend is even more noticeable as many technology, materials, energy, and industrials generate more than 60% of their revenues internationally. Companies such as FreePort McMoran (FCX), Accenture (ACN), Cisco (CSCO), EMC, Microsoft (MSFT), IBM, Chevron (CVX), Boeing (BA), Caterpillar (CAT), Joy Global (JOYG), Flowserve (FLS) and even Apple (AAPL) are seeing the affect of this global growth trend.
China
Depending on whom you believe China’s growth in the third quarter of 2009 will come in from 8.5 to 9.5%. This is up from 7.9 percent in the second quarter and 7.1 percent for the first half of 2009. The Asian development Bank projects China’s growth at 9.5 to 9 percent. Goldman Sachs expects growth to come in closer to 9.5 percent. China is growing rapidly and the country has returned to the levels it reached before the global recession.
There are other signs that China continues to grow. According to China National Energy Administration, China's power consumption in September also continued to rise at a faster rate. Power consumption rose 10.24 percent from the same month last year to 322.41 billion kilowatt hours last month. The General Administration of Customs, China's foreign trade continued to fall in September, but the rate of decline slowed. The total value of imports and exports for September was 218.94 billion U.S. dollars, down 10.1 percent from the same month last year, but up 14.2 percent from August.
We know that China uses different ways to measure their economic performance, to these numbers do not necessarily translate into equivalent measures in other countries. However, the fact that China is growing rapidly cannot be ignored.
India and the Rest of Asia
India is another rapid growth story. Growth in gross domestic product rose to 6.1 percent from a year earlier in the April-June quarter up from 5.8 percent in the previous quarter according to the government's Central Statistical Organisation. India is not nearly as dependent on exports as China, which helps the country to weather the global economic troubles. The biggest current threat for India is the lack of rain for their agriculture sector.
A drought will negatively affect the economy over the next half year, as declining agricultural output reduces demand for transportation and storage. This will hinder exports and domestic trade while lowering the income for hundreds of millions of Indians who rely on farming for their livelihoods. Agriculture accounted for 6.3 percent of India's GDP from April-June. The problem is 65 percent of the population depend on farming as their main source of income, according to Citigroup.
Monsoon rains from June 1 through August 19 are 26 percent below normal, according to the Ministry of Agriculture, and a drought has been declared in at least 44 percent of India's districts. Growth of agriculture and related industries slowed to 2.4 percent during the April-June quarter, down from 3.0 percent that same period last year, the Central Statistical Organization said.
Longer term India will continue to expand in the mid to high single digit rates as they take advantage of their growing pool of educated workers. Much like China, this growth is creating a large and expaning middle class that wants a better life.
Other Asian countries are experiencing economic growth as well. Australia raised their key lending rate to help address the prospect of inflation as their economy expands. Indonesia has maintained positive economic growth throughout the global recession. This is going unnoticed as most analysts focus on the other countries in Asia. Each of these countries offers opportunities for the U.S. export business.
Brazil
South America with Brazil leading the way is another source of global economic growth. While winning the 2016 summer Olympics is in the headlines, Brazil is experiencing a continuation of its economic resurgence. Exports of commodities to China are the primary driver. However, the country’s manufacturing sector is recovering as well. As a leading producer of ethanol, Brazil can become an energy exporter, exploiting the growing interest in biofuels. When its oil wells come online, they can translate much more quickly into exports and revenue generation. If Brazil follows through on plans to construct a petrochemical industry around its oil extraction, the country will find itself with a value-added industry that will further contribute to its development.
The Bottom Line
Each of these countries cannot on their own be the driver for export growth for the U.S. Combined they offer good prospects, especially if the value of the U.S. dollar remains weak.
Investors that focus only on the U.S. will miss the underlying affect of the global growth story. Under estimating the strength of this global trend on the profits of companies will be a mistake.
Rather than look to the U.S. as the source for growth, we need to identify companies that receive more than half of their revenues from foreign sources, as they offer the best opportunities. We will see further separation of many companies from dependence on the U.S. economy, especially retail sales.
Companies that are aligned with the growth of the global economy will see stronger earnings that should continue to grow for years to come. Multi-nationals as well as small and mid size firms who are aligned with the global growth trends will benefit. Whereas companies that remain focused on the domestic U.S. markets and depend on U.S. GDP growth will suffer.
]]> Fri, 23 Oct 2009 08:10:49 -0400 Hans Wagner In the last year, many analysts and investors have focused on China as the driver for global economic recovery. Actually, there are countries other than China that are experiencing significant economic growth, contributing to the global recovery. Many Asian countries and a few in South America are showing the world the way. The growth of these countries offers important export opportunities for the U.S.
In 2000, foreign business amounted to about 30% of the revenue for the S&P 500. Now it is up to approximately 50%. Within the S&P 500, this trend is even more noticeable as many technology, materials, energy, and industrials generate more than 60% of their revenues internationally. Companies such as FreePort McMoran (FCX), Accenture (ACN), Cisco (CSCO), EMC, Microsoft (MSFT), IBM, Chevron (CVX), Boeing (BA), Caterpillar (CAT), Joy Global (JOYG), Flowserve (FLS) and even Apple (AAPL) are seeing the affect of this global growth trend.
China
Depending on whom you believe China’s growth in the third quarter of 2009 will come in from 8.5 to 9.5%. This is up from 7.9 percent in the second quarter and 7.1 percent for the first half of 2009. The Asian development Bank projects China’s growth at 9.5 to 9 percent. Goldman Sachs expects growth to come in closer to 9.5 percent. China is growing rapidly and the country has returned to the levels it reached before the global recession.
There are other signs that China continues to grow. According to China National Energy Administration, China's power consumption in September also continued to rise at a faster rate. Power consumption rose 10.24 percent from the same month last year to 322.41 billion kilowatt hours last month. The General Administration of Customs, China's foreign trade continued to fall in September, but the rate of decline slowed. The total value of imports and exports for September was 218.94 billion U.S. dollars, down 10.1 percent from the same month last year, but up 14.2 percent from August.
We know that China uses different ways to measure their economic performance, to these numbers do not necessarily translate into equivalent measures in other countries. However, the fact that China is growing rapidly cannot be ignored.
India and the Rest of Asia
India is another rapid growth story. Growth in gross domestic product rose to 6.1 percent from a year earlier in the April-June quarter up from 5.8 percent in the previous quarter according to the government's Central Statistical Organisation. India is not nearly as dependent on exports as China, which helps the country to weather the global economic troubles. The biggest current threat for India is the lack of rain for their agriculture sector.
A drought will negatively affect the economy over the next half year, as declining agricultural output reduces demand for transportation and storage. This will hinder exports and domestic trade while lowering the income for hundreds of millions of Indians who rely on farming for their livelihoods. Agriculture accounted for 6.3 percent of India's GDP from April-June. The problem is 65 percent of the population depend on farming as their main source of income, according to Citigroup.
Monsoon rains from June 1 through August 19 are 26 percent below normal, according to the Ministry of Agriculture, and a drought has been declared in at least 44 percent of India's districts. Growth of agriculture and related industries slowed to 2.4 percent during the April-June quarter, down from 3.0 percent that same period last year, the Central Statistical Organization said.
Longer term India will continue to expand in the mid to high single digit rates as they take advantage of their growing pool of educated workers. Much like China, this growth is creating a large and expaning middle class that wants a better life.
Other Asian countries are experiencing economic growth as well. Australia raised their key lending rate to help address the prospect of inflation as their economy expands. Indonesia has maintained positive economic growth throughout the global recession. This is going unnoticed as most analysts focus on the other countries in Asia. Each of these countries offers opportunities for the U.S. export business.
Brazil
South America with Brazil leading the way is another source of global economic growth. While winning the 2016 summer Olympics is in the headlines, Brazil is experiencing a continuation of its economic resurgence. Exports of commodities to China are the primary driver. However, the country’s manufacturing sector is recovering as well. As a leading producer of ethanol, Brazil can become an energy exporter, exploiting the growing interest in biofuels. When its oil wells come online, they can translate much more quickly into exports and revenue generation. If Brazil follows through on plans to construct a petrochemical industry around its oil extraction, the country will find itself with a value-added industry that will further contribute to its development.
The Bottom Line
Each of these countries cannot on their own be the driver for export growth for the U.S. Combined they offer good prospects, especially if the value of the U.S. dollar remains weak.
Investors that focus only on the U.S. will miss the underlying affect of the global growth story. Under estimating the strength of this global trend on the profits of companies will be a mistake.
Rather than look to the U.S. as the source for growth, we need to identify companies that receive more than half of their revenues from foreign sources, as they offer the best opportunities. We will see further separation of many companies from dependence on the U.S. economy, especially retail sales.
Companies that are aligned with the growth of the global economy will see stronger earnings that should continue to grow for years to come. Multi-nationals as well as small and mid size firms who are aligned with the global growth trends will benefit. Whereas companies that remain focused on the domestic U.S. markets and depend on U.S. GDP growth will suffer.

