market sector
Unique Investment Opportunity in a Market Dominated by Money Printing
By Sasha Cekerevac for Investment Contrarians | May 2, 2013
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
Are You Prepared for the Next Commodity Boom?
By Sasha Cekerevac for Investment Contrarians | Apr 19, 2013
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
Why Earnings Outlooks Are More Important Than This Quarter’s Results
By Sasha Cekerevac for Investment Contrarians | Apr 12, 2013
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
Rise in Stock Market Failing to Help the Jewelry Sector
By Sasha Cekerevac for Investment Contrarians | Mar 27, 2013
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
Demand for Steel Unexpectedly Jumps; and These Stocks Now Look Good
By Sasha Cekerevac for Investment Contrarians | Mar 19, 2013
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
What Can You Do with Your Bank Stocks?
By Sasha Cekerevac for Investment Contrarians | Feb 22, 2013
One of the strongest market sectors in the stock market over the past year has been the financial market sector. Bank stocks have been on a tear, moving up massively since the lows in June. Looking at the entire market sector through the Financial Select Sector SPDR (NYSEArca/XLF) exchange-traded fund (ETF), the index is now up almost 36% from the lows in June.
Bank stocks have benefited from several factors. Low Treasury yields make the dividend yields from bank stocks highly attractive; the entire market sector has also reduced its risk profile, while eliminating costs. The end result has been a group of companies that offer significant upside.
However, the hunt for safety by average citizens might hurt bank stocks going forward. The latest data by Credit Suisse Group AG shows that for the top-eight banks, the average loan-to-deposit ratio fell in the fourth quarter 2012 to 84%, compared to 87% during the same time period in 2011. In 2007, the loan-to-deposit ratio was 101%. (Source: Dexheimer, E., “JPMorgan Leads U.S. Banks Lending Least of Deposits in 5 Years,” Bloomberg, February 20, 2013.)
The loan-to-deposit ratio shows how much of the deposits bank stocks have lent out. Bank stocks are having trouble lending due to several reasons. These include a lack of demand as well as an increase in regulations to try and reduce risks.
For investors in the financial market sector, this is a double-edged sword. On the one hand, it is positive that bank stocks are being more selective in who they are doing business with. This means that any loans that have been issued over the past … Read More
Huge Cuts Coming to This Market Sector, What This Means for Your Investments
By Sasha Cekerevac for Investment Contrarians | Feb 15, 2013
March 1 is a very big day for many people. Unless Obama and the Republicans make a deal prior to that date, billions of dollars in spending cuts will be enacted.
Of all the areas that will be hit, I think the defense market sector will bear the brunt of the cutbacks and the future viability of corporate earnings in this sector is certainly in doubt.
At this point, Pentagon officials are now planning for $46.0 billion in cuts for the remainder of 2013. The total amount to be cut in the military market sector is $1.2 trillion over the next decade. (Source: Nissenbaum, D., “Pentagon Readies Budget Ax,” The Wall Street Journal, February 11, 2013.)
The U.S. Department of Defense has already laid off approximately 46,000 part-time workers. We could see additional layoffs, as well as furloughs. There are thousands of other workers employed at private firms in the defense market sector that will be affected, as budget cuts will crimp corporate earnings.
Clearly, for the defense market sector, the future is cloudy at best. Corporate earnings for most companies throughout the defense market sector will have difficulty growing. When total revenues are declining, higher corporate earnings are extremely rare.
Unfortunately, this pain is actually needed for the long-term fiscal health of the country. While corporate earnings will be reduced and jobs will be lost in the defense market sector, continuing to spend such a massive amount of public funds in this area is irresponsible and clearly not warranted at this time.
Looking at 2011 data, the U.S. military spending was 41% of the total for the entire world. … Read More
How You Can Profit from the Currency Wars
By Sasha Cekerevac for Investment Contrarians | Jan 18, 2013
Recently, we have heard a lot about currency wars being waged by various nations around the world. To those who are unfamiliar, “currency war” is a term that refers to countries that are actively looking to devalue their currency to help stimulate export growth and their domestic economy.
Investing in stocks in this type of environment can be tricky, as one needs to add additional variables to the analysis. Having a strong market sector, solid long-term fundamentals of the individual stock, and a favorable currency direction can help when considering investing in stocks.
