A market sector is a group of companies that offer a similar product or service. This allows investors the ability for investors to compare companies against their direct competition. Several market sectors include retail stocks and utilities stocks. As each industry has its own metrics, it is difficult to compare a technology company with an insurance firm. Having the various industries split amongst sectors allows for an easier method of comparison.
With the introduction of monetary stimulus by many central banks around the world, a common question asked is: what’s a unique investment opportunity in a market sector that is not immediately obvious to the average investor?
If the global stimulus really begins to work, it should result in higher demand for commodities. If this occurs, an interesting market sector that might be an above-average long-term investment opportunity is the shipping industry.
Information just released shows that Greek shipping firms have recently ordered the most iron ore carriers since 2008. Greek shippers own a large number of vessels internationally. (Source: Sheridan, R., “Greeks Bet Ship Rout Ending With Most Orders Since 2008: Freight,” Bloomberg, April 30, 2013.)
While the average earnings per day for a Capesize ship (a type of cargo ship used to transport raw commodities) is only $4,900—a massive drop from the peak in 2008 of $229,000—many analysts are expecting this current level to be a bottom and are expecting earnings to increase to $17,500 per day next year.
Clearly, the Greek shipping market sector sees an investment opportunity over the next few years. From the time of ordering to delivery, the process of obtaining a carrier takes approximately two years. However, because of the economic slowdown, the costs of construction and secondhand sale prices have dropped precipitously.
As an example, a new ship that used to cost approximately $100 million to build in 2008, now costs only $47.0 million. Prices are even lower on the secondhand market sector for large ships, and some shipping firms see this time as an investment opportunity and are using the low prices … Read More
The recent pullback in many commodities has caused most investors to worry that perhaps the boom in commodities is over. Because of austerity and fiscal tightening around the world, countries and companies are reducing the amount of money they’re spending, which is much like the behavior of a consumer who has run out of credit and is consequently reducing his or her spending.
This will certainly have a negative impact on the commodities super cycle we’ve seen over the past decade. However, there is an investment opportunity that can benefit both the U.S. and Canada, and that opportunity is in the natural gas market sector.
Remember, when making an investment, one must understand what the advantage is for a market sector. Both the U.S. and Canada have a massive amount of natural gas in comparison to the rest of the world—that is our competitive edge.
This is providing a huge investment opportunity over the long term for the natural gas market sector. Both the potential to export natural gas and the ability of companies to use natural gas as an input will create a massive investment opportunity relative to other markets in the world.
Chart courtesy of www.StockCharts.com
Spot prices for natural gas have certainly rebounded from the lows of 2012, yet the commodity trades at a fraction of the price on the international market. Spot markets for natural gas in Asia can be four to five times higher than those in America.
Additionally, over the next decade, there will be increased demand for natural gas globally, as it is a cleaner fuel alternative to other possibilities, such as coal. … Read More
With the financial reporting season underway, one of the most important considerations is not the most recent quarter’s earnings results, but the earnings outlook companies are giving for the remainder of the year.
One market sector that I like to watch is the retail area that sells to the average American, as this helps give a clear picture of the underlying fundamentals of the U.S. economy.
Family Dollar Stores, Inc. (NYSE/FDO) just released its earnings outlook for the remainder of the year, and it was far below what analysts had expected. In January of this year, Family Dollar offered an expected earnings outlook for fiscal 2013 of approximately $4.20 per share; this has now been reduced to $3.93 a share. (Source: Burritt, C., “Family Dollar Cuts Profit Forecast as Shoppers Cut Back,” Bloomberg, April 10, 2013.)
During the second quarter, Family Dollar reported that same-store sales increased by 2.9%, for stores open longer than 13 months, also coming in below estimates. This company is interesting, as the lower-income market sector is showing continued weakness.
The significant decline for the earnings outlook of each company tells me that all of this quantitative stimulus is doing little to help the average American, as this market sector is not showing any signs of improving.
The lack of job creation and the increase in the number of people pulling out of the jobs market are now having a direct impact on the market sector that caters to millions of people. With continued economic weakness, there is little hope that the earnings outlook will improve anytime soon.
It is actually quite shocking, considering the trillions … Read More
One of the most often stated arguments for the current aggressive monetary stance by the Federal Reserve has been that if asset prices can begin to recover, this will help the overall economy.
With the spectacular rise in the stock market over the past couple of years, it would be natural to think that many Americans have seen an increase in their wealth, leading to an increase in corporate earnings for companies that cater to people who might be investors.
The jewelry market sector is a good indication of this sentiment for clients who might have seen their wealth increase through asset appreciation. However, corporate earnings in this market sector do not appear to follow this logic.
Tiffany & Co. (NYSE/TIF) recently came out with its corporate earnings, which revealed some interesting information regarding the jewelry market sector.
For the Americas, total sales rose only two percent, with its flagship New York store seeing a three percent drop in sales. The New York store for Tiffany makes up approximately eight percent of the company’s total business. Tiffany’s stores in Japan, another country that has seen a recent rise in the stock market due to an aggressive monetary policy stance, also witnessed sales declining by six percent. (Source: Warner, M. and Talley, K., “Tiffany Projects a Rough Start but a Brighter Finish for Its Year,” Wall Street Journal, March 24, 2013.)
While it is true that Tiffany’s Asia-Pacific division did well, as sales rose 13%, the real question is: if this recent rise in the stock market in America, which has been far larger than many had predicted, is failing to … Read More
When developing an investment strategy for a given market sector, you need to consider numerous variables. Increasingly, the variables are becoming far more complex due to the global nature of business these days.
One market sector that many analysts pay close attention to is the steel industry. Because steel is used in so many parts of an economy, signs of increasing or decreasing production can help give indications as to how strong or weak the global economy is operating.
Of all the countries in the world, China is a huge player in the steel market sector. When looking at an investment strategy that incorporates steel and iron ore, which is the main ingredient in the production of steel, trying to determine current and future output by China is crucial.
According to the Chinese National Bureau of Statistics, crude steel production increased 9.8% in February, breaking the previous record set in January. Both the real estate and automobile industries within China have regained momentum, resulting in an increase in investments in factories and other fixed assets by 21.2% during the first two months of 2013, versus the same time period in 2012. (Source: Yap, C.W., “China’s steel production climbs 9.8%,” Wall Street Journal, March 12, 2013.)
Additionally, those investors whose investment strategy incorporates the steel market sector based in America might see this as a cautionary sign: not only are the Chinese producing a huge amount of steel domestically, but exports of steel rose 25% from the year-ago period.
And remember, the steel market sector within China is a money-losing proposition. Most steel makers do not make a profit in China, … Read More