For the past several days, I've been giving tips about how to predict trends and ride them to profits. My last tip is that sometimes you can make money by taking a clear trend -- and then ignoring it and investing in a less trendy stock, or even a stock that seems to be losing out because of that same trend.
Before you throw up your hands in frustration, hear me out. For just one example, take Pinnacle West (NYSE: PNW). This Arizona company has two divisions: real estate development and an electric utility. Not surprisingly, the stock has really sunk since the spring as investors started fleeing with the intensifying real estate woes; back in April PNW was trading just above $50, and in early August it was down around $37.
Most trend followers would sell this stock too -- who wants to be involved with any real estate development company? As I see it, however, the company has been excessively punished for its real estate division, and it's currently undervalued when one considers its electricity division. Arizona is a hot place with a growing population, and there's only going to be increasing demand for electrical power to cool the homes and offices of all these people. The company may not return to its previous profit levels, but I think investors have overreacted, and we could see this gain several dollars back. When you add some modest growth to a 5.3% dividend, you could find yourself with a nice little profit.
Type of stock: An Arizona company dealing in real estate and electricity.
Price target: If you can get this below $40, I think you'll see it get up to around $45 over the next year. That's a ten percent gain right there, plus a dividend to make it nearly a 15% gain. Plus if you hold long enough, real estate has to come back sometime. That could be at least a few years though, so you'll need to be patient.
Just over a year ago, I blogged that CNX Gas (NYSE: CXG), a natural gas exploration, development and production company that liberates the methane in coal beds and develops it into natural gas, was a stock pick with a strong future.
The release of methane from coal mines began as a safety measure back in the early 1980s. However, mining companies soon realized that money could be made from this coalbed methane. CNX Gas is one of the companies to tap this gas resource. It has enormous coalbed methane reserves, primarily in Appalachia , and the reserve life of its proved reserves is nearly 22 years.
At the time of my earlier blog, CNX Gas had recently split off from CONSOL Energy, a coal-mining company (which still owns over 80% of CNX's stock), and was going like gangbusters. In 2005, it saw 50% growth over 2004, and the first quarter of 2006 showed a 40% growth over the first quarter of 2005. CNX's pre-tax and net profit margins were twice as high as the industry average.
At the time, it was trading in the low $20s, and I recommended it was a good buy. Today, it is trading just over $30 and still presents a good buy, in my opinion. I'm not alone. A Bank of Montreal report issued this week notes that CNX is focused on evaluating 93% of its unevaluated reserves, and once the Rockies Express pipeline comes online, it will likely be the gas producer with the lowest prices in the country. It is aiming for 15% production growth in 2008, and analysts are confident that CNX is on track. So am I.
Type of stock: A natural gas exploration, development and production company that also converts coalbed methane to natural gas, with extensive proven (and unproven) reserves and a continuing record of extraordinary growth.
Price target: The Bank of Montreal report puts the target price at $37. Currently trading nearly at $31, I could see CXG hitting $40 in a year.
The market has turned since my last video update -- with the Fed's recent interest rate cut, now is the time to embrace your inner bull! I discuss buying strategies in this edition of StockWatch: Between the Bells.
Three stocks you should look into:
First Solar Inc. (NASDAQ: FSLR), a Phoenix manufacturer of silicon-free solar-power modules. FSLR is significantly undervalued, by as much as $40 if you believe Bank of America.
China Medical Technologies (NASDAQ: CMED), which develops cancer treatments in Beijing. CMED is expanding its operations into the rest of Asia, as well as into Russia and Europe.
After stalling a bit last month, Google (NASDAQ: GOOG) is pushing higher again, bound for $600.
Stay away from home builders like Hovnanian (NYSE: HOV) and Beazer Homes (NYSE: BZH) -- the ongoing mortgage meltdown is not over, and the housing market has yet to bottom out. Until then, also avoid home furnishings retailers, like Ethan Allen (NYSE: ETH).
Lastly, check out Baidu (NASDAQ: BIDU), China's leading search engine -- currently trading at $275 and soon to hit $300. Don't think that Google is considering a Baidu buyout? Think again.
My email inbox is full these days with investors wanting to know how to manage these fickle and turbulent markets. It is true that, given the increasing complexity and sensationalism (mortgage defaults, Chinese dominance, global warming) plaguing the financial markets, it is easy to lose one's way.
In Invest Like a Fox . . . Not Like a Hedgehog, Robert C. Carlson, editor of the monthly newsletter Retirement Watch and managing member of Carlson Wealth Advisors, provides a clear-cut essential guide for enhancing any investor's financial prowess. Carlson's innovative approach to developing investment strategies eliminates the "noise" that frequently overwhelms investors.
Invest Like a Fox is the type of book I personally look for: A driver's manual for the investor looking to navigate today's financial markets. The book trains you how to avoid looking back at your mistakes or successes, but instead promotes keeping your eyes on the volatile and bumpy road ahead. Packed with expert advice and in-depth insight, this all-inclusive guide will enhance the way you think about investing and assist you in creating an investment strategy.