Complete Story »]]> ADRA EWZ FXI Hans Wagner Accenture: Poised to Grow http://seekingalpha.com/article/165811-accenture-poised-to-grow?source=feed 165811
Accenture (ACN) is a global management consulting, technology services and outsourcing company. As the global economy recovers, the strategy of many companies will be to find ways to improve their operations without having to hire more people. This is an opportunity that Accenture and the other service firms such as Hewlett Packard (HPQ), IBM (IBM) and Dell (DELL) with the Perot Systems (PER) acquisition are positioned to handle.
Overview
With approximately 177,000 employees in more than 120 countries, Accenture generated net revenues of $21.58 billion for the fiscal year ended Aug. 31, 2009. For 2009, new bookings were $23.9 billion, exceeding revenues. Consulting bookings for fiscal 2009 were $12.78 billion and outsourcing bookings were $11.12 billion. These new bookings in the fourth quarter and for the full fiscal year show demand for the company’s services remain solid. The company has $4.5 billion in cash with no debt.
Consulting revenue has fallen, down 19% from a year ago due to pricing pressures. In addition, clients are cautious about initiating large projects as they favor smaller programs that have more immediate payback. This is likely to continue for the next quarter, as clients continue to manage their expenditures more carefully.
Outsourcing revenues actually grew on a local currency basis, though at a slower rate. Clients are slower to expand current contracts, and when they do they are seeking to deploy lower cost resources with lower pricing. Furthermore, clients in the Financial Services sector are more inclined to cancel contracts as they struggle with strategy changes and in some cases consolidation.
Margins actually expanded for the year, coming in at 31.7% for 2009 vs. 30.7% in fiscal year 2008. This is a good indication the firm is keeping costs in line with revenues, as Accenture is sustaining its profitability during the recession. Its utilization of people (people working on billable engagements) came in at 86% in the fourth quarter, rising from 83% in the third quarter. This is an excellent number that contributes to the solid margins the firm is able to achieve.
Should the global economy keep improving, we should expect consulting and outsourcing revenues to turn up in Accenture’s second quarter of their fiscal year or the beginning of 2010. Keep in mind there is a several month delay from booking a new engagement before revenue starts flowing.
The strategy of many companies is to keep raising their productivity by finding better ways of operating their business. In doing so, they will consider the services of firms like Accenture, which bodes well for them in 2010.
Fundamental Review
Stock Review
Risk Factors
Sector
Technology - Service
Beta
0.63
Dividend Yield
1.30%
Insider Ownership
0.29%
Earnings Announcement
12/17 - 27/2009 after the market closes
Institutional Ownership
79%
Value Analysis
Growth Analysis
Return on Capital
210%
PE Ratio
15.4
Earnings Yield
20.3%
PEG Ratio
1.07
Free Cash Flow Margin
11.7%
Enterprise Value/Free Cash Flow
5.2
Free Cash Flow Yield
15%
Quarterly Revenue Growth (yoy)
-16%
Cockroaches
none
Quarterly Revenue Forecast (yoy)
-9.4%
Value
Accenture generates an exceptional Return on Capital and Earnings Yield partly due to its being a service firm. This makes Accenture a good large value play.
Accenture's Free Cash Flow Margin reflects the firm's ability to generate sufficient cash flow to fund its growth. The Free Cash Flow Yield provides a nice return for shareholders as well.
So far, Accenture has been able to weather the global recession. As a result, they remain a very good buy for value investors.
Growth
Accenture' growth has slowed with the recession. Revenue is expected to be flat to slightly down over the next several quarters, however the company's PE ratio is quite low and its PEG ratio remains close to 1.00, indicating growth potential. The company's Enterprise Value/Free Cash Flow ratio is significantly below their PE ratio, an indication they are generating significant cash flow.
It will be important to monitor the revenue growth for Accenture in the next few quarters.
Conclusion
Accenture continues to do well during the global recession. It offers investors growth at a reasonable price, meaning it is suitable for both value and growth oriented investors.
As a services firm, future revenues will come from new bookings. In the latest quarter, new bookings of $5.15 came in just above revenues of $5.14 for the quarter indicating the company is not eating into its prior bookings to sustain revenues. As long as bookings remain above revenues, the firms will be able to sustain itself. Once bookings start to climb, Accenture will see its revenues turn up shortly thereafter.
Key Drivers and Barriers
Drivers (outside forces)
The key drivers for Accenture are:
  1. Global need to lower cost and improve productivity by companies throughout the world seeking to remain competitive.
  2. The evolution of technology that provides new capabilities for companies throughout their supply chains.
Barriers (sustainable advantages)
The barriers ACN has in place to help sustain its leadership position are:
  1. The demand for services that are reflected in the company's bookings. As long as this is growing faster than revenues the company is doing well.
  2. The rate per hour and utilization rate help explain the company's pricing power.
Risks
A large company may not be able to move quickly in a key direction to take advantage of new opportunities. As they get larger, it is more difficult for a new business to have a material affect on the overall company.
The recession is hurting the U.S. and global sales.
Guidance
For the fiscal year 2010, Accenture expects new bookings to be in the range of $23 billion to $26 billion. Management expects the net revenue growth rate for the full fiscal year 2010 to be in a range of a 3% decline to a 1% increase in local currency over fiscal 2009. This range reflects the anticipated decline in revenues in the first half of fiscal 2010 year-over-year. It also reflects the aggregate effect of outsourcing contract cancellations in fiscal 2009, which will show up in as 2% fall in net revenue growth for fiscal year 2010 local currency net revenue. Earnings per share for fiscal 2010 should be in the $2.64 to $2.72. For the first quarter, revenues should be in the range of $5.3 billion to $5.5 billion.
The company is looking for operating cash flow to be in the range of $2.39 billion to $2.59 billion, capital expenditures to be $290 million, and free cash flow to be in the range of $2.1 billion to $2.3 billion.
Other Considerations
During the fiscal 2009 year, Accenture repurchased $1.9 billion of shares. The Board approved $4.0 billion in additional share repurchase authority. At May 31, 2009, Accenture had approximately 733 million total shares outstanding, including 614 million Accenture Ltd Class A common shares and minority holdings of 119 million shares (Accenture SCA Class I common shares and Accenture Canada Holding, Inc. exchangeable shares).
In addition, the Board of Directors declared an annual cash dividend of $0.75 per share a 50% increase. The Board also changed to paying dividends on a semi-annual schedule starting with the third quarter of fiscal 2010.
The Bottom Line
Buy on dips in the price. Look to protect your position with covered calls and protective puts. Be ready to sell if the investing theme does not work as expected.
]]> Fri, 09 Oct 2009 15:54:25 -0400 Hans Wagner
Accenture (ACN) is a global management consulting, technology services and outsourcing company. As the global economy recovers, the strategy of many companies will be to find ways to improve their operations without having to hire more people. This is an opportunity that Accenture and the other service firms such as Hewlett Packard (HPQ), IBM (IBM) and Dell (DELL) with the Perot Systems (PER) acquisition are positioned to handle.
Overview
With approximately 177,000 employees in more than 120 countries, Accenture generated net revenues of $21.58 billion for the fiscal year ended Aug. 31, 2009. For 2009, new bookings were $23.9 billion, exceeding revenues. Consulting bookings for fiscal 2009 were $12.78 billion and outsourcing bookings were $11.12 billion. These new bookings in the fourth quarter and for the full fiscal year show demand for the company’s services remain solid. The company has $4.5 billion in cash with no debt.
Consulting revenue has fallen, down 19% from a year ago due to pricing pressures. In addition, clients are cautious about initiating large projects as they favor smaller programs that have more immediate payback. This is likely to continue for the next quarter, as clients continue to manage their expenditures more carefully.
Outsourcing revenues actually grew on a local currency basis, though at a slower rate. Clients are slower to expand current contracts, and when they do they are seeking to deploy lower cost resources with lower pricing. Furthermore, clients in the Financial Services sector are more inclined to cancel contracts as they struggle with strategy changes and in some cases consolidation.
Margins actually expanded for the year, coming in at 31.7% for 2009 vs. 30.7% in fiscal year 2008. This is a good indication the firm is keeping costs in line with revenues, as Accenture is sustaining its profitability during the recession. Its utilization of people (people working on billable engagements) came in at 86% in the fourth quarter, rising from 83% in the third quarter. This is an excellent number that contributes to the solid margins the firm is able to achieve.
Should the global economy keep improving, we should expect consulting and outsourcing revenues to turn up in Accenture’s second quarter of their fiscal year or the beginning of 2010. Keep in mind there is a several month delay from booking a new engagement before revenue starts flowing.
The strategy of many companies is to keep raising their productivity by finding better ways of operating their business. In doing so, they will consider the services of firms like Accenture, which bodes well for them in 2010.
Fundamental Review
Stock Review
Risk Factors
Sector
Technology - Service
Beta
0.63
Dividend Yield
1.30%
Insider Ownership
0.29%
Earnings Announcement
12/17 - 27/2009 after the market closes
Institutional Ownership
79%
Value Analysis
Growth Analysis
Return on Capital
210%
PE Ratio
15.4
Earnings Yield
20.3%
PEG Ratio
1.07
Free Cash Flow Margin
11.7%
Enterprise Value/Free Cash Flow
5.2
Free Cash Flow Yield
15%
Quarterly Revenue Growth (yoy)
-16%
Cockroaches
none
Quarterly Revenue Forecast (yoy)
-9.4%
Value
Accenture generates an exceptional Return on Capital and Earnings Yield partly due to its being a service firm. This makes Accenture a good large value play.
Accenture's Free Cash Flow Margin reflects the firm's ability to generate sufficient cash flow to fund its growth. The Free Cash Flow Yield provides a nice return for shareholders as well.
So far, Accenture has been able to weather the global recession. As a result, they remain a very good buy for value investors.
Growth
Accenture' growth has slowed with the recession. Revenue is expected to be flat to slightly down over the next several quarters, however the company's PE ratio is quite low and its PEG ratio remains close to 1.00, indicating growth potential. The company's Enterprise Value/Free Cash Flow ratio is significantly below their PE ratio, an indication they are generating significant cash flow.
It will be important to monitor the revenue growth for Accenture in the next few quarters.
Conclusion
Accenture continues to do well during the global recession. It offers investors growth at a reasonable price, meaning it is suitable for both value and growth oriented investors.
As a services firm, future revenues will come from new bookings. In the latest quarter, new bookings of $5.15 came in just above revenues of $5.14 for the quarter indicating the company is not eating into its prior bookings to sustain revenues. As long as bookings remain above revenues, the firms will be able to sustain itself. Once bookings start to climb, Accenture will see its revenues turn up shortly thereafter.
Key Drivers and Barriers
Drivers (outside forces)
The key drivers for Accenture are:
  1. Global need to lower cost and improve productivity by companies throughout the world seeking to remain competitive.
  2. The evolution of technology that provides new capabilities for companies throughout their supply chains.
Barriers (sustainable advantages)
The barriers ACN has in place to help sustain its leadership position are:
  1. The demand for services that are reflected in the company's bookings. As long as this is growing faster than revenues the company is doing well.
  2. The rate per hour and utilization rate help explain the company's pricing power.
Risks
A large company may not be able to move quickly in a key direction to take advantage of new opportunities. As they get larger, it is more difficult for a new business to have a material affect on the overall company.
The recession is hurting the U.S. and global sales.
Guidance
For the fiscal year 2010, Accenture expects new bookings to be in the range of $23 billion to $26 billion. Management expects the net revenue growth rate for the full fiscal year 2010 to be in a range of a 3% decline to a 1% increase in local currency over fiscal 2009. This range reflects the anticipated decline in revenues in the first half of fiscal 2010 year-over-year. It also reflects the aggregate effect of outsourcing contract cancellations in fiscal 2009, which will show up in as 2% fall in net revenue growth for fiscal year 2010 local currency net revenue. Earnings per share for fiscal 2010 should be in the $2.64 to $2.72. For the first quarter, revenues should be in the range of $5.3 billion to $5.5 billion.
The company is looking for operating cash flow to be in the range of $2.39 billion to $2.59 billion, capital expenditures to be $290 million, and free cash flow to be in the range of $2.1 billion to $2.3 billion.
Other Considerations
During the fiscal 2009 year, Accenture repurchased $1.9 billion of shares. The Board approved $4.0 billion in additional share repurchase authority. At May 31, 2009, Accenture had approximately 733 million total shares outstanding, including 614 million Accenture Ltd Class A common shares and minority holdings of 119 million shares (Accenture SCA Class I common shares and Accenture Canada Holding, Inc. exchangeable shares).
In addition, the Board of Directors declared an annual cash dividend of $0.75 per share a 50% increase. The Board also changed to paying dividends on a semi-annual schedule starting with the third quarter of fiscal 2010.
The Bottom Line
Buy on dips in the price. Look to protect your position with covered calls and protective puts. Be ready to sell if the investing theme does not work as expected.

