The Reluctant Bull
So far this year, stocks are up 3%, as measured by the S&P 500. That’s not a lot, however, if added to the 23% gain for the market during all of 2009, stocks have been marching along at around 2% a month since the bad days of 2008. There’s still plenty of ground to make up although some investors are excusing their lack of participation by concluding that they missed their chance to buy stocks at bargain prices. They did but that doesn’t mean they can’t get aboard now. There is still plenty of room for reluctant bulls, like Ferdinand, the peace loving bull in the 1936 children’s story, who enjoyed sitting under his cork tree and smelling the flowers.
Today’s stock market still offers attractive stock valuations for those who want to end up smelling the flowers. One reason may be that those who make their living by publishing financial advice know they can always get a bigger audience by producing a disaster sound bite such as a possible rating downgrade on government bonds.
Such absurdities may make us wonder why we still have bond rating agencies after they slept through a decade of unsupervised easy lending. They had plenty of company for those looking for scapegoats but I feel it more profitable to look toward recovery.
A current New Yorker article on Treasury Secretary Geitner, points out that there is good news on the much despised $700 billion bailout package approved by Congress in October, 2008. The larger banks such as Goldman Sachs, B of A and Wells Fargo have repaid almost all of the money lent by taxpayers and are now stronger than many of their overseas competition. The Treasury now projects the ultimate cost of this bailout package at $117 billion, much of that related to bailing out GM and Chrysler. The cost should pan out at less than the S&L bailout of the early ‘90’s and might even see the government book a profit.
While the economic battle to avoid falling into a deeper recession was won, the casualties were widespread. Painful unemployment seems destined for slow recovery and many smaller banks and businesses were also wounded. The path back for stock investors is not so painful, provided they proceed as careful bulls.
One step toward recovery on which there is widespread agreement is the need to repair roads, bridges, water and sewer systems and other elements of aging infrastructure. Paying for this will always be a subject for debate but the opportunities are growing. Insituform Technologies (INSU-$27) provides products and services for rehabilitating municipal and industrial pipelines without digging trenches. In a typical application, an expandable flexible tube is inserted into a damaged pipe, and then cured in place into a jointless replacement pipe.
This is not a large company with only $726 million sales and no dividend but not much debt, either. Current earnings estimates are for $1.48 this year, up over 50%, based on a recently increased forecast by the company. Insituform won recent contract awards in Tennessee, Alabama, Australia, Singapore and worldwide for the U.S. Navy.
Spanish-based Telvent (TLVT-$30) is bit bigger with $1.1 billion sales, a more leveraged balance sheet and a 1.6% dividend yield. Its information technology systems are directed to transportation, security, energy and environment. It won recent awards for energy pipeline management in Mexico, power in Hungary, trams in Morocco and subways in Brazil. Earnings this year should exceed $2.00 a share.
Reluctant bulls can find flowers beginning to bloom again around General Electric (GE-$18). After two terrible years of losses from GE Capital, the finance arm on which it once relied for more than half its profits, it has stabilized. The March quarter will be down again but it expects full 2010 earnings to be even with 2009 with growth returning in 2011. The current yield after its dividend cuts is 2.3% and next year should see an increase. Its $156 billion sales include substantial infrastructure projects.