Seeking Alpha The 2011 Platinum Investment Advisors Outlook Report
Cautiously, Optimistic is how I would like to describe my outlook for 2011. We have a lot of pros and cons going for us in our economic outlook. I will list these later in the article. Right now I wanted to highlight some of the sectors, themes, and stocks that my firm likes and why. I am so tired of talking about the jobless recovery and deficit spending issues that plague this country but that is still where we are and is still a problem even after the extension of the Bush Tax Cuts. We have a jobless recovery and some skepticism about spending on the part of all businesses not just small businesses. Certain states are faring better in the housing market but certain others like Nevada for instance are hemorrhaging with foreclosures, with this in mind banks continue to hold these on their balance sheets. That being said I am avoiding banks this year, even though there will be some good money made bottom fishing and strategically picking the right “too big to fail” institution. I do however own a position in (STD) Banco Santander one of the largest banks in Spain. They threw the baby out with the bathwater on this one since Spain is a member of the P.I.G.S. (Portugal, Italy, Greece, Spain) some of the hardest hit economic and housing markets in the world. Banco Santander continues to do business much of it outside of Spain and well across the developed European union and the United States.
According to the EIA, (The U.S. Energy Information Administration) “The projected decline in production in 2011 and increase in natural gas consumption in 2012 contribute to a strengthening of natural gas prices late in this year and next. As natural gas prices begin to rise, forecast production rebounds in 2012, growing by 2.2 percent. “ Therefore, because of the dividends paid we are long KMP (Kinder Morgan Partners) and BPL (Buckeye Partners)
Kinder Morgan is one of the largest pipeline transportation and energy storage companies in North America with approximately 37,000 miles of pipelines. They transport, store and handle energy products like natural gas, refined petroleum products, crude oil, ethanol, coal and carbon dioxide (CO2). These products are essential for generating electricity, heating homes, powering cars and much more.
Almost all of our assets are owned by Kinder Morgan Energy Partners the largest publicly traded pipeline master limited partnership with a value of more than $30 billion dollars. The current yield on the stock is 6.14% as of 01/18/2011
Buckeye Partners, L.P. is a publicly traded partnership (BPL) that owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered, with approximately 5,400 miles of pipeline. The yield on this stock is 5.69%, as of 01/18/2011
We like (DOW) Dow Chemical and many of the other chemical companies that have been beaten up most recently in 2009.
While we are a little nervous that gold has had its day in the sun and is getting a little toppy, we do still like a small portion of a commodity play in a clients portfolio. We like the Permanent Portfolio (PRPFX), we like BHP Billiton both the British version of the company and the largest minor in Australia. (BHP) and (BBL).
Drugs, Healthcare, and Big Parma;
In this area of the market we continue to like (AZN) Astra Zeneca, (ABT) Abbot Labs and (JNJ) Johnson and Johnson for their consistent pipelines of drugs and commitment to R&D. The major risk to this arena is universal healthcare, pressure on margins primarily from Medicare/medicate one of the largest purchasers of drugs in the nation placing downward pricing pressures on the margins by asking for substantial discounts, drugs falling off of patent, not enough new drugs in the pipeline, a failure to commit to R&D due to costs and outsourcing drug productions to emerging markets where costs are a fraction of manufacturing them here in the US and the Government regulation is a lot less invasive.
We are shortening duration and maturity and adding inflation adjusted hedges to our fixed income portfolio. We are also underweight fixed income 5%-10% in client’s portfolios and adding an overweight to US Large Cap Equities that pay a great dividend instead. The fear of interest rates rising is still looming in our minds and is a constant headache to us. We are neither in the Inflation camp or the deflation camp but want to be cautious in the fixed income arena in 2011. We feel like this is the year of the equity vs. bonds and we are much more optimistic about equity selection this year.
We have a jobless recovery, a terrible housing market, the lack of confidence both for businesses and for the individual investor. We have a huge budget deficit that will take a lot of discipline to get under control. If we don’t do this our great nation will become like Greece or Ireland. Asia, and specifically China are the gateway for growth in 2011, We think the appetite for commodities in the emerging markets are still viable and we feel like energy consumption still has enough demand to drive oil and energy prices higher. Remember America is a great nation, our dollar is strong, and we don’t have all the in cohesiveness of the Euro zone. We have a lot to look forward to in 2011.
Disclosure: I am long KMP, BPL, BHP, AZN, DOW, JNJ, ABT.