Complete Story »]]> ACN DELL HPQ IBM PER Hans Wagner Global Growth Trends: The Shape of the Recovery http://seekingalpha.com/article/165255-global-growth-trends-the-shape-of-the-recovery?source=feed 165255 In the last year, many analysts and investors have focused on China as the driver for global economic recovery. More recently, investors have grown concerned that China is curtailing their purchases of commodities as their stimulus program wanes. One of the factors many investors miss is the underlying trends that are in place. One is the growing employment problem in the U.S. that is causing the shape of the U.S. recovery to be different than what has been normal. Another is the falling value of the U.S. dollar, a trend that will continue. The third trend is the continuous expansion of the emerging economies of Brazil, China, India, as well as other Asian countries such as Indonesia, Australia, and Vietnam. Today, we will cover the shape of the U.S. recovery.
Many analysts expect a V shaped recover in the U.S. as they expect the U.S. consumer to return to their former spending ways. Milton Friedman taught us that after a recession demand snaps back to its previous level as consumers return to their previous levels of spending. The late Milton Friedman showed that deep recessions experience strong recoveries. He compared the economy to a piece of string stretched taut on a board. The more forcefully the string is plucked, the more sharply it snaps back.
In this analogy, the piece of string represents spending by consumers, companies and the government, or economic demand. The rigid board symbolizes the supply side. A recession may cause demand to falter for a while, but it “snaps back” to its former level constrained by the supply side. Since people, capital, facilities, and equipment have been out of service during a recession, the economy can rebound reaching its previous level quickly. The problem comes when the resources lost during the recession are no longer viable during the recovery. Some of these people have lost their skills, equipment is no longer productive and has been scraped, and capital is lost at it went to pay down debt.
With its high level of unemployment, the U.S. has lost 7.2 million jobs since December 2007. Moreover, U-6 reached a new high of 17%. U-6 includes what the BLS calls “marginally attached workers”, those people who are working part-time but want full time work. By some measures, more than 26 million people are out of either work or working in part-time or under-employed jobs. People have cut their spending to match their new lower living standards. These lower spending levels flow though the economy as lower demand.
The longer people are out of work, they lose their skills, hurting their ability to return as productive members of the work force. In addition, a significant percent of the spending before the recession came from high levels of borrowing. The home ATM is no longer available to fund a higher level of spending. Households are striving to rebuild their retirement assets, which will take a number of years. They will be saving rather than spending. As a result, demand will not return to its former level as quickly as many expect. For example, Meredith Whitney, a well known analyst that has been on target, predicts a $2 trillion withdrawal of credit by 2010.
Once the recovery begins, where will the jobs come from? Many companies have been able to maintainer some of their profitability by ruthless cost cutting. Those that have been able to keep costs in line with lower revenues have been able to maintain some level of profitability that has surprised many. Moreover, many companies that have been able to reduce their employment levels will be looking to add new technology and processes to raise their productivity before they start to hire again.
Since demand will be slower to rise, many companies will be reluctant to hire. Rather they will try to get bay with their current staff levels spending money on productivity improvements. As a result, job growth will be slow to materialize. When they do hire, it will be for people with specialized skills in short supply. People without these skills will find work hard to come by. This will keep unemployment at uncomfortable high levels for years to come. High unemployment leads to lower GDP.
Rather than a V shaped recovery, we should be expecting one shaped like a U and perhaps a backwards J. People out of work without the necessary skills to meet the needs of business will act as an anchor on the U.S. economy. The way out of this problem comes from the other two trends that are underway, the falling value of the U.S. dollar and the strength of the emerging economies in Asia and South America. Unfortunately, these trends will take time to see the necessary affect on the U.S. economy.
In the next segment of this thought process I will briefly review why the value of the U.S. collar will keep falling and how this situation will affect sectors of the U.S. economy.
]]> Wed, 07 Oct 2009 06:16:36 -0400 Hans Wagner In the last year, many analysts and investors have focused on China as the driver for global economic recovery. More recently, investors have grown concerned that China is curtailing their purchases of commodities as their stimulus program wanes. One of the factors many investors miss is the underlying trends that are in place. One is the growing employment problem in the U.S. that is causing the shape of the U.S. recovery to be different than what has been normal. Another is the falling value of the U.S. dollar, a trend that will continue. The third trend is the continuous expansion of the emerging economies of Brazil, China, India, as well as other Asian countries such as Indonesia, Australia, and Vietnam. Today, we will cover the shape of the U.S. recovery.
Many analysts expect a V shaped recover in the U.S. as they expect the U.S. consumer to return to their former spending ways. Milton Friedman taught us that after a recession demand snaps back to its previous level as consumers return to their previous levels of spending. The late Milton Friedman showed that deep recessions experience strong recoveries. He compared the economy to a piece of string stretched taut on a board. The more forcefully the string is plucked, the more sharply it snaps back.
In this analogy, the piece of string represents spending by consumers, companies and the government, or economic demand. The rigid board symbolizes the supply side. A recession may cause demand to falter for a while, but it “snaps back” to its former level constrained by the supply side. Since people, capital, facilities, and equipment have been out of service during a recession, the economy can rebound reaching its previous level quickly. The problem comes when the resources lost during the recession are no longer viable during the recovery. Some of these people have lost their skills, equipment is no longer productive and has been scraped, and capital is lost at it went to pay down debt.
With its high level of unemployment, the U.S. has lost 7.2 million jobs since December 2007. Moreover, U-6 reached a new high of 17%. U-6 includes what the BLS calls “marginally attached workers”, those people who are working part-time but want full time work. By some measures, more than 26 million people are out of either work or working in part-time or under-employed jobs. People have cut their spending to match their new lower living standards. These lower spending levels flow though the economy as lower demand.
The longer people are out of work, they lose their skills, hurting their ability to return as productive members of the work force. In addition, a significant percent of the spending before the recession came from high levels of borrowing. The home ATM is no longer available to fund a higher level of spending. Households are striving to rebuild their retirement assets, which will take a number of years. They will be saving rather than spending. As a result, demand will not return to its former level as quickly as many expect. For example, Meredith Whitney, a well known analyst that has been on target, predicts a $2 trillion withdrawal of credit by 2010.
Once the recovery begins, where will the jobs come from? Many companies have been able to maintainer some of their profitability by ruthless cost cutting. Those that have been able to keep costs in line with lower revenues have been able to maintain some level of profitability that has surprised many. Moreover, many companies that have been able to reduce their employment levels will be looking to add new technology and processes to raise their productivity before they start to hire again.
Since demand will be slower to rise, many companies will be reluctant to hire. Rather they will try to get bay with their current staff levels spending money on productivity improvements. As a result, job growth will be slow to materialize. When they do hire, it will be for people with specialized skills in short supply. People without these skills will find work hard to come by. This will keep unemployment at uncomfortable high levels for years to come. High unemployment leads to lower GDP.
Rather than a V shaped recovery, we should be expecting one shaped like a U and perhaps a backwards J. People out of work without the necessary skills to meet the needs of business will act as an anchor on the U.S. economy. The way out of this problem comes from the other two trends that are underway, the falling value of the U.S. dollar and the strength of the emerging economies in Asia and South America. Unfortunately, these trends will take time to see the necessary affect on the U.S. economy.
In the next segment of this thought process I will briefly review why the value of the U.S. collar will keep falling and how this situation will affect sectors of the U.S. economy.

Complete Story »]]> Hans Wagner Trimble Navigation Will Rebound Eventually http://seekingalpha.com/article/163835-trimble-navigation-will-rebound-eventually?source=feed 163835 Trimble Navigation (TRMB) provides advanced positioning product solutions to commercial and government customers worldwide. The company uses global positioning systems (GPS) and robotic optical surveying instruments that incorporate GPS, optical, laser, radio, or cellular communication technologies for various applications including engineering and construction, agriculture and mobile workers who can employ advanced technologies to improve efficiencies and provide advanced uses of collected data. Engineering and construction is the largest customer segment, which is hurting sales.

With a Return on Capital Employed of 35% and an Earnings Yield of 3.2% Trimble is no longer a value investing opportunity. However, they offer a quality balance sheet and a free cash flow yield of 5.3% and free cash flow margin of 19%. The company’s trailing P/E ratio is 34, though the Enterprise Value to Free Cash Flow ratio of 17 demonstrates the strength of their underlying business. Once there is a rebound in the engineering and construction industry, Trimble should see their revenues turn around.

