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Hot Stocks 2009 No.1 Atlas Pipeline Partners
by Addison Wiggin
I've been involved in investing and financial markets for the past 15 years. In that time, I've met every kind of investor... and heard about every kind of investing strategy and stock opportunity you can imagine. Here at Agora Financial, we scour the globe looking for hidden investment opportunities often over looked by Wall Street. Capital &Crisis editor Chris Mayer uncovers these opportunities and delivers them to you. Chris is called by some "the best financial journalist you've never heard of ..."
And on behalf of Chris Mayer... I'll gladly put every minute of my hard work and reputation building on theline. His Capital & Crisis subscribers have benefited greatly from his unique recommendations. His globetrotting letter knows no bounds and goes wherever profits can be found. Over to Chris… Finding the Great Investments He's BeenSearching for His Whole Career I'm going to show you how you can start collecting a 20%-plus yield -- on one overlooked energy stock --right away. Besides these plumpdividends, you'll get a good shot at tripling your money. And there's good reason to believe you could make nine times your money -- if Wall Street wakes up and smells hard assets, and pays exactly what they're worth.
The market isn't rewarding Exxon, Chevron or even Gazprom. And now is not the time to start taking risks on wildcat energy explorers. Right now, I'm looking at a stock that's trading under $6. And today, it's showing signs of a climb -- so I wouldn't wait on this opportunity. Just let me give you the bare bones of its business and a nod from a very smart billionaire investor who knows tough markets.
The company's secret is that it doesn't drill for a drop of oil and it doesn't frack a single foot of shale gas. What it does is keep companies who do at its mercy.
Atlas Pipeline Partners (APL:nyse) owns 1,600 miles of pipeline connected to nearly 6,000 wells and is adding over 800 new wells per year in Appalachia. It also operates a growing interstate pipeline system in the Fayetteville Shale. Plus, it has a great deal with one of the most active drillers in America: Atlas Energy. Every well that Atlas Energy drills has to be connected to Atlas Pipeline's system. These are low-risk assets. Now let's talk dividend. Since 2000, APL's average dividend increase clocked in at 7 cents a year. A plump year offered a 107% increase. While it's true that 2008 was a tough year for natural gas, NGLs (APL's primary product) are up 50% from their December lows. Aside from price recovery, there's another catalyst for dividend growth. Given the prime location of its pipelines in Appalachia, you have every reason to expect an increased dividend payout down the road.
War horse Leon Cooperman, shares my interest in APL. He is one of the great living investors. At a recent Manhattan value investors' conference, Cooperman confessed, "This is the most difficult environment I've lived through. And I've been doing this for 41 years." But when he got to talking about getting 20%-plus on your money with APL, he had this to say: "At my age, it's better than sex, but that's just me."
Why does he think Atlas is on sale? Thank collapsing hedge funds the most. These guys have been forced to sell even their best positions to cover losses in other areas. Cooperman thinks this stock is worth $46 easily. My original estimate was $48. That's nine times what it trades at today. So why not consider a stock trading at so steep a discount to book?
Don't forget the great yield -- that's poised to increase. Even if that dividend stays right where it was last quarter, you could still make back today's investment in under four years -- just through the dividend alone.
Recommendation: Buy Atlas Pipeline Partners (APL: NYSE).
Hot Stocks 2009 No.2 U.S. Cellular 8.75% Senior Notes due 11/1/2032 (NYSE: UZG, $20.25)
by Nilus Mattive
Famed investor Warren Buffett made a telling remark on the kind of returns he hopes to achieve in today's tough markets: "We would be very happy if we earned +10%, pre-tax," he told shareholders at Berkshire Hathaway's (NYSE: BRK-B) annual meeting last May. Co-Chairman Charlie Munger quickly concurred, "You can take what Warren said to the bank... and I suggest you adopt the same attitude."
Well, my recommended security for this market bests Warren Buffett's benchmark. It offers secure yields of better than 16%. And we do mean secure -- as in legal obligation.Although this security trades like a stock every day on the New York Stock Exchange, it's actually a bond, not a stock. That means your quarterly interest payments have top claim on the company's assets, ahead of any common or preferred share dividends if the company runs into trouble. That kind of security is comforting in today's turbulent times, but it's hardly necessary for America's sixth biggest wireless firm. In fact, credit rating agency Standard & Poor's is so confident in this firm's financial position, it just upgraded the company's credit quality to investment grade "with positive out look," meaning the rating could be raised in one to three years.
