Many times people ask me how I come up with my investment strategy.
Obviously, there is no one answer, but a common trick I use when developing any investment strategy is to look for areas where market sentiment still remains below peak optimism.
Following the tragic events of the Fukushima Daiichi nuclear power plant disaster in Japan, market sentiment for uranium dropped, naturally. As Japan halted all nuclear power plants, shareholders adjusted their investment strategy to get out of uranium mining stocks.
Now, the time when market sentiment is about to shift for the uranium industry, I believe, is close at hand.
The reality for energy use over the next decade is that it will grow massively around the world. Nations like China and India cannot keep up with industrial demand for energy, which is now causing huge amounts of pollution.
Chinese authorities are aware of the polluting side effects of conventional energy sources, such as coal, and are building several new nuclear power plants, which is a much cleaner energy source. Market sentiment will continue to shift in favor of uranium as more nations realize that nuclear power will continue to be with us for some time.
Adjusting your investment strategy before everyone jumps on board is important. Even Japan is now conducting analysis to re-open 14 nuclear power plants, as five utilities within that nation are requesting these energy sources be put back online.
If you’re going to look for a uranium miner to add to your portfolio, one well-established and smooth-running company to consider is Cameco Corporation (NYSE/CCJ, TSX/CCO).
Chart courtesy of www.StockCharts.com
In the latest quarter, … Read More
To some people in the mainstream media, last week’s advance estimate on U.S. gross domestic product (GDP) growth was seen as a positive surprise.
According to the U.S. Department of Commerce, the advance estimate on U.S. GDP growth for the third quarter of 2013 was an annual rate of 2.8%. In the second quarter, real GDP growth was 2.5%. (Source: U.S. Department of Commerce, November 7, 2013.)
Reading just the headline, it would be easy to assume that GDP growth was accelerating on a solid footing. However, had they looked just a bit deeper, they’d find that the truth is the GDP growth estimate that was reported was actually much worse than the headline number.
The fundamental strength underpinning this increase in GDP growth was temporary, and it could lead to a much weaker fourth quarter. If investor sentiment were propelled higher due to this blip in GDP growth, it would be a mistake.
The big increase in GDP growth was due to a build-up of inventory, a reduction of imports, and an increase in spending by state and local governments.
What happened to consumer spending, which makes up three-quarters of our economy? Personal consumption increased by 1.5% in the third quarter versus an increase of 1.8% in the second quarter. People began to reduce their spending versus the first half of the year.
Inventory increased by $86.0 billion in the third quarter, versus a $56.6 billion increase in the second quarter and a $42.2 billion increase in the first quarter.
Just the increase in inventory alone added 0.83% to the GDP growth figure. If investor sentiment is increasing based … Read More
When it comes to the recent batch of corporate earnings releases, some investors might be cheering. But if you look a bit closer at the results, you will notice the underlying fundamentals aren’t as strong as they first appear.
One thing to remember: in the equities market, it’s all about expectations. A company might report corporate earnings of $100 million, but if analysts in the equities market were expecting $150 million, the results would actually be disappointing.
The reason for this is that the equities market is a discounting mechanism for future corporate earnings. Analysts and investors estimate what the next 12–24 months might bring in terms of corporate earnings and accordingly adjust their valuations for various stocks in the equities market.
What’s interesting to note in this corporate earnings season so far is that the spread between actual and estimated corporate earnings is declining. This means companies are having difficulty exceeding expectations.
So far, 244 of the S&P 500 companies have reported corporate earnings, and while 75% have beaten corporate earnings estimates, on average, they have only exceeded these expectations by 0.8%. The four-year average is 6.5%. (Source: FactSet, October 25, 2013.)
And if you listen to executives at various companies within the equities market, you will notice another common theme: companies are having difficulty finding and generating revenue growth.
Of the S&P 500 firms in the equities market that have reported corporate earnings so far, only 52% have exceeded revenue estimates—far below the four-year average of 59%.
This is why they are issuing dividends and buying back shares; they can’t figure out a better way to invest the … Read More