]]> Tue, 29 Sep 2009 03:55:44 -0400 Hans Wagner Trimble Navigation (TRMB) provides advanced positioning product solutions to commercial and government customers worldwide. The company uses global positioning systems (GPS) and robotic optical surveying instruments that incorporate GPS, optical, laser, radio, or cellular communication technologies for various applications including engineering and construction, agriculture and mobile workers who can employ advanced technologies to improve efficiencies and provide advanced uses of collected data. Engineering and construction is the largest customer segment, which is hurting sales.

With a Return on Capital Employed of 35% and an Earnings Yield of 3.2% Trimble is no longer a value investing opportunity. However, they offer a quality balance sheet and a free cash flow yield of 5.3% and free cash flow margin of 19%. The company’s trailing P/E ratio is 34, though the Enterprise Value to Free Cash Flow ratio of 17 demonstrates the strength of their underlying business. Once there is a rebound in the engineering and construction industry, Trimble should see their revenues turn around.


Complete Story »]]> TRMB Hans Wagner Overreaction by the Financial Sector to the Upside http://seekingalpha.com/article/163425-overreaction-by-the-financial-sector-to-the-upside?source=feed 163425 In the meltdown of the past year, financials plunged as investors feared many banks would fail, much like Lehman Brothers. As the market realized that the government was able to prop up the weakest of the “to big to fail” banks, some level of confidence returned. Beginning in March, the financials lead the rebound becoming the best performing sector in the S&P 500. XLF has been the best performing ETF of the S&P 500’s primary sectors.
Like the plunge in the financials, the rebound has gone too far. Most of the banks still have significant problems and cannot count of trading profits to help them recover. The positive sloping yield curve should help the banks today, as long as they are able to lend. However, many of the banks are curtailing their lending activities to help shore up their capital position. When they lower their asset base, their capital ratios increase.
Then there is the ongoing credit problem. According to RealtyTrac® (www.realtytrac.com), reports that August 2009 foreclosure filings were 358,471 during the month, a decrease of less than 1 percent from the previous month. Moreover, this is an increase of nearly 18 percent from August 2008. Banks are facing higher foreclosure problems now than they were a year ago. Add in growing problems in the commercial real estate sector and you may wonder how so many people believe the rebound in the banking sector is sustainable.
Any hint of higher inflation and interest rates will rise harming the financial position of most banks as short term rates will rise faster. As the yield curve flattens, the ability of the banks to generate solid net interest rate margins will plunge. As a result, the banks will face a slower revenue growth before they will have recovered from the massive credit problem. Yes, the Federal Reserve is holding short-term rates low and will do so into early 2010. When they begin to raise rates, the banks will be one of the first to feel its affects.
The rebound by the financials overstates the strength of the recovery of the market. Any sign of weakness in the financial sector will cause a drop in the value of the banks, negatively affecting the market. Do investors realize the financials remain weak? Eventually they will and that could be the catalyst for a pull back in the markets.
]]> Fri, 25 Sep 2009 07:56:25 -0400 Hans Wagner In the meltdown of the past year, financials plunged as investors feared many banks would fail, much like Lehman Brothers. As the market realized that the government was able to prop up the weakest of the “to big to fail” banks, some level of confidence returned. Beginning in March, the financials lead the rebound becoming the best performing sector in the S&P 500. XLF has been the best performing ETF of the S&P 500’s primary sectors.
Like the plunge in the financials, the rebound has gone too far. Most of the banks still have significant problems and cannot count of trading profits to help them recover. The positive sloping yield curve should help the banks today, as long as they are able to lend. However, many of the banks are curtailing their lending activities to help shore up their capital position. When they lower their asset base, their capital ratios increase.
Then there is the ongoing credit problem. According to RealtyTrac® (www.realtytrac.com), reports that August 2009 foreclosure filings were 358,471 during the month, a decrease of less than 1 percent from the previous month. Moreover, this is an increase of nearly 18 percent from August 2008. Banks are facing higher foreclosure problems now than they were a year ago. Add in growing problems in the commercial real estate sector and you may wonder how so many people believe the rebound in the banking sector is sustainable.
Any hint of higher inflation and interest rates will rise harming the financial position of most banks as short term rates will rise faster. As the yield curve flattens, the ability of the banks to generate solid net interest rate margins will plunge. As a result, the banks will face a slower revenue growth before they will have recovered from the massive credit problem. Yes, the Federal Reserve is holding short-term rates low and will do so into early 2010. When they begin to raise rates, the banks will be one of the first to feel its affects.
The rebound by the financials overstates the strength of the recovery of the market. Any sign of weakness in the financial sector will cause a drop in the value of the banks, negatively affecting the market. Do investors realize the financials remain weak? Eventually they will and that could be the catalyst for a pull back in the markets.

Complete Story »]]> XLF Hans Wagner The Case for a Bull Market http://seekingalpha.com/article/163139-the-case-for-a-bull-market?source=feed 163139 Is this a bull or bear market? After a rally of more than 50% by the S&P 500, some investors are debating the question of bull market versus bear market. Moreover, those of us who have benefited from this rally are taking the prudent step to evaluate whether this is a bull or bear market.

In an earlier article on bull or bear market, I evaluated the case for a bear market rally. To continue the discussion of bull market versus bear market, it is time to examine the bull market side of the debate. Not surprisingly, there are important fundamental factors that indicate whether a new bull market is here to stay.

]]> Thu, 24 Sep 2009 06:26:47 -0400 Hans Wagner Is this a bull or bear market? After a rally of more than 50% by the S&P 500, some investors are debating the question of bull market versus bear market. Moreover, those of us who have benefited from this rally are taking the prudent step to evaluate whether this is a bull or bear market.

In an earlier article on bull or bear market, I evaluated the case for a bear market rally. To continue the discussion of bull market versus bear market, it is time to examine the bull market side of the debate. Not surprisingly, there are important fundamental factors that indicate whether a new bull market is here to stay.


Complete Story »]]> DIA SPY Hans Wagner Titanium Metals Poised for a Turnaround http://seekingalpha.com/article/162894-titanium-metals-poised-for-a-turnaround?source=feed 162894 Titanium Metals (TIE) is poised to rebound after experiencing a near meltdown caused by the recession and significant delays by Boeing (BA) in development of their 787 Dreamliner. Deliveries of other aircraft will increase the demand for titanium for the next five years.

In July 2009, The Airline Monitor, a leading aerospace publication, issued its semi-annual forecast for commercial aircraft deliveries. Aggregate annual deliveries for both Boeing and Airbus are expected to reach record numbers of aircraft during each year from 2009 through 2013 (totaling at least 960 aircraft deliveries each year during the period). Forecasted deliveries for twin-aisle aircraft through 2013 have declined 4% from 1,450 to 1,390 since The Airline Monitor’s January 2009 forecast primarily due to production delays on the Boeing 787. Changes to production schedules for certain other commercial aircraft resulted in a 22% increase in forecasted deliveries of Boeing and Airbus single-aisle aircraft through 2013.

]]> Wed, 23 Sep 2009 04:16:50 -0400 Hans Wagner Titanium Metals (TIE) is poised to rebound after experiencing a near meltdown caused by the recession and significant delays by Boeing (BA) in development of their 787 Dreamliner. Deliveries of other aircraft will increase the demand for titanium for the next five years.

In July 2009, The Airline Monitor, a leading aerospace publication, issued its semi-annual forecast for commercial aircraft deliveries. Aggregate annual deliveries for both Boeing and Airbus are expected to reach record numbers of aircraft during each year from 2009 through 2013 (totaling at least 960 aircraft deliveries each year during the period). Forecasted deliveries for twin-aisle aircraft through 2013 have declined 4% from 1,450 to 1,390 since The Airline Monitor’s January 2009 forecast primarily due to production delays on the Boeing 787. Changes to production schedules for certain other commercial aircraft resulted in a 22% increase in forecasted deliveries of Boeing and Airbus single-aisle aircraft through 2013.