The upgrade and positive outlook mean that any such bonds the company may issue in the future will most likely offer a lower interest rate than this high-yielding security. That's because today's featured security was issued in 2002, when the company was considered higher risk and needed to offer a higher rate in return.
Consider, too, that this security is now trading at around a -19% discount from its $25 par value. It matures in 24 years and can be called at any time. Either way, sooner or later you will be getting back $25 per share plus any unpaid interest. Meanwhile, you'll be paid amply to wait. If this all sounds too good to be true, read on and decide for yourself...
Snapshot: These exchange-traded notes were issued in 2002 by regional wireless operator U.S. Cellular (NYSE: USM). The company is the sixth-largest wireless carrier in the country by number of customers. Its wireless networks serve 6.2 million customers, for an estimated 3% share of the U.S. wireless market. Headquartered in Chicago, the telecom carrier focuses on smaller regional markets mainly in the Midwest, including Illinois, Indiana, Iowa, and Wisconsin.
Key Statistics:
Security Type: Exchange-Traded Debt
Annual Dividend: $2.1875
Dividend Yield: 10.8%
Frequency: Quarterly
Credit Rating: Baa3/BBB
Wireless services account for about 93% of revenues, while equipment sales contribute the balance. Roaming revenues from other wireless carriers using USM's networks provide a 7% chunk of the company's wireless service revenue. U.S. Cellular is a subsidiary of rural fixed-line phone operator Telephone & Data Systems (NYSE: TDS), which owns 80.8% of the company.
Performance: U.S. Cellular has seen earnings grow an average of +50.2% a year over the past three years through December 31, 2007. U.S. Cellular has a strong balance sheet, which is supported by funding from parent company TDS. Its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio, a measure of leverage, is less than 1.0. Meanwhile, debt is only around 20% of total capitalization. Both those measures are well below its regional wireless peers. Rival Leap Wireless (Nasdaq: LEAP), for example, carries a debt-to-EBITDA ratio of 6.4 times, and debt is 60% of total capitalization.
Hot Stocks 2009 No.3 Strike Gold with SPDR Gold Shares (GLD)
by Ian Wyatt
If the gains gold has made are any indicator of profits to come, I think SPDR Gold Shares (NYSE:GLD) is the golden ticket investors need to expose their portfolio to the safety and profits of the precious yellow metal.
Gold has been one of the best performing investments in a down market, and was one of the only investments to post gains in 2008, proving to be an excellent safe haven. Like U.S. Treasuries, the price of gold has rallied as investors fled equities and bonds, and sought safe investments. SPDR Gold Shares is an ETF that trades at one-tenth the price of an ounce of gold, and tracks the price movement of the commodity. The metal has most notably been on the rise, jumping 31% to $923 an ounce from the recent Nov. 13 low of $700 an ounce. As I mentioned in my weekly letter on Monday, I had been considering buying the Market Vectors Gold Miners Index (NYSE:GDX). However, this higher-risk, higher-reward investment has soared an astounding 74% from a recent Oct. 27 low, making it much riskier than GLD.
Through SPDR Gold Shares, I intend to take a cautious approach to gaining exposure to gold, given the big gains that the ETF has already experienced in the last few months. I plan to start with a small position of $2,000, and may add to the position in the future. I don't intend to have more than 5% of my portfolio invested in this position at any time.
For any Goldfingers out there, investing in SPDR Gold Shares is much like buying gold bars or coins, minus the headache of having to hold them in a safe or hide them under your bed. Using the fund, you have the added flexibility of being able to buy or sell at any time. The fund is backed by physical gold reserves, giving investors the security of buying the real commodity.
Many commodity prices dropped in 2008, including gold, which fell briefly in October and November of 2008. Don't let this brief decline fool you though - this is a long-term bull market for commodities, and gold will continue to perform well. As investors ditch low-yield U.S. Treasuries and seek other inflation-protected investments that can provide safety, gold appears to be the perfect investment.
The reckless monetary policy of the U.S. Federal Reserve will have its day of reckoning in the future, and investors who are long-gold and have investments that aren't tied to the greenback will be smiling in the years to come.