While many look to the Federal Reserve as being the most active in trying to devalue the U.S. dollar, I would point to Japan. Newly elected Japanese Prime Minister Abe has been vocal about demanding massive and unprecedented monetary stimulus by the Bank of Japan to help stimulate the Japanese economy.
Large institutions interested in investing in stocks certainly have jumped on the export-oriented market sector, as Japanese stocks are up approximately 24% since mid-November, when elections were announced, and the yen is down in value by approximately 10%.
However, this is not a short-term phenomenon. I believe the yen will continue to remain weak for a long time, and this will benefit the Japanese export market sector. Those interested in investing in stocks could look to equities in Japan that will benefit from the yen’s devaluation.
One market sector that also has strong fundamentals in the U.S. is vehicle sales. The U.S. had extremely strong car sales in 2012, and I expect 2013 to be just as strong. When combined with a further lowering of the … Read More
The Ultimate Contrarian Investment
By Sasha Cekerevac for Investment Contrarians | Jan 7, 2013
When it comes to looking for a long-term investment opportunity, sometimes it pays to look at a market sector that might not initially seem bullish. While I have pointed out several structural impediments to economic growth in America, there are a few areas that do provide a long-term investment opportunity.
One of the strengths in America is the growth in resurgence of the energy market sector. This is clearly not the result of any government initiative; rather it is due to private enterprises realizing the long-term investment opportunity in the energy market sector by creating revolutionary technologies in extracting natural gas.
New techniques for hydraulic fracturing have enabled the American energy market sector to become a global leader. This has sent prices plummeting when compared to not only domestic but also global history.
The investment opportunity for many firms is to use this abundance and cheap input for production, attracting numerous firms to set up facilities in America. While the U.S. economy is still sluggish, many might seem surprised to find such a strong investment opportunity that’s attracting firms worldwide to our shores.
There are copious areas of the economy that benefit from low natural gas prices, including the chemical market sector, the steel market sector, and the fertilizer market sector, just to name a few.
Companies see a long-term investment opportunity in building multi-million-dollar facilities to benefit from the comparative advantage of a low-priced input. As an example, Nucor Corporation (NYSE/NUE), a U.S.-based steelmaker, is about to construct a $750-million facility in America. Voestalpine AG, a steelmaker based in Austria, stated that it is looking at building a $661-million … Read More
What 2013 Will Look Like for the Housing Market
By Sasha Cekerevac for Investment Contrarians | Nov 21, 2012
One of the most often talked about parts of the economy is the real estate market sector. Because real estate is such a large and important part of the economy, naturally, many eyes are focused on whether or not this market sector can and will rebound from its deep decline.
While we have certainly seen a strong bounce off the bottom, there are still many concerns for the future of both the real estate market sector and housing stocks, specifically. Investors in housing stocks are definitely ahead of the curve, as many housing stocks have increased substantially. With gains in excess of 100%, the question on many people’s minds is: will the real estate market sector continue its upward trajectory, or are housing stocks teetering on the edge of a massive decline?
The Department of Commerce just released the number of housing starts for October. As I expected, housing starts exceeded estimates, coming in at an annual rate of 894,000, up 3.6%. This is the fastest annual rate since July 2008. Many estimates taken by Bloomberg in a survey are still far too low, coming in at 780,000–873,000. (Source: “Housing Starts in U.S. Increase to Four-Year High,” Bloomberg, November 20, 2012.)
The reason why publicly traded housing stocks are doing so well and driving housing starts is that they are able to take advantage of extremely cheap financing. Essentially, private homebuilders are not able to borrow funds as cheaply as publicly traded housing stocks. Because investors are looking for places to park their money due to the low-interest-rate environment, this is giving housing stocks so much excess funding that they’re … Read More
The Technology Stock You Should Stay Away From
By Sasha Cekerevac for Investment Contrarians | Oct 8, 2012
While many technology stocks for the past few years have done extremely well, the old-fashioned personal computer (PC) makers have struggled. As the marketplace has shifted—and corporate earnings with it—away from the traditional PC to tablets and smartphones, the old technology stocks that we used to remember fondly have been falling by the wayside.