Complete Story »]]> ATI BA RTI TIE Hans Wagner S&P 500's PE Ratio of 139 Isn't Sustainable http://seekingalpha.com/article/161619-s-p-500-s-pe-ratio-of-139-isn-t-sustainable?source=feed 161619 The S&P 500 PE ratio is an important determinant of the value of the stock market and the trend of the S&P 500. Historically, the S&P 500 PE ratio has a median of 15.7. Today, the S&P PE ratio is 139 based on a closing price of 1,044 on Friday, September 11, 2009. This assumes the trailing earnings for the S&P 500 companies as reported by Standard & Poor’s for the four quarters ending June 30, 2009. A PE ratio at 139 is not sustainable. What is a reasonable PE ratio for the S&P 500 given our current situation?
The S&P 500 PE ratio reflects the performance expectations of the stock market. In the last three quarters, the PE ratio has leapt higher with the plunge in earnings of the S&P 500 companies. The fall in earnings overcame the drop in the value of shares in early March 2009.
Even with the recovery in the markets since the lows in March, the S&P 500 PE ratio remains very high as the trailing four quarters of earnings is so low. According to data from Standard & Poor’s on the S&P 500, as reported earnings for 99% of all reporting companies, creates an S&P 500 PE ratio of 122.41 as of June 30, 2009. The trailing four quarters of earnings was $7.51. Two years ago the as reported earnings for the S&P 500 companies was $84.92 for the quarter ending on June 30, 2007. The S&P 500 PE ratio was 17.70. This plunge in earnings is what caused the S&P 500 PE ratio to rise so high.
As shown on the chart below the S&P 500 PE ratio rose to 122 for the quarter ending June 2009. The estimates through the end of 2010 are from Standard & Poor’s for earnings and the S&P PE ratio.
The U.S. has had three recessions since 1988 according to the National Bureau of Economic Research, the group that determines when the U.S. has had a recession. These recessions are depicted in red in each of the charts shown here.
click to enlarge
S&P 500 PE ratio as of June 2009
S&P 500 Earnings Forecast
Standard & Poor's has forecast earnings through the end of 2010. The chart below shows actual trailing annual earnings since the June 1990 through June 2009. It also includes the forecast for earnings through December 2010.
What stands out is the sudden jump in earnings that begins with the quarter ending December 2009. Part of this sudden change is due to the large drop in earnings reported for December 31, 2008. For the quarter ending December 31, 2009 the S&P 500 delivered $23.25 in losses for that quarter alone due to the large write-offs in the financial sector.
Once the major write-offs are no longer part of the four quarter trailing earnings, the annual earnings return to a forecasted $41 to $45 range for the S&P 500. This earnings forecast provides a basis to project what the S&P 500 index could achieve over the next 12 - 15 months.
S&P 500 Trailing annual earnings
Is the S&P 500 Going Higher or Lower
In the recession of 1990 – 1991, the S&P index began to climb before the end of the recession. Following the end of the 2001 recession, the S&P 500 fell another 200 points before rebounding. So far in the recession of 12/2007 - ?, the S&P 500 fell significantly and has turned up through June 2009. We know it is trading above 1,000 as of the middle of September 2009.
S&P 500 Index history and Forecast
Looking at the earnings forecast from Standard & Poor’s we can assess which way the S&P 500 will likely move for the remainder of 2009 and all of 2010.
The table below uses the trailing four-quarter earnings from Standard & Poor’s. It then applies a PE ratio to derive the S&P 500 index forecast. When looking at the table, keep in mind that the median PE ratio is 15.7. In addition, the PE ratio is mean reverting, so we should expect it to fall further, possibly to 15 or lower. The very low S&P trailing earnings for June and September 2009 are due to the large loss reported in December 2008 quarter.
S&P 500 index forecast table
Using the December 2009 quarter the earnings forecast $39.35 and a PE ratio of 30 gives us a target price for the S&P 500 index of 1,181. On Friday September 11, 2009, the S&P closed at 1,044. A PE ratio of 25 gives us an S&P 500 index of 984. If the S&P 500 PE ratio remains between 25 and 30, we should see the S&P 500 index climb to a range of 1,146 to 1,375.
This examination of earnings and S&P PE ratios is telling us to expect a higher S&P 500 index throughout 2009, as long as the PE ratio remains in the 25-30 range. Whether this is correct, depends on several factors. First, are the earnings forecast correct? Investors should monitor earnings expectations throughout the year, looking for any changes either up or down. The estimates for all of 2010 are higher now than they were in June, indicating S&P is expecting a more robust recovery.
Second, evaluate your PE ratio assumptions based on the outlook for the economy and the markets. If earnings are running above the forecast from Standard & Poor’s, then you should could expect the PE ratio to hold in the 25 - 30. On the other hand, if earnings expectations are falling, then you should expect the PE ratio to fall further. In each case, any move in the PE ratio will cause a significant move in the S&P 500 index.
Yale University Professor Robert J. Shiller, author of Irrational Exuberance: Second Edition uses a modified PE ratio that smoothes out the volatility in the ratio. The denominator of this modified ratio is average inflation-adjusted earnings over the trailing 10 years. Shiller calls this modified ratio "p/e10." Using this data the modified ratio “p/e10” produces a PE ratio of slightly over 15, which is very close to the median of 15.7. In December 2007, the beginning of the current recession, the “p/e 10” was 25.95. Since markets tend to cycle above and below the median, we should expect the “p/e 10” to fall further before turning back up.
Using December 2009 trailing four-quarter earnings of $39.95 times the median PE ratio of 15.7 gives us an S&P 500 index of 627. This gives us a range for the S&P index of a high of 1,375 assuming an S&P PE ratio of 30 to a low of 675 with a PE ratio of 15.7, the median. The risk is to the down side.
Investors still need to understand if the S&P 500 PE ratio will rise or fall. If Professor Shiller is correct, then we should look for a drop in the S&P 500 PE ratio. On the other hand if the current PE ratio remains in the 25 - 30 range, then we could see the S&P 500 index rise further driven only by higher earnings.
For investors a PE ratio in the 25 to 30 range means it will be difficult to find bargains, as you cannot expect an expansion of the PE ratio to contribute a higher level on the S&P 500 index. Moreover, there is a risk the S&P PE ratio could contract, causing the level of the S&P 500 index to fall. A drop to 20 on the S&P 500 PE ratio gives us a high of 917 on the S&P 500, assuming earnings does not change from its forecast. Going forward investors need to keep in mind that the risk of a PE ratio contraction is a possibility. A rise in the S&P 500 PE ratio is unlikely.
]]> Tue, 15 Sep 2009 12:25:35 -0400 Hans Wagner The S&P 500 PE ratio is an important determinant of the value of the stock market and the trend of the S&P 500. Historically, the S&P 500 PE ratio has a median of 15.7. Today, the S&P PE ratio is 139 based on a closing price of 1,044 on Friday, September 11, 2009. This assumes the trailing earnings for the S&P 500 companies as reported by Standard & Poor’s for the four quarters ending June 30, 2009. A PE ratio at 139 is not sustainable. What is a reasonable PE ratio for the S&P 500 given our current situation?
The S&P 500 PE ratio reflects the performance expectations of the stock market. In the last three quarters, the PE ratio has leapt higher with the plunge in earnings of the S&P 500 companies. The fall in earnings overcame the drop in the value of shares in early March 2009.
Even with the recovery in the markets since the lows in March, the S&P 500 PE ratio remains very high as the trailing four quarters of earnings is so low. According to data from Standard & Poor’s on the S&P 500, as reported earnings for 99% of all reporting companies, creates an S&P 500 PE ratio of 122.41 as of June 30, 2009. The trailing four quarters of earnings was $7.51. Two years ago the as reported earnings for the S&P 500 companies was $84.92 for the quarter ending on June 30, 2007. The S&P 500 PE ratio was 17.70. This plunge in earnings is what caused the S&P 500 PE ratio to rise so high.
As shown on the chart below the S&P 500 PE ratio rose to 122 for the quarter ending June 2009. The estimates through the end of 2010 are from Standard & Poor’s for earnings and the S&P PE ratio.
The U.S. has had three recessions since 1988 according to the National Bureau of Economic Research, the group that determines when the U.S. has had a recession. These recessions are depicted in red in each of the charts shown here.
click to enlarge
S&P 500 PE ratio as of June 2009
S&P 500 Earnings Forecast
Standard & Poor's has forecast earnings through the end of 2010. The chart below shows actual trailing annual earnings since the June 1990 through June 2009. It also includes the forecast for earnings through December 2010.
What stands out is the sudden jump in earnings that begins with the quarter ending December 2009. Part of this sudden change is due to the large drop in earnings reported for December 31, 2008. For the quarter ending December 31, 2009 the S&P 500 delivered $23.25 in losses for that quarter alone due to the large write-offs in the financial sector.
Once the major write-offs are no longer part of the four quarter trailing earnings, the annual earnings return to a forecasted $41 to $45 range for the S&P 500. This earnings forecast provides a basis to project what the S&P 500 index could achieve over the next 12 - 15 months.
S&P 500 Trailing annual earnings
Is the S&P 500 Going Higher or Lower
In the recession of 1990 – 1991, the S&P index began to climb before the end of the recession. Following the end of the 2001 recession, the S&P 500 fell another 200 points before rebounding. So far in the recession of 12/2007 - ?, the S&P 500 fell significantly and has turned up through June 2009. We know it is trading above 1,000 as of the middle of September 2009.
S&P 500 Index history and Forecast
Looking at the earnings forecast from Standard & Poor’s we can assess which way the S&P 500 will likely move for the remainder of 2009 and all of 2010.
The table below uses the trailing four-quarter earnings from Standard & Poor’s. It then applies a PE ratio to derive the S&P 500 index forecast. When looking at the table, keep in mind that the median PE ratio is 15.7. In addition, the PE ratio is mean reverting, so we should expect it to fall further, possibly to 15 or lower. The very low S&P trailing earnings for June and September 2009 are due to the large loss reported in December 2008 quarter.
S&P 500 index forecast table
Using the December 2009 quarter the earnings forecast $39.35 and a PE ratio of 30 gives us a target price for the S&P 500 index of 1,181. On Friday September 11, 2009, the S&P closed at 1,044. A PE ratio of 25 gives us an S&P 500 index of 984. If the S&P 500 PE ratio remains between 25 and 30, we should see the S&P 500 index climb to a range of 1,146 to 1,375.
This examination of earnings and S&P PE ratios is telling us to expect a higher S&P 500 index throughout 2009, as long as the PE ratio remains in the 25-30 range. Whether this is correct, depends on several factors. First, are the earnings forecast correct? Investors should monitor earnings expectations throughout the year, looking for any changes either up or down. The estimates for all of 2010 are higher now than they were in June, indicating S&P is expecting a more robust recovery.
Second, evaluate your PE ratio assumptions based on the outlook for the economy and the markets. If earnings are running above the forecast from Standard & Poor’s, then you should could expect the PE ratio to hold in the 25 - 30. On the other hand, if earnings expectations are falling, then you should expect the PE ratio to fall further. In each case, any move in the PE ratio will cause a significant move in the S&P 500 index.
Yale University Professor Robert J. Shiller, author of Irrational Exuberance: Second Edition uses a modified PE ratio that smoothes out the volatility in the ratio. The denominator of this modified ratio is average inflation-adjusted earnings over the trailing 10 years. Shiller calls this modified ratio "p/e10." Using this data the modified ratio “p/e10” produces a PE ratio of slightly over 15, which is very close to the median of 15.7. In December 2007, the beginning of the current recession, the “p/e 10” was 25.95. Since markets tend to cycle above and below the median, we should expect the “p/e 10” to fall further before turning back up.
Using December 2009 trailing four-quarter earnings of $39.95 times the median PE ratio of 15.7 gives us an S&P 500 index of 627. This gives us a range for the S&P index of a high of 1,375 assuming an S&P PE ratio of 30 to a low of 675 with a PE ratio of 15.7, the median. The risk is to the down side.
Investors still need to understand if the S&P 500 PE ratio will rise or fall. If Professor Shiller is correct, then we should look for a drop in the S&P 500 PE ratio. On the other hand if the current PE ratio remains in the 25 - 30 range, then we could see the S&P 500 index rise further driven only by higher earnings.
For investors a PE ratio in the 25 to 30 range means it will be difficult to find bargains, as you cannot expect an expansion of the PE ratio to contribute a higher level on the S&P 500 index. Moreover, there is a risk the S&P PE ratio could contract, causing the level of the S&P 500 index to fall. A drop to 20 on the S&P 500 PE ratio gives us a high of 917 on the S&P 500, assuming earnings does not change from its forecast. Going forward investors need to keep in mind that the risk of a PE ratio contraction is a possibility. A rise in the S&P 500 PE ratio is unlikely.