Let's face it: once the economy picks up, deflation will change into inflation. And hyper-inflation isn't far off, as a result of a U.S. government that continues to spend aggressively and issue more curren cy in a thus far failed attempt to jumpstart the U.S. economy. This anti-inflation investment allows investors in the United States to diversify out of the dollar and own an asset backed by a physical commodity that is likely to see greater demand with limited additional supply coming on line in the coming years.I plan to begin with a small position, which I may add to if I see a breakout in the price of gold. I'll also look to add to my position if prices consolidate, which I think is quite possible given the recent jump in price.
Hot Stocks 2009 No.4 How One Tiny Drug Developer Could Take Down The Industry Leaders
by Greg Guenthner
Grab Your Share of a $31 Billion Market In 2007, the global pharmaceutical pain relief market was worth approximately $31 billion. In the U.S., two-thirds of the dollar volume of the prescription pain medication market is for drugs used to treat chronic pain, with the remainder going toward drugs used for acute pain.
Javelin Pharmaceuticals Inc. (JAV: AMEX) designs products to fulfill unmet and underserved medical needs in the pain-management niche. The company is particularly focused on breakthrough cancer, post-operative, back, orthopedic injury and burn pains. Despite the advances in medicine, the company insists treatments for these types of pain continue to be an underserved medical need. That's where Javelin's lucrative new contract comes into play…
The company penned an agreement in January worth up to $71 million that includes double-digit royalties on future sales of its new pain drug, Dyloject. Javelin will receive roughly $12 million in upfront cash payments from European pharmaceutical developer Therabel for the commercialization rights for Dyloject, the flagship product in Javelin's current pipeline. Dyloject is an injectable form of diclofenac, which is a prescription anti-inflammatory drug often prescribed to treat postoperative pain.
Dyloject is undergoing Phase 3 clinical development in the United States - the drug is already available in the United Kingdom. During its pivotal U.K. registration trial, Dyloject's efficacy and safety were shown to be significantly superior to standard intravenous treatments currently marketed in the U.K.
A Faster, Better Treatment
The competition for Dyloject requires dilution and slow infusion into the patient. But Dyloject comes ready to use for immediate IV administration. Anti-inflammatory drugs such as Dyloject, along with opioids like morphine, are often used post-operatively. They help reduce opioid doses by as much as 50%, thereby decreasing morphine-related side effects on the patient.
Dyloject's most significant U.S. competitor in the injectable antiinflammatory category is ketorolac tromethamine. In January 2006, Javelin announced the results of a Phase 2b U.S. study in which Dyloject showed superior onset of action compared with ketorolac five minutes after intravenous injection.
Bottom line: This drug does what it is supposed to do. And it does it better than all of the leading competitors. That's the ringing endorseent for Dyloject…especially since it's awaiting approval in the U.S. U.K. Sales and European Agreement Are Signs of Things to Come Dyloject is already on the market in the United Kingdom, and sales have been growing at an impressive pace. The drug is now on the formularies of 73 hospitals in the U.K., 58 of which were considered gold accounts and 15 silver accounts. In the first nine months of its availability, Dyloject was accepted at 40% of their targeted accounts. The drug has been accepted at 95% of the institutions to which it's been presented. This, Driscoll believes, shows that Dyloject has value to clinicians. It will prove valuable to shareholders, too…
Since Dyloject was introduced to the market, sales of the drug have doubled each quarter. Although that may be a small sample size, it shows the growth potential of the product once it is introduced into a wider market.Javelin is on schedule to complete its studies on Dyloject and submit applications in late 2009 for approval in the U.S. and European markets. The partnership with Therabel helps Javelin accelerate this process.Javelin's a Bargain at Current Prices Javelin has put itself in a fantastic position to succeed. The company currently has $34.6 million in cash and equivalents and no long-term debt whatsoever. Its burn rate during the first three quarters of 2008 was $8.6 million. With $12 million in upfront cash from Therabel, the company is well positioned to wait out approval in the U.S. Javelin feels that the self-medication segment is an area of possible growth. It generally takes 15-20 minutes and sometimes as long as 40 minutes for commercially available oral pain medications to provide any meaningful relief. Javelin says that all three of its product candidates appear to work faster than the oral formulations of currently available prescription pain products. Dyloject has shown to relieve pain in as little as five minutes, a mark that has not been achieved by current injectable anti-inflammatory drugs.