Hewlett-Packard Company (NYSE/HPQ) is the latest in a line of PC makers to have struggled in growing corporate earnings. The latest news from the company is that its CEO, Margaret Whitman, met with analysts and gave them a disappointing forecast for the company.
While Whitman did state that she has been taking some initiatives to turn the company around, it appears Wall Street was not impressed, as shares plummeted. Two aspects of the company’s new focus will be a narrower product line and an increased focus on corporate customers. Whitman also stated that next year’s corporate earnings will be below current analyst estimates.
Since 2009, the shares have lost over $90.0 billion in market value, a stunning decrease for any technology stocks. She stated that the company was not properly aligned with the current marketplace, an apt observation. With its current focus on old-fashioned markets, such as the PC area, and not enough innovation in new areas, Hewlett-Packard (HP) has not been able to compete with the newer, younger, nimbler technology stocks of today.
While I certainly don’t think the PC market will go away anytime soon, it should be only one segment of a company’s product lineup. Technology stocks in this day and age need to have products across the entire scope of the technology … Read More
Why Larry Ellison’s $500-million Island Purchase Is the Problem
By George Leong for Investment Contrarians | Sep 28, 2012
There are the rich and then there are the mega-rich. A study showed that those with a net worth of at least $25.0 million tend to spend more lavishly on vacations and home renovations, compared to their spending on clothing, cars, and jewelry, according to the Spectrem Group. Then there’s the CEO of Oracle Corporation (NASDAQ/ORCL), Larry Ellison, who purchased the sixth largest island in Hawaii for a cool $500 million. When you are worth over $30.0 billion, dropping half a billion dollars on an island is not a big deal.
As I recently discussed, the income gap between the top one to five percent of income earners and the other 95%–99% is widening, which will likely present problems down the road. In 2009, the Internal Revenue Service pegged the adjusted gross income (AGI) level for the top one percent club at $343,917. To be included in the top five percent, the AGI was $154,643.
While the presidential candidates debate about the economy and monetary policy, one thing is sure—America is on fragile ground and needs a jump start to drive consumer spending in the economy.
Retail sales are showing improvement, but consumer spending on durable goods was horrible in August, when spending on non-essential goods and services cratered at -13.2%, versus the -5.0% estimate and the -4.1% in July. Even when you eliminate the spending in the transportation market sector, consumer spending on durable goods fell 1.6%, again worse than the -0.2% estimate and revised -1.3% in July. Of course, Ellison and the other top five percent aren’t concerned with a personal budget. The reality is that America as … Read More
Obama Administration Suppressing Bad News Ahead of the Election?
By Sasha Cekerevac for Investment Contrarians | Aug 10, 2012
The economic forecast continues to be gloomy for America, with little positive news expected, making any investment strategy that much more difficult to formulate. On top of the worldwide economic slowdown, America is facing massive budget cuts that are due to hit January 2, 2013—a tornado to in the economic forecast. This includes approximately $55.0 billion in automatic cuts for the defense market sector.
This is not new, as various corporations have continually attempted to make the public aware that without the political will to fix the fiscal problem and prevent these budget cuts from being enacted, America’s gross domestic product (GDP) will be severely hit next year, depressing the economic forecast even more. I wrote about this in the article “Lockheed Martin Warns of Impending Crisis Unless Action’s Taken,” as the defense market sector is a huge target.
With such a negative economic forecast, one would think that politicians would attempt to work together to avert this disaster. However, it appears that politicians are only interested in deflecting negative criticism away from themselves.
The president of Pratt and Whitney, a subsidiary of United Technologies Corporation (NYSE/UTX), David Hess, stated that because of the company’s economic forecast and the looming budget cuts, it is about to issue notifications to employees that might be laid off. This is due to a provision of a law called the WARN Act, which requires employers to notify employees at least 60 days prior to any plant closures or layouts.
Pratt and Whitney is only following the letter of the law. However, the U.S. Labor Department stated that companies in the defense market sector should … Read More
Before You Buy Retail Stocks, Read This
By Sasha Cekerevac for Investment Contrarians | Aug 7, 2012
Over the last decade, Internet shopping has changed the retail market sector forever. Whereas once large retail stocks such as Best Buy Co., Inc. (NYSE/BBY) dominated the landscape for electronics, new companies like Amazon.com, Inc. (NASDAQ/AMZN) are taking over with speed, ease of service, and reliability.