Complete Story »]]> IVV SPY Hans Wagner The Case for a Bear Market Rally http://seekingalpha.com/article/161312-the-case-for-a-bear-market-rally?source=feed 161312 Are we in a bull or bear market? That is the question many are asking with the S&P 500 up 50% from its March 9th low. Whether we are in a new bull market or just experiencing another bear market rally is important for investors to answer. Today, I will present the case for a bear market rally. In the next few days, I will offer why the bear market is over.

In early 2009, the economy looked over the precipice and saw a deep depression looming. The market entered a bear market that plunged to significant lows. Since then the market has rebounded rising 50% from its low of 666 on the S&P 500 in early March Is this move up by the market a new bull market or a bear market rally?

]]> Mon, 14 Sep 2009 04:03:53 -0400 Hans Wagner Are we in a bull or bear market? That is the question many are asking with the S&P 500 up 50% from its March 9th low. Whether we are in a new bull market or just experiencing another bear market rally is important for investors to answer. Today, I will present the case for a bear market rally. In the next few days, I will offer why the bear market is over.

In early 2009, the economy looked over the precipice and saw a deep depression looming. The market entered a bear market that plunged to significant lows. Since then the market has rebounded rising 50% from its low of 666 on the S&P 500 in early March Is this move up by the market a new bull market or a bear market rally?


Complete Story »]]> SPY Hans Wagner Investing According to GARP http://seekingalpha.com/article/160611-investing-according-to-garp?source=feed 160611 Growth at a reasonable price (GARP) investing seeks to find companies that have strong earnings growth at a good price. GARP investing blends growth and value to create a better way to invest. How does it work?

As defined by Investopedia,

]]> Wed, 09 Sep 2009 09:57:34 -0400 Hans Wagner Growth at a reasonable price (GARP) investing seeks to find companies that have strong earnings growth at a good price. GARP investing blends growth and value to create a better way to invest. How does it work?

As defined by Investopedia,


Complete Story »]]> Hans Wagner Rising Exports: The Basis for Sustained Economic Recovery http://seekingalpha.com/article/160610-rising-exports-the-basis-for-sustained-economic-recovery?source=feed 160610 For decades, consumer spending led the U.S. economy. As the U.S. consumer curtails their spending to replenish finances, they will not be leading the way to economic recovery this time. Rather, the U.S. will be looking to the rising export economy to provide the power behind the country’s growth in Gross Domestic Product.

For years U.S. consumers depended on rising asset values and easier access to credit fueled their appetite for bigger houses and all the stuff they bought to fill them. The consumer was responsible for 67% of GDP in 1980, growing it to 75% in 2007. Low cost imports helped to spur this spending spree. American spent more than it produced causing the current-account balance to go from a 0.4% of GDP surplus in 1980 to a deficit of almost 6% in 2006. Savings rates fell from 10% of disposable income in 1980 to just about zero in 2007. Along the way household debt rose from a reasonable 67% in 1980 to an unsustainable 132% of disposable income in 2007.

]]> Wed, 09 Sep 2009 09:50:42 -0400 Hans Wagner For decades, consumer spending led the U.S. economy. As the U.S. consumer curtails their spending to replenish finances, they will not be leading the way to economic recovery this time. Rather, the U.S. will be looking to the rising export economy to provide the power behind the country’s growth in Gross Domestic Product.

For years U.S. consumers depended on rising asset values and easier access to credit fueled their appetite for bigger houses and all the stuff they bought to fill them. The consumer was responsible for 67% of GDP in 1980, growing it to 75% in 2007. Low cost imports helped to spur this spending spree. American spent more than it produced causing the current-account balance to go from a 0.4% of GDP surplus in 1980 to a deficit of almost 6% in 2006. Savings rates fell from 10% of disposable income in 1980 to just about zero in 2007. Along the way household debt rose from a reasonable 67% in 1980 to an unsustainable 132% of disposable income in 2007.


Complete Story »]]> Hans Wagner Five Steps to Building a Sector Based ETF Portfolio http://seekingalpha.com/article/160602-five-steps-to-building-a-sector-based-etf-portfolio?source=feed 160602 A sector based Exchange Traded Fund (ETF) portfolio offers investors a lower risk way to participate in the cyclical nature of the economy and the market. ETFs offer investors a way to reduce their risk by diversifying their individual stock exposure. Sector rotation is an investing strategy that seeks to buy and own ETFs that hold shares of companies in industries that should outperform the market. If you want to take advantage of the benefits of a sector based ETF portfolio, here are five steps to you should you take.

By following these steps, you will build a sector-based portfolio with ETFs that should generate high returns and help you sleep well at night:

]]> Wed, 09 Sep 2009 09:23:33 -0400 Hans Wagner A sector based Exchange Traded Fund (ETF) portfolio offers investors a lower risk way to participate in the cyclical nature of the economy and the market. ETFs offer investors a way to reduce their risk by diversifying their individual stock exposure. Sector rotation is an investing strategy that seeks to buy and own ETFs that hold shares of companies in industries that should outperform the market. If you want to take advantage of the benefits of a sector based ETF portfolio, here are five steps to you should you take.

By following these steps, you will build a sector-based portfolio with ETFs that should generate high returns and help you sleep well at night:


Complete Story »]]> Hans Wagner Coach Is Fundamentally Solid http://seekingalpha.com/article/160164-coach-is-fundamentally-solid?source=feed 160164 Coach Inc. (COH) offers an interesting fundamental proposition. While consumers may be curtailing spending as they try to rebuild their savings, Coach is well positioned to take advantage of the upper middle class women who value owning Coach products.

The company has weathered the recession well and is positioned to benefit from the economic recovery in the U.S., Europe, Asia and the Middle East.

]]> Sun, 06 Sep 2009 07:53:18 -0400 Hans Wagner Coach Inc. (COH) offers an interesting fundamental proposition. While consumers may be curtailing spending as they try to rebuild their savings, Coach is well positioned to take advantage of the upper middle class women who value owning Coach products.

The company has weathered the recession well and is positioned to benefit from the economic recovery in the U.S., Europe, Asia and the Middle East.


Complete Story »]]> COH Hans Wagner Gilead Sciences: Expect Share Price to Move Up http://seekingalpha.com/article/159973-gilead-sciences-expect-share-price-to-move-up?source=feed 159973 Gilead Sciences (GILD) is a good bio-technology companies with their strong franchise in HIV, a growing franchise in Hepatitis and potential in cardio-vascular therapies. Many think of Gilead as the provider of Tamiflu, a therapy for influenza. However, Tamiflu is a small part of the story and it has limited impact on the company’s prospects.

The strength of the company lies with its antiviral franchise, which experienced sales increase of 26 percent to $1.41 billion in the second quarter of 2009 due primarily to Truvada, which grew 18 percent and Atripla, which saw 60 percent sales increase. Tamiflu, sold through a partnership with Hoffmann-La Roche Ltd (Roche (RHHBY.PK)) provided royalties of $51.9 million in the second quarter of 2009. Europe is generating the best growth for Gilead’s HIV products.

]]> Fri, 04 Sep 2009 05:43:43 -0400 Hans Wagner Gilead Sciences (GILD) is a good bio-technology companies with their strong franchise in HIV, a growing franchise in Hepatitis and potential in cardio-vascular therapies. Many think of Gilead as the provider of Tamiflu, a therapy for influenza. However, Tamiflu is a small part of the story and it has limited impact on the company’s prospects.

The strength of the company lies with its antiviral franchise, which experienced sales increase of 26 percent to $1.41 billion in the second quarter of 2009 due primarily to Truvada, which grew 18 percent and Atripla, which saw 60 percent sales increase. Tamiflu, sold through a partnership with Hoffmann-La Roche Ltd (Roche (RHHBY.PK)) provided royalties of $51.9 million in the second quarter of 2009. Europe is generating the best growth for Gilead’s HIV products.


Complete Story »]]> GILD Hans Wagner Expect S&P 500 to Continue Sideways Trend During September http://seekingalpha.com/article/159972-expect-s-p-500-to-continue-sideways-trend-during-september?source=feed 159972 The upper trend continues to offer resistance as yesterday's action shows. Volume has picked up slightly in the last few days. I expect we will trade sideways for the rest of the week as we enter September and the Labor Day holiday. While September is known as a historically poor month for the market, it seems everyone is now focused on this potential event. All this attention means tends to indicate the event might not happen at all. However, we will get a better idea when the pros return after Labor Day. We just have to be patient.

The RSI is below 50, a sign of a downtrend. The MACD turned down through the 9-day moving average, giving a sell sign. The Slow Stochastic is above 80, where it will eventually turn down, giving a sell signal.

]]> Fri, 04 Sep 2009 05:33:23 -0400 Hans Wagner The upper trend continues to offer resistance as yesterday's action shows. Volume has picked up slightly in the last few days. I expect we will trade sideways for the rest of the week as we enter September and the Labor Day holiday. While September is known as a historically poor month for the market, it seems everyone is now focused on this potential event. All this attention means tends to indicate the event might not happen at all. However, we will get a better idea when the pros return after Labor Day. We just have to be patient.

The RSI is below 50, a sign of a downtrend. The MACD turned down through the 9-day moving average, giving a sell sign. The Slow Stochastic is above 80, where it will eventually turn down, giving a sell signal.