Recommendation: Buy Javelin Pharmaceuticals Inc. (JAV: AMEX).
Hot Stocks 2009 No.5 Abercrombie & Fitch
by Bernie Schaeffer
At Schaeffer's Investment Research, we employ a 3-tiered analysis approach known as Expectational Analysis® (EA) that was created more than 2 decades ago. EA utilizes traditional methods of fundamental and technical analysis and combines these with a third, crucial look at investor sentiment. It is this third layer of analysis that provides a critical edge in selecting stock and option plays. Both anecdotal and quantifiable measures of investor sentiment provide a window into how the investing crowd perceives reality. These perceptions serve as powerful contrarian indicators, as the crowd tends to move as a herd and is, to paraphrase the venerable contrarian Humphrey Neill, "right during the trend but wrong at both ends." A look into the psyche of the collective investing masses, while also taking into account important technical and fundamental variables, can offer a reliable recipe for trading success.
The latest opportunity found by the EA methodology is Abercrombie & Fitch (ANF). According to Hoover's, Abercrombie & Fitch (A&F) sells upscale men's, women's, and kids' casual clothes and accessories. The firm has 1,000-plus stores in North America (mostly in malls) and also sells via its catalog and online. It targets college students, and has come under fire for some of its ad campaigns, as well as for some of its short-run products. The company also runs a fast-growing chain of some 450 teen stores called Hollister Co., and a chain targeted at boys and girls ages 7 to 14 called abercrombie. RUEHL, a Greenwich Village-inspired concept for the post-college set, debuted in 2004.
In early February, earnings rolled in from the trendy retailer, surpassing the consensus estimate. For the fourth quarter, the company posted a profit of $68.4 million, or 78 cents per share, compared to its year-ago profit of $216.8 million, or $2.40 per share. Excluding impairment charges and costs tied to a new employment agreement with its CEO, the retailer boasted a profit of $1.10 per share, beating the Street estimate for a profit of $1.01. Sales fell 19% to $998 million, said the company. ANF stated that it would not issue an earnings forecast for fiscal 2009, citing a tough year ahead. The company said it expects a difficult selling environment to continue.
Abercrombie forecasts capital expenditures of $165 million to $175 million in fiscal 2009, a major portion of which is tied to new stores and remodeling.
Technically speaking, the security gapped sharply higher on the earnings report, gaining more than 10% amid broad market weakness.What's more, this significant bullish gap has placed the equity above resistance at its 80-day moving average. This short-term trendline had capped the shares' recent rally attempts.
As followers of the EA method, we ideally like to see solid price action persist against a backdrop of skepticism, as this implies that there could be additional money waiting on the sidelines that hasn't yet been committed to the bullish cause. It seems as though there is plenty of room on the bullish ANF bandwagon. Options players have leveled some heavy bearish bets against the stock in an attempt to call a top to its uptrend. The Schaeffer's put/call open interest ratio for ANF stands at 1.28, as put open interest outweighs call open interest among near-term options. This reading is also higher than two-thirds of those taken during the past year, indicating extreme skepticism among short-term options speculators.Meanwhile, Wall Street has yet to fully jump on this outperforming security. According to the latest data from Zacks, 14 of the 19 analysts following ANF rate it a "hold" or worse. Any upgrades from these remaining holdouts could help to propel the shares higher during the long term.
Overall, this combination of pessimistic sentiment against the stock's backdrop of improving earnings and strong technicals has bullish implications from a contrarian perspective. As investors unwind their bearish bets and jump on the stock's bandwagon, they will help to push the security even higher.
Hot Stocks 2009 No.6 Redefining Pharmacy Benefit Managment
by Ian Wyatt
The way I see it, even through current market malaise, SXC Health Solutions (Nasdaq:SXCI) is standing firm with its two corporate feet firmly planted in two complementary arenas: it's providing pharmacy benefits management services and developing the technology engine needed to keep costs under control.
Bringing down health-care costs remains a hot-button issue, as the baby boomers reach retirement age, Medicaid and Medicare grow, and drug costs continue to rise.
SXC Health, formerly known as Systems Xcellence, is a niche player in the benefits marketplace. Headquartered outside Chicago, SXC Health is a provider of health-care information technology solutions and services to providers, payers and other participants in the pharmaceutical supply chain in North America.
