Good bets for tough times
Stocks are hanging onto their recent rally despite lackluster earnings reports. Results that are not as bad as feared are met with applause as if they were performing for hometown theater audiences. These favorable reactions would dry up with a market dip but each move up in this soft economy puts more support under the market.
Market gains are not coming with the increased volume that brings strong rallies. That may reflect an inability among institutions and their mutual fund customers to make decisions after the beating of last fall. They will eventually tire of the almost invisible yields offered to the fearful by money market funds but their absence leaves the markets still fragile.
The impact of stimulus legislation is still in the early stages with the stock market already playing its traditional role of anticipation. After months when it seemed each week, if not each day, brought news of the failure of another major company, time is now beginning to be again on the side of investors.
The tide is still coming in for stocks. An ebb tide is inevitable so investors should add stocks that can withstand exposure as the level drops. Despite all the publicity about big bank stocks, I am still wary of a sector led by beggars in corporate jets, elbowing for room at the government trough. There are plenty of well run smaller banks but this country still has more banks than in probably needs.
Overcapacity is a persisting problem for any business sector, one reason the auto industry is in difficulty, as global auto manufacturing capacity has exceeded global vehicular sales for years. Banks have little competitive edge for anything other than rate competition and their stocks are presently selling on hopes for revival. Regional banks like USB (USB-$19 on 5/19) or PNC (PNC-$45) are well priced to participate.
For very basic consumer banking needs, Global Cash Access (GCA-$8) is a better gamble. The company is the largest cash access provider on the floors of casinos in this country and abroad. Sales are over $700 billion, growing at 13%. It went public in 2005 and has continued to augment its position during global financial swings. It forecasts 2009 earnings around $.72, up slightly, reasonable odds at a P/E ratio of 11.
Investors may feel that stock market swings make casino gambling seem almost restful. Similar principles of risk analysis apply to both fields although the continuing disparity between the low yields from Treasury bonds and those from a bit more daring investments indicate less acute analysis. One almost sure thing seems to be a return of inflation.
Governments everywhere are fighting the deflationary black hole that accompanied the fiscal crises. Their stimulus packages are inherently inflationary as are the inevitable pressures of population growth with increasing demand for resources. Gold is the traditional investment beneficiary of inflation and gambling gold bugs may want to consider Northgate Minerals (NXG-$1.75), a Canadian miner of gold and copper. Freeport Copper (FCX-$50) has 30 times its sales and is a safer bet.
Gold tends to attract emotional “Goldfinger” trading and is sensitive to political fiscal decisions. Energy and agriculture prices respond more directly to global demand and should be core holdings in any stock portfolio. Oil prices are beginning to move up as confidence builds on the world’s economic recovery. So are energy stock prices but they still present good and deeply grounded values.
XTO Energy (XTO-$42) continues its growth in natural gas; Occidental (OXY-$62) and Statoil (STO-$21) are among the successful international exploration oil firms. Endeavour (END-$1.35) is a low-priced speculation on its success in the North Sea fields.
Mosaic (MOS-$57) and Potash Corp. (POT-$114) continue their fertilizer-related growth. Food producer Bunge (BG-$59) is coming back strongly from trying times. The best all round is probably Monsanto (MON-$90), which provides seeds, biotech products and herbicides for a wide range of crops. Debt is modest and fiscal 2009 earnings will be around $4.65, up 26%, making it an excellent bet as is Swiss-based Syngenta (SYT-$49).