Complete Story »]]> SPY Hans Wagner Prospects for Electric Cars http://seekingalpha.com/article/159069-prospects-for-electric-cars?source=feed 159069 Speculation on the prospects for electric cars and their impact on the world’s economies make for interesting chatter. As China, the U.S. and European governments step up their stimulus programs to encourage electrification of vehicles, investors are starting to take notice. The question is which industries offer the best investing opportunity.
The Tesla Motors Roadster is expected to deliver 200 to 240 miles per charge, depending on driving conditions and usage. According to General Motors, the Chevrolet Volt, when it finally hits the showrooms, will get 40 miles between charges. The difference is due to the size of the batteries used to power the car. In the Tesla’s case there are more batteries installed on the car, as it depends only on battery power. The Volt will have a small gasoline engine to help recharge the batteries beyond the 40-mile limit. Other hybrid-eclectic vehicles such as the Toyota Prius also use a small gasoline engines to help charge the battery and in some cases add power to the wheels when necessary. The electric cars can be recharged by plugging the car into the power grid using a special adaptor, though some can be charged through the standard household electric outlet.
China has set a goal of producing half-a-million electric cars annually by 2011. To help stimulate this goal they have announced they are investing $1.4 billion in R&D. The United States has committed $2 billion in stimulus spending to help design and manufacture better batteries. Vehicle manufacturers are receiving help to the tune of $25 billion form the U.S. government to retool their production lines so they can produce larger number of fuel-efficient vehicles, including electric ones.
As more electrified cars and trucks move to the mainstream, they will require some significant changes in several industries if they are to be commercially successful. While some people may believe the move to electric cars is a long way off, the current drive by several major governments should not be ignored. The power trains, battery, and utility industries will each see investing opportunities.
Electric Power Trains
As shown by the success of the Tesla, start-up manufacturers are already making small inroads into the electric car industry. Faced with large legacy engineering and manufacturing processes, the incumbent auto and truck manufacturers must deal with the challenge of operating their existing vehicles while they introduce new vehicles including electric ones. Most of the vehicle manufacturers have outsourced all vehicle components other than engines and drive trains. Electric and hybrid-electric vehicles use significantly different engines and drive trains than your traditional gasoline or diesel powered cars and trucks. As a result, many of these companies must completely redesign their current engineering and manufacturing processes to adapt to the new electric power trains.
Controlling battery design and production will be a core skill that will help to differentiate a car or truck. If your car or truck can go 25% farther on the same charge, you will have a significant competitive advantage. In addition, the technology to manage power will require investment in electronics and software that is foreign to the auto manufacturers.
These new power trains open the door to innovations and start-up firms to capture a significant share of the market, as the traditional vehicle manufacturers wrestle with their transition from their current emphasis to new hybrids and all eclectic drive trains. As a result, many traditional vehicle manufactures will collaborate with or acquire these new firms. For example, Daimler A.G. (DAI) has acquired nearly a 10 percent stake in Tesla Motors, which remains privately held.
Companies such as BorgWarner Inc. (BWA), who produces the single-speed gearbox for the Tesla Roadster, will have to adjust their design, engineering, and production approach to meet the challenges of electric vehicles.
Battery Industries
The potential to displace oil as the power source for millions of vehicles is an interesting opportunity. Governments in China, the European Union, and the United States are trying to encourage industries to develop world-class battery technology, so they can become the world leader. Like many industries, the value of the product will shift from the basic components to total systems. Today, batteries are comprised of cells whose chemistry generates electricity. While important, cell chemistry is likely to become a commodity with little to differentiate it from others. For example, battery manufacturers have accomplished the transition from lead battery technology to lithium-based chemistry.
The most successful battery manufacturers will be the ones who move to system level capabilities designed to support specific vehicles. These systems will use electronics and software to offer power and thermal management capabilities that optimize the battery’s performance for a specific vehicle. This will require a more complex engineering and production capability. It will also require the battery manufacturers to work closely with the tier one drive train manufacturers and the auto manufacturers themselves. To succeed the battery manufacturers will have to develop significant new skills and capabilities so they can meet the needs of each vehicle. This will require substantial financial strength as well.
Engineers estimate that the cost of a battery for a plug-in electric car that gets 40 miles before it needs recharging is $11,800. This cost increases to $24,000 for a car that gets 100 miles per charge. The cost of a battery for a common laptop runs $50 to $100. This gives you an idea of the opportunity for battery manufacturers. If the world were to see 6 million electrified vehicles sold per year, the market could be greater than $70 billion. The cost of a battery will decline as volumes rise and economies of scale are achieved. Some analysts estimate we should expect a six to ten percent drop in the price of an equivalent battery over the next ten years. To achieve this, battery manufacturers will have to invest substantial sums in engineering and manufacturing.
Another challenge the battery manufacturers face will be how they deal with warranty issues. Today, these manufacturers have a relatively small exposure to warranty problems. Probably the largest has been problems associated with several laptop computers that have high failure rates or in some cases caused a fire. While serious, these batteries have a relatively low cost compared to the cost of an electric car’s battery. Replacing an entire battery system and possibly the vehicle will require new approaches as well as very strong balance sheets.
As each of us has witnessed, batteries have a useful life that grows shorter with use. Eventually batteries must be replaced. This creates a new aftermarket opportunity that has not existed. It also creates a disposal problem. Recycling cell phone and laptop batteries is one thing. Putting in place the process to recycle lithium car batteries is quite another. So far, there seems to be very little study on this problem, though it looms quite large as areas of the world move to electric cars. Where there is a problem there is an opportunity
Electric Utilities
Electric vehicles offer new opportunities for the electric utility industry. Most people assume that the plug-in vehicles would be recharged at night. If true, the electric utilities would not have to invest in new infrastructure, as this is an off-peak demand period. However, if drivers of electric vehicles found it necessary to plug their cars in during the day, a peak period use, they could force the utilities to invest in additional infrastructure to meet the higher demand. Companies might want to encourage their employees to drive electric cars by providing plug-in centers at their parking facilities, so drivers could recharge their cars during the day. I could even see some companies claiming this as a company benefit, using the service as a way to help offset their carbon producing facilities elsewhere.
Electric utilities are aware they must invest to create new smart grid capabilities that will help to manage usage of electricity. Electric cars will add to the demand for this new infrastructure. Utility company engineers see this as just another demand placed on the electric grid. However, we might see entrepreneurs employing renewable energy methods to take advantage of these opportunities. Maybe a windmill and or solar panels hooked up to a recharging unit in the parking lot will offer a way for cars to recharge without using the local electric utility.
The Bottom Line
Any time there is a fundamental change in the way an industry operates, new investing opportunities develop. Investors who understand these opportunities can reap the rewards. They also must manage the risks, as they can be large. These opportunities will come from several industries, but especially the drive train and the battery companies. To a lesser extent the electric utilities may also benefit, though not to the same extent, and possibly not at all.
As governments stimulate the move to use of electricity to replace oil, investors should be prepared to find opportunities to benefit. These opportunities will grow with time and the time is now to start your research.
]]> Sun, 30 Aug 2009 10:41:17 -0400 Hans Wagner Speculation on the prospects for electric cars and their impact on the world’s economies make for interesting chatter. As China, the U.S. and European governments step up their stimulus programs to encourage electrification of vehicles, investors are starting to take notice. The question is which industries offer the best investing opportunity.
The Tesla Motors Roadster is expected to deliver 200 to 240 miles per charge, depending on driving conditions and usage. According to General Motors, the Chevrolet Volt, when it finally hits the showrooms, will get 40 miles between charges. The difference is due to the size of the batteries used to power the car. In the Tesla’s case there are more batteries installed on the car, as it depends only on battery power. The Volt will have a small gasoline engine to help recharge the batteries beyond the 40-mile limit. Other hybrid-eclectic vehicles such as the Toyota Prius also use a small gasoline engines to help charge the battery and in some cases add power to the wheels when necessary. The electric cars can be recharged by plugging the car into the power grid using a special adaptor, though some can be charged through the standard household electric outlet.
China has set a goal of producing half-a-million electric cars annually by 2011. To help stimulate this goal they have announced they are investing $1.4 billion in R&D. The United States has committed $2 billion in stimulus spending to help design and manufacture better batteries. Vehicle manufacturers are receiving help to the tune of $25 billion form the U.S. government to retool their production lines so they can produce larger number of fuel-efficient vehicles, including electric ones.
As more electrified cars and trucks move to the mainstream, they will require some significant changes in several industries if they are to be commercially successful. While some people may believe the move to electric cars is a long way off, the current drive by several major governments should not be ignored. The power trains, battery, and utility industries will each see investing opportunities.
Electric Power Trains
As shown by the success of the Tesla, start-up manufacturers are already making small inroads into the electric car industry. Faced with large legacy engineering and manufacturing processes, the incumbent auto and truck manufacturers must deal with the challenge of operating their existing vehicles while they introduce new vehicles including electric ones. Most of the vehicle manufacturers have outsourced all vehicle components other than engines and drive trains. Electric and hybrid-electric vehicles use significantly different engines and drive trains than your traditional gasoline or diesel powered cars and trucks. As a result, many of these companies must completely redesign their current engineering and manufacturing processes to adapt to the new electric power trains.
Controlling battery design and production will be a core skill that will help to differentiate a car or truck. If your car or truck can go 25% farther on the same charge, you will have a significant competitive advantage. In addition, the technology to manage power will require investment in electronics and software that is foreign to the auto manufacturers.
These new power trains open the door to innovations and start-up firms to capture a significant share of the market, as the traditional vehicle manufacturers wrestle with their transition from their current emphasis to new hybrids and all eclectic drive trains. As a result, many traditional vehicle manufactures will collaborate with or acquire these new firms. For example, Daimler A.G. (DAI) has acquired nearly a 10 percent stake in Tesla Motors, which remains privately held.
Companies such as BorgWarner Inc. (BWA), who produces the single-speed gearbox for the Tesla Roadster, will have to adjust their design, engineering, and production approach to meet the challenges of electric vehicles.
Battery Industries
The potential to displace oil as the power source for millions of vehicles is an interesting opportunity. Governments in China, the European Union, and the United States are trying to encourage industries to develop world-class battery technology, so they can become the world leader. Like many industries, the value of the product will shift from the basic components to total systems. Today, batteries are comprised of cells whose chemistry generates electricity. While important, cell chemistry is likely to become a commodity with little to differentiate it from others. For example, battery manufacturers have accomplished the transition from lead battery technology to lithium-based chemistry.
The most successful battery manufacturers will be the ones who move to system level capabilities designed to support specific vehicles. These systems will use electronics and software to offer power and thermal management capabilities that optimize the battery’s performance for a specific vehicle. This will require a more complex engineering and production capability. It will also require the battery manufacturers to work closely with the tier one drive train manufacturers and the auto manufacturers themselves. To succeed the battery manufacturers will have to develop significant new skills and capabilities so they can meet the needs of each vehicle. This will require substantial financial strength as well.
Engineers estimate that the cost of a battery for a plug-in electric car that gets 40 miles before it needs recharging is $11,800. This cost increases to $24,000 for a car that gets 100 miles per charge. The cost of a battery for a common laptop runs $50 to $100. This gives you an idea of the opportunity for battery manufacturers. If the world were to see 6 million electrified vehicles sold per year, the market could be greater than $70 billion. The cost of a battery will decline as volumes rise and economies of scale are achieved. Some analysts estimate we should expect a six to ten percent drop in the price of an equivalent battery over the next ten years. To achieve this, battery manufacturers will have to invest substantial sums in engineering and manufacturing.
Another challenge the battery manufacturers face will be how they deal with warranty issues. Today, these manufacturers have a relatively small exposure to warranty problems. Probably the largest has been problems associated with several laptop computers that have high failure rates or in some cases caused a fire. While serious, these batteries have a relatively low cost compared to the cost of an electric car’s battery. Replacing an entire battery system and possibly the vehicle will require new approaches as well as very strong balance sheets.
As each of us has witnessed, batteries have a useful life that grows shorter with use. Eventually batteries must be replaced. This creates a new aftermarket opportunity that has not existed. It also creates a disposal problem. Recycling cell phone and laptop batteries is one thing. Putting in place the process to recycle lithium car batteries is quite another. So far, there seems to be very little study on this problem, though it looms quite large as areas of the world move to electric cars. Where there is a problem there is an opportunity
Electric Utilities
Electric vehicles offer new opportunities for the electric utility industry. Most people assume that the plug-in vehicles would be recharged at night. If true, the electric utilities would not have to invest in new infrastructure, as this is an off-peak demand period. However, if drivers of electric vehicles found it necessary to plug their cars in during the day, a peak period use, they could force the utilities to invest in additional infrastructure to meet the higher demand. Companies might want to encourage their employees to drive electric cars by providing plug-in centers at their parking facilities, so drivers could recharge their cars during the day. I could even see some companies claiming this as a company benefit, using the service as a way to help offset their carbon producing facilities elsewhere.
Electric utilities are aware they must invest to create new smart grid capabilities that will help to manage usage of electricity. Electric cars will add to the demand for this new infrastructure. Utility company engineers see this as just another demand placed on the electric grid. However, we might see entrepreneurs employing renewable energy methods to take advantage of these opportunities. Maybe a windmill and or solar panels hooked up to a recharging unit in the parking lot will offer a way for cars to recharge without using the local electric utility.
The Bottom Line
Any time there is a fundamental change in the way an industry operates, new investing opportunities develop. Investors who understand these opportunities can reap the rewards. They also must manage the risks, as they can be large. These opportunities will come from several industries, but especially the drive train and the battery companies. To a lesser extent the electric utilities may also benefit, though not to the same extent, and possibly not at all.
As governments stimulate the move to use of electricity to replace oil, investors should be prepared to find opportunities to benefit. These opportunities will grow with time and the time is now to start your research.