SXC Health is redefining pharmacy benefit management (PBM) by providing a broad range of pharmacy spend management solutions and information technology capabilities. The company is a leader in delivering an innovative mix of market expertise, information technology, clinical capability, scale of operations, mail order and specialty pharmacy offerings to a wide variety of healthcare payor organizations including health plans, Medicare, managed and fee-for-service state Medicaid plans, long-term care facilities, unions, third-party administrators and self-insured employers. In essence, the company's services allow customers to make good decisions and save money.
SXC Health's informedRx business sells management services mostly to government and universities, while its Healthcare IT Group develops the technology behind the services and provides a revenue stream via software licensing.
SXC's recent acquisition of National Medical Health Card Systems expanded its informedRx services, which is a broad, flexible suite of à la carte PBM services, which provide flexible and cost-effective alternative to traditional PBM offerings. The acquisition is an essential step in SXC Health's strategic evolution toward being a leader in pharmacy spend management, and gives the company's customers the chance to pick and choose what services are right for them. SXC Health is the only company in the PBM space to offer its clients such a broad portfolio of solutions SXC Health's technology touches close to 1 in every 4 of the estimated 3.5 billion prescriptions written in the United States annually - a plus considering that the health-care sector and health-care IT industry will outperform the market for the next few years.
The company also stands to benefit from demographic and political trends, in that the population is aging and pharmaceutical companies will need SXC's products and services. Also, the new administration has vowed to digitize the health-care system. Both of these trends will positively influence SXC Health's earnings.
In the quarter ended Sept. 30, 2008 earnings were $3.5 million, or $0.15 per share, up from $2.7 million, or $0.12 a year ago. Revenue increased to $318.1 million from $22.2 million. SXC increased full-year EPS guidance to $0.54 to $0.58 a share, from its previous estimate of $0.41 to $0.50. Additionally the company narrowed revenue estimates to $840 to $855 million, from $825 million to $875 million. We forecast the company will earn $0.59 EPS in 2008 and grow EPS 50% in 2009 to $0.88. We expect revenues will be $854 million this year and increase 52% to $1.3 billion next year. The company has made brilliant acquisitions in recent years, which have made it one of the primary players in pharmacy spend management services and information technology solutions.
The company was recently trading at 32 times current year EPS and 22 times forward EPS. These are high multiples in the current environment, but SXCI shares are worth every penny. In fact, shares are worth more. We estimate fair value to be $28 based on EPS and revenue growth projections.
Hot Stocks 2009 No.7 Power Lines and Trees: A Dynamic Duo for Income And Growth
By Justice Litle
They may not be sexy, but it's hard to go wrong with trees and power lines. In fact, we'll be using that unlikely duo to execute this "perfect inflation hedge."
Brookfield Infrastructure Partners (BIP:NYSE). BIP is a limited partnership (though its cash flows are not subject to the same tax treatment as MLPs, or Master Limited Partnerships).
Brookfield Infrastructure Partners (BIP) is a spin-off from a much larger mother ship, Brookfield Asset Management (BAM:NYSE).While little BIP is small and scrappy at $316 million, mother BAM boasts a far larger market cap of $9.5 billion.As a publicly traded partnership, 50% of BIP is owned by investors like you and me. Forty percent is owned by BAM, the parent, and the last 10% is owned by Brookfield directors and management.
BIP was spun off from the BAM mother ship with the intent of being a "pure infrastructure play." The far larger BAM has all sorts of assets on its balance sheet; through the creation of a stand-alone entity, BIP offers a way to pick up direct infrastructure exposure.BIP's primary assets are electricity transmission lines and timber, and they are distributed across North and South America. On the electricity side, BIP owns roughly 5,500 miles worth of transmission lines (power lines) in Chile and Canada (Northern Ontario). Additional power lines in Brazil were sold at a considerable profit in the third quarter of 2008.
BIP's transmission lines are part of a regulated monopoly, which means no competitor can muscle in. As of March 2008, these assets had a recorded book value of $330 million -- more than the value of BIP's current market cap. Using the Brazilian asset sale as a benchmark -- in which BIP fetched a 40% gain over book price -- its likely current holdings have a far, far higher value than the old numbers reflect.