Another problem for large retail stocks is beyond the normal hassles for consumers, such as driving to the store with the higher cost of gasoline and increased traffic. But there are new problems that have been highlighted by a recent survey conducted by comScore, indicating that over 60% of consumers have visited an electronic retailer to examine the products in-store, and then purchased the goods online. This is a new threat to retail stocks, as the market sector has never witnessed such a dramatic shift before.
This changing market sector must be addressed by retail stocks like Best Buy. Best Buy itself is under increasing pressure to survive, as corporate earnings have continued to decline. The fact is that consumers want more in this market sector than simply buying a commodity when they visit the physical store of retail stocks. A company that tries to fill this need is lululemon athletica inc. (NASDAQ/LULU). This is one of a few retail stocks that have embraced the new realities of the market sector. One great example of being interactive with clients is how lululemon offers clients in-store yoga lessons. This creates social connections and goes beyond just buying yoga gear.
Best Buy has already initiated the closure of some 50 large-format, traditional stores and has instead opened smaller stores. Retail stocks are now realizing that the … Read More
JPMorgan: Has the Powerhouse Stock Hit Bottom?
By Sasha Cekerevac for Investment Contrarians | Jul 16, 2012
There are many viewpoints regarding Jamie Dimon, CEO of JPMorgan Chase & Co. (NYSE/JPM), some of which have gone south since the situation regarding their multi-billion-dollar loss was announced, related to European credit trades. The real issue for investors should not be a moral one, since no rules were broken, but rather the analysis of the firm in relation to other bank stocks. Where does JPMorgan Chase fit in relation to other bank stocks, and what does the future hold for its corporate profits?
The latest quarterly report on corporate profits places a big spotlight on the fact that JPMorgan is a hugely profitable firm, a giant amongst the bank stocks. While the market sector has experienced volatility, JPMorgan is so profitable that it appears able to weather the storm.
For the latest quarter, the firm took a $4.4-billion loss for the trading losses of its London-based risk department. For many firms that would be a massive hit. For JPMorgan, it translates into a decrease in corporate profits of only 8.7% to just under $5.0 billion, compared to $5.4 billion the previous year. These corporate profits come from revenue of $22.2 billion.
For all of the concerns regarding JPMorgan and other bank stocks regarding some of the questionable trading, it amounted to a tiny slice in the corporate profits for the firm. This speaks volumes to the potential for massive corporate profits over the long term.
But, I would not necessarily jump in yet. Bank stocks could get hit this fall, as the European mess continues to evolve. This unraveling of a continent could cause massive upheaval for the financial … Read More
Deep Trouble for Some Retail Stocks
By Sasha Cekerevac for Investment Contrarians | Jun 28, 2012
Over the last decade, Internet shopping has changed the retail market sector forever. Whereas once large retail stocks such as Best Buy Co., Inc. (NYSE/BBY) dominated the landscape for electronics, new companies like Amazon.com, Inc. (NASDAQ/AMZN) are taking over with speed, ease of service, and reliability.
Another problem for large retail stocks is beyond the normal hassles for consumers, such as driving to the store with the higher cost of gasoline and increased traffic. But there are new problems that have been highlighted by a recent survey conducted by comScore, indicating that over 60% of consumers have visited an electronic retailer to examine the products in-store and then purchased the goods online. This is a new threat to retail stocks, as the market sector has never witnessed such a dramatic shift before.
This changing market sector must be addressed by retail stocks like Best Buy. Best Buy itself is under increasing pressure to survive as corporate earnings have continued to decline. The fact is that consumers want more in this market sector than simply buying a commodity when they visit the physical store of retail stocks. A company that tries to fill this need is lululemon athletica inc. (NASDAQ/LULU). This is one of a few retail stocks that have embraced the new realities of the market sector. One great example of being interactive is with clients is how lululemon offers clients in-store yoga lessons. This creates social connections and goes beyond just buying a yoga gear.
Best Buy has already initiated the closure of some 50 large-format, traditional stores and has instead opened smaller stores. Retail stocks are now realizing … Read More
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