Complete Story »]]> BWA DAI Hans Wagner Sector Rotation Strategy: Exports Driving Economic Growth http://seekingalpha.com/article/150685-sector-rotation-strategy-exports-driving-economic-growth?source=feed 150685 Aligning your portfolio with the next industries to lead the economy and bear the market is basic to a sector rotation strategy. The current recession is causing some significant changes to the underlying economy that will affect investors. Surprisingly, companies that benefit from their export business are seeing their opportunities expand.

There are some fundamental reasons for this change that will help them sustain their export growth. Exports will be the leading reasons for the growth the U.S. Gross Domestic Product (GDP) for several years to come. Look to align your portfolio with the sectors that benefit from exports.

]]> Thu, 23 Jul 2009 02:05:10 -0400 Hans Wagner Aligning your portfolio with the next industries to lead the economy and bear the market is basic to a sector rotation strategy. The current recession is causing some significant changes to the underlying economy that will affect investors. Surprisingly, companies that benefit from their export business are seeing their opportunities expand.

There are some fundamental reasons for this change that will help them sustain their export growth. Exports will be the leading reasons for the growth the U.S. Gross Domestic Product (GDP) for several years to come. Look to align your portfolio with the sectors that benefit from exports.


Complete Story »]]> DIA EXI FXZ QQQQ SPY XLK XLY Hans Wagner Investing in the Smart Grid http://seekingalpha.com/article/148222-investing-in-the-smart-grid?source=feed 148222 With the likely passage of the “Cap and Trade” bill, many investors are jumping on the renewable energy bandwagon. And why not? With the government about to mandate a cap-and-trade program that will drive up the cost of electricity, there are many new opportunities to capitalize on the flow of investment dollars from public and private sources. They also are looking for investment opportunities through stocks of smart grid companies.

This headlong push into alternative power generation is causing investors to take a new look at the old electrical grid system. While there have been attempts to move to a market based power generation system, most of these efforts have failed to achieve their original goals.

]]> Sun, 12 Jul 2009 04:12:59 -0400 Hans Wagner With the likely passage of the “Cap and Trade” bill, many investors are jumping on the renewable energy bandwagon. And why not? With the government about to mandate a cap-and-trade program that will drive up the cost of electricity, there are many new opportunities to capitalize on the flow of investment dollars from public and private sources. They also are looking for investment opportunities through stocks of smart grid companies.

This headlong push into alternative power generation is causing investors to take a new look at the old electrical grid system. While there have been attempts to move to a market based power generation system, most of these efforts have failed to achieve their original goals.


Complete Story »]]> ABB COMV GE GOOG ITRI PZD TRMB VWSYF.PK Hans Wagner Sector Rotation Strategies for 2009 http://seekingalpha.com/article/145025-sector-rotation-strategies-for-2009?source=feed 145025 Sector rotation is a proven strategy to beat the market. The sector rotation strategy for 2009 takes advantage of the changing U.S. economy from reduced consumer spending, increased U.S. debt and deleveraging of balance sheets. When the current economic recession ends marking the beginning of a new bull market, it will be time to enjoy benefits of a properly positioned portfolio. An analysis of the impact of the recession on each industry in the sector rotation model will create opportunities for investors.

Sector Rotation Model

]]> Wed, 24 Jun 2009 04:14:51 -0400 Hans Wagner Sector rotation is a proven strategy to beat the market. The sector rotation strategy for 2009 takes advantage of the changing U.S. economy from reduced consumer spending, increased U.S. debt and deleveraging of balance sheets. When the current economic recession ends marking the beginning of a new bull market, it will be time to enjoy benefits of a properly positioned portfolio. An analysis of the impact of the recession on each industry in the sector rotation model will create opportunities for investors.

Sector Rotation Model


Complete Story »]]> XLB XLE XLF XLI XLK XLP XLU XLV XLY Hans Wagner Biotech Dip: Sector Weakness, or Buying Opportunity? http://seekingalpha.com/article/125570-biotech-dip-sector-weakness-or-buying-opportunity?source=feed 125570 The tidal wave of changes driven by initiatives from the Obama administration and Congress is causing investors to abandon well thought out strategies. On Thursday, February 26, 2009, the Obama administration released more details of its 2010 budget proposal calling for access to cheaper generic versions of biotechnology drugs as a way to pay for an overhaul of healthcare. Investors reacted to the news by aggressively selling the biotechnology sector, with the S&P SPDR Biotechnology ETF (XBI) falling $5.07 from $51.35 to $46.28 in two days. Is this a sign of further weakness in the sector, or is it a buying opportunity for the biotechnology firms and the generic firms?

Budget Statements and Intentions

President Obama’s 2010 budget seeks to accelerate the development of lower cost generic versions of biotechnology drugs by establishing a new regulatory pathway at the Food and Drug Administration. To speed development of generic drugs, the administration’s budget requests $20 million in 2013 to create this pathway for FDA approval of generic versions of biologic drugs, which are made from living organisms. This plan, which must be passed by Congress, has key Democratic support. The budget document estimates that $9.2 billion over 10 years could be saved, helping to pay for expanded insurance coverage and improved care.

]]> Thu, 12 Mar 2009 07:36:37 -0400 Hans Wagner The tidal wave of changes driven by initiatives from the Obama administration and Congress is causing investors to abandon well thought out strategies. On Thursday, February 26, 2009, the Obama administration released more details of its 2010 budget proposal calling for access to cheaper generic versions of biotechnology drugs as a way to pay for an overhaul of healthcare. Investors reacted to the news by aggressively selling the biotechnology sector, with the S&P SPDR Biotechnology ETF (XBI) falling $5.07 from $51.35 to $46.28 in two days. Is this a sign of further weakness in the sector, or is it a buying opportunity for the biotechnology firms and the generic firms?

Budget Statements and Intentions

President Obama’s 2010 budget seeks to accelerate the development of lower cost generic versions of biotechnology drugs by establishing a new regulatory pathway at the Food and Drug Administration. To speed development of generic drugs, the administration’s budget requests $20 million in 2013 to create this pathway for FDA approval of generic versions of biologic drugs, which are made from living organisms. This plan, which must be passed by Congress, has key Democratic support. The budget document estimates that $9.2 billion over 10 years could be saved, helping to pay for expanded insurance coverage and improved care.


Complete Story »]]> AMGN DNA GENZ GILD MYL TEVA WPI XBI Hans Wagner