A Toll Road for Electrons
Power lines are a great business. Just as you have to drive to work each day (unless you're retired or work from home), the electricity has to move from the power plant to your house (or the office building, the factory and so on).
Here's why you want to own power lines:
They require very little maintenance and upkeep, so most of the cash flow goes right into the owner's pocket.
Because people and businesses are steady in their use of electricity, those cash flows are very stable.
As inflation rises, steady price increases can be pushed through as part of the contract.
Additionally, BIP will have the chance to build out its electricity transmission networks at attractive rates of return over time. The only thing better than a strong, stable, cash-flow-producing business is a business that can expand on the same great terms. As emerging markets resume their upward trends, electricity use will go up too... and this can only be good news for BIP.
An Infinite Resource
The other thing BIP owns is timber -- more than 1.2 million acres in Oregon,Washington state, and coastal British Columbia. The nice thing about timberland is that, when managed properly, it's an infinite resource. Unlike metals or fossil fuels -- which eventually run out and leave a site in decline -- trees can grow back.
As with electricity, BIP's parent company (and 40% owner) offers four decades of experience owning and operating timberlands. This gives BIP an edge in key areas like harvest planning and managing the product mix.
BIP's acreage is concentrated in premium timbers like Douglas fir and hemlock. In addition, the close proximity to the coast gives BIP an edge on the export side of the business.
Timberland tends to rise in value over time because, unlike the currency spit out of a printing press, they just aren't making any more of it. Timber's uses are many and varied for the global economy, and, like power lines, timber has the advantage of being a high-margin, low-upkeep business.
When prices are high, BIP can cut more timber. When prices are low, they can cut less (saving costs) and let the acreage value appreciate. The timber itself is a renewable resource, and BIP has the ability to book capital gains through the occasional sale of choice parcels for land redevelopment.
An Exceptional Value
Investors are coming back to their senses, snapping up assets that got insanely cheap. BIP's parent could well be buying back shares too, figuring it's crazy to leave them out on the market at such a tempting price. Back in March of 2008, management gave an estimate of BIP's book value (the value of the underlying transmission and timber assets) at $24 per share. I think that is not only a reasonable estimate; it is more than likely a conservative estimate. BIP could easily be worth $25 to $30 per share.
As we prepare for a central-bank-induced inflation deluge, stable, cashflow producing infrastructure assets will only increase in value. Power lines and trees will never go out of style... and the stream of income collected from those assets will only keep ticking up year after year. Buy Brookfield Infrastructure Partners (BIP:NYSE) at $18 per share or better.
Hot Stocks 2009 No.8 Big Profits from Downsizing
by Stephen Rawls
All Americans are changing their spending habits as the economic recession hits home. We're adjusting to the idea of driving the car an extra year or more, to buying clothes at Sears instead of Joseph A Banks, that sort of thing. And while our change in spending habits hurts some, it helps others. As investors, we need to focus on those companies well positioned to profit from these changes. Those companies well positioned to profit from the fundamental changes in the American lifestyle.
One of the major changes that we're seeing now is a turn by the American consumer to private label brand foods to feed their family. As a result, one of the big beneficiaries of this move is American Italian Pasta Company (AIPC), the nation's largest manufacturer of dry pasta. Sales are booming. And so is the stock.
What makes American Italian Pasts so interesting is that it's booming because of several trends. The first is the aforementioned transition to private label foods. A second favorable trend is that consumers are moving away from a meat and potatoes diet to something less expensive, like pasta. And, finally, the low-carb "Atkins diet" fad is now history. Even more amazing in the recession of 2009, American Italian Pasta has actually been able to raise their prices while sales increased! Sales of pasta products in the United States rose 5% last year to $6.4 billion. During that time, American Italian was able to raise prices faster than their costs increased.
For the first quarter 2009, American Italian Pasta earned a whopping $1.23 EPS, up from 2008's first quarter EPS of 43 cents. Retail revenue for the quarter rose 56% to $136.1 million, while cost of goods sold rose only 40%. Overall volume for the company was up some 13%.
From a technical standpoint, American Italian Pasta seems to defy the overall market, making new highs as recently as February 25th. The company is a newly listed issue on the NASDAQ, beginning trading there on November 14, 2008. The company is trading above its 50-day moving average and gapped higher on February 12th after releasing its first-quarter earnings. Since then, the stock hasn't looked back.
With no upside resistance to speak of, the critical technical support level comes in the gap between $27.00 and $29.19. Given the strong earnings report on February 11th, I wouldn't expect the stock to violate this gap. Prospects for the company seem very strong and the company appears able to deliver on those prospects.
Pricing power is something almost unheard of in the economic climate of 2009. And that's one of the things that impresses me the most about American Italian Pasta - it has the ability to increase sales, while raising prices.
One other factor that hasn't yet been considered by most analysts, I believe, is that the cost of raw ingredients, which had been going up for most of 2008, are now in retreat.With higher prices already in effect, any fall in cost of goods sold will reflect directly in higher profitability for the company.
In summary, with American Italian Pasta, you have a company that's benefiting from multiple trends working in its favor. Fundamentally, the ability to raise prices and not affect sales is amazing. With more Americans "trading down" their eating habits, this trend to higher sales shows every indication of continuing. And with their raw ingredient prices now falling, the company will not have to raise prices in the near future to stimulate growth. Rather, the profits for the second quarter of 2009 will come from higher prices already in place, accompanied by falling ingredient prices.From where I sit, American Italian Pasta Company looks like a rare winner in 2009.
Hot Stocks 2009 No.9 Looking for Safe Stocks? Try Channeling Ben Graham
by John Reese
When I began conducting extensive research into the strategies used by some of history's greatest investors some 12 years ago, one thing quickly became apparent: Many of these Wall Street stars, including Peter Lynch, Warren Buffett, and Benjamin Graham, built their fortunes and reputations not by relying on some sort of investing "sixth sense", but instead by using approaches that were mostly or completely quantitative. They stuck to the numbers, never letting emotion influence their decisions.
That was great news to me. Because of my background in computer science and artificial intelligence, I was able to develop sophisticated but easy-to-use models based on these gurus' quantitative approaches.
Today, these models power the research and analysis on my web site, Validea.com, allowing everyday investors to take advantage of the strategies that some of history's most successful stock-pickers used. Since I started tracking them nearly six years ago, portfolios built using each of my eight original "Guru Strategies" have all significantly outperformed the market.
For some top picks in today's market, let's turn to my top-performing strategy -- one that, interestingly, is inspired by what is far and away the oldest of these methodologies, the approach of the late, great Benjamin Graham. Known as the "Father of Value Investing" -- and the mentor of Warren Buffett -- Graham detailed his strategy in his 1949 classic The Intelligent Investor. Six decades later, my conservative Graham-based model is up almost 70 percent since its July 2003 inception, while the S&P 500 has fallen more than 22 percent. Last year, while the market tumbled close to 40 percent, my Graham-based model sustained well less than half of that decline.
One stock my Graham model is particularly high on right now:
Ameron International Corporation (AMN), a California-based firm that makes water transmission lines, fiberglass-composite pipe for transporting oil, and infrastructure-related products like ready-mix concrete and lighting poles -- just the kind of company that could benefit from the federal stimulus package's infrastructure funding.
Having lived through both his own family's fall from financial grace (following his father's death when Benjamin was a young man), and, later, through the Great Depression, it's no surprise that Graham focused as much on preserving capital and limiting losses as he did on producing big gains. He liked stable, conservatively financed companies, not speculative gambles, and Ameron fits the bill. One example of why: its strong current ratio of 2.87. Graham used the current ratio (current assets/current liabilities) to get an idea of a company's liquidity (and the credit crisis has shown us all how important liquidity is).
Companies with current ratios of at least 2.0 were the type of financially secure, defensive, low-risk plays he liked, and Ameron makes the grade.Another way Graham targeted conservative firms was by making sure long-term debt was no greater than net current assets. Ameron has just $36 million in long-term debt and almost $300 million in net current assets, a great sign.
The other main part of Graham's approach was making sure a stock had what he termed a "margin of safety" -- that is, its price was low compared to his assessment of the intrinsic value of its underlying business. Stocks with high margins of safety have downside protection -- they're already selling at a discount compared to their real value, so even if problems occur and earning power declines a bit, the stock still might gain ground because it's so undervalued to begin with.
To find undervalued stocks, Graham looked at both the price/earnings ratio (the model I base on his approach requires the greater of the stock's current P/E or its three-year average P/E to be no greater than 15) and the price/book ratio (which, when multiplied by the P/E, should be no greater than 22). Ameron's P/E (using the higher three-year figure) is just 8.2, and its P/B is just 0.99, indicating that the stock is a great value.
In addition to Ameron, here are a couple more of myGraham model's current favorites:
Schnitzer Steel Industries (SCHN): Hammered when commodity prices began to tumble last summer, this Oregon-based firm has made a big rebound since late November, and my Graham model thinks it has a lot more room to grow. It has a current ratio of 3.2, just $106.1 million in long-term debt vs. $338.5 million in net current assets, and bargain-level P/E and P/B ratios of 5.8 and 1.01, respectively.
National Presto Industries (NPK): Talk about an eclectic group of business segments. This Wisconsin-based firm's housewares division makes small appliances and pressure cookers; its defense segment makes ammunition, fuses, and cartridge cases; and its absorbent products division makes adult incontinence products and baby diapers. Its fundamentals are exceptional -- current ratio of 5.23, P/E ratio of 14.5, P/B ratio of 1.49 -- and, the firm has no long-term debt.
Hot Stocks 2009 No.10 Hedged Investing with Hussman Strategic Growth
by Ian Wyatt
When I recently discovered the Hussman Strategic Growth fund, it was love at first sight. Hussman acts like a hedge fund, providing the fund managers much flexibility in the investment instruments and strategies utilized to capitalize on rapidly changing markets like those we are currently experiencing. Manager John Hussman's disciplined strategy has navigated the mutual fund toward calmer waters amid choppy market conditions, a testament to the fund's ability to achieve remarkable performance in down markets.
Although Hussman receives the advice of key personnel on the fund's board of trustees and at Hussman Econometrics, this mutual fund depends heavily on Hussman himself. He also invests all of his personal liquid assets (outside of cash and money market accounts) in his two funds, clearly aligning his personal interests with those of fund shareholders. Hussman Strategic Growth invests primarily in U.S. stocks with the objective of longterm capital appreciation. It currently has 116 long holdings that include the likes of Johnson & Johnson (NYSE:JNJ), Nike, Inc. (NYSE:NKE ), Amazon.com, Inc. (Nasdaq:AMZN), Coca-Cola (NYSE:KO) and Best Buy Co. (NYSE:BBY). Hussman goes long on individual positions, and can leverage using equity call options. Ninety percent of the fund's net assets are tied up in stocks while the remaining 10% is sitting in cash.
Hussman was down only 9% in 2008, a performance that was the envy of most fund managers, especially in light of the 37% drop in the S&P 500. In the previous bear markets of 2001 and 2002, the fund was up a whopping 14% in each of those years. Because the fund is so risk-averse, its short-term track record may limp in bullish environments, but its long term performance is where investors begin to see solid profits. Given the current state of the market, and the fact that my outlook calls for a range bound and volatile stock market in 2009, Hussman Strategic Growth fund is a solid place to have capital invested.
John Hussman develops a risk versus reward profile for the current market climate, identifying economic trends and valuing individual stocks based on their expected streams of cash flow. For much of the past decade, Hussman has considered most stocks overvalued and did not think they were providing enough reward given their high level of risk.To preserve capital, he hedged the portfolio against market risk by shorting indexes such as the S&P 100. As a result, the fund has been fairly uncorrelated to the whims of the market and has been shielded from the heavy losses many funds have faced.
Since its July 2000 inception, the fund's 8.9% annualized return has outpaced the S&P 500, which lost 4.4% annually over the same period.Performance in 2009 appears to be holding up, with year-to-date returns of 0.25% versus a loss of 8% for the S&P 500 index. Morningstar calls Hussman "one of the steadiest and cheapest options in the fledgling long-short category," and gives the fund a 3-star rating.
Hussman's claimed approach of "investing for long-term returns while managing risk" is in perfect alignment with my aggressiveapproach to conservative investing. I, too, aim to find opportunities for long-term capital appreciation, while limiting downside risk through portfolio diversification and aggressive risk management. The fund is currently taking a very conservative approach to equities, which makes sense given the performance last year. With the bleak prospects for global growth in 2009, this fund should perform well in horizontal or down markets, making it a nice fit within the equity portion of my Recovery Portfolio. Additionally, the fund's flexibility should allow it to perform nicely once stocks begin their recovery.