You really should watch Hilary Kramer: Market has further to fall, but there is opportunity in KDN, CBI, ACH to get some market perspective. The video was posted on August 21, 2007 and she makes some very good stock recommendations. Over the past 18 months that I have been looking at her picks versus those of James Cramer, I have found that you would have done better with Hilary.
While giving her full credit for her stock picking and market coverage I find I must strongly disagree with a statement she made. Cautioning viewers that " There is going to be a meltdown" is not overly alarming, but I take great exception to her stating that "This market can go down 25%." She shared her fear that there are 9000 hedge funds and that 3000 might close down.
It is possible that people may panic in certain circumstances and the market can stray into irrational short-term behavior once again, but I find her reasoning a little soft. Let's assume that the 9000 hedge funds own 50% of the total equity in the stock market (they don't) and one third go out of business, that would equate to a 15% collapse of value (unscientific, I know, but there is some correlation).
The stock market has stabilized somewhat in recent days, but I still have a very pessimistic outlook for stocks, as I explain in this video. I think stocks could fall another 25%.
Internationally, I suggest looking to China plays like Aluminum Corp. of China Limited (ADR) (NYSE: ACH) and global environmental plays like Veolia Environment (ADR) (NYSE: VE). Finally, I offer a stock tip: Darling International Inc. (ASE: DAR) is a little-known environmental company which gets paid to collect waste like animal by-products and cooking grease and turns it into biodeisel which it then sells. Enjoy the video!
A leader in the industrial sector, Danaher Corp. (NYSE: DHR) designs, makes and markets brand name products, services and tech across three categories: Professional Instrumentation (electronic testing, environmental, and medical technologies); Industrial Technologies (motion and product Identification; aerospace and defense, power quality, and sensors and controls); and Tools & Components (which include mechanics' tools and general tools under brand names such as Craftsman.)
It is a leader in many of its classes, with names like Fluke (handheld electronic and network test equipment), Gilbarco Veeder-Root (retail petroleum dispenser market), and Hach/Lange (water analytics). A huge company in the industrial sector can sometimes seem overwhelming (what ARE all of these things, after all? you might ask...), but the thing to know first is that Danaher is solid as they get, with great margins, good management, and is well positioned for continuing growth, particularly through acquisitions.
On July 19, after DHR's excellent second quarter earnings report, Goldman Sachs wrote that Danaher was "well-positioned" for the 2H2007 upside. Time to get in now, its report suggested, and I agree. It set a nice price target of $90. With low operating risk, and consistent growth of revenue, Danaher is a safer pick. Plus, as the Goldman report points out, it is "a leader in defensive growth markets like water, electronic test, and medical," making its price less susceptible to the recent jitters in the market.
Type of Stock: An industrial designer, manufacturer, and marketer, Danaher is a leader in its class in many areas, and has demonstrated solid growth in areas less likely to suffer by market instability.
Price Target: Trading now at $75.80, I agree with the Goldman target of $90 and feel Danaher is well positioned to even exceed this.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
The past several months have not been kind to Panera Bread (NASDAQ: PNRA). The stock was trading near $70 last fall after several years of steady growth, then it started dropping early in October, made up some of that lost ground, and then took a real hit in June when the company lowered its expectations for the second quarter. Then, last week it lowered its expectations for the third quarter, which sent the stock down another 9%.
The main reason for these woes is decreased profitability. Analysts like Jeffrey Bernstein at Lehman Brothers have blamed rising commodity prices, while John Gloss of CIBC attributes it to commodities as well as labor costs. The company has looked to customer shifts from home-baked bread and muffins to outsourced products like scones and soufflés. Others have blamed rising fuel costs that have led to more customers staying home rather than driving to eat. Whatever the reason, PNRA's results have not been good, and investors have understandably been selling shares.
For years, General Electric (NYSE: GE) has suffered from perceptions of mediocrity, and its stock price has stayed relatively flat. But its revenues and margins have been growing steadily, and its second-quarter results showed revenues up 12% over the second quarter of 2006, 8% of which came organically, and investors are paying attention again. The stock is now trading at a long-time high of $40, and a Goldman Sachs analyst report this week predicted the stock would reach as high as $45.
GE's success has resulted in large part from a continuing boom in global infrastructure needs, and all its divisions have been doing well of late except NBC and its health-care sector. The company has benefited from global trends, but CEO Jeffrey Immelt continues to make improvements, from investing in a major buyback program of $14 billion to getting out of the plastics business to, most recently, announcing GE would exit the subprime mortgage industry. GE's subprime division, WMC Mortgage, was a tiny part of the company, but Immelt was smart to avoid losing any more money, and to avoid the kind of negative publicity that has hit firms, like Bear Stearns, that are deeply involved in that failing industry.
That is the question many investors and analysts are asking after Google Inc. (NASDAQ: GOOG) missed its second-quarter earnings estimates by a mere $0.03. Google's shares dropped 7% on the news, and of course the rumors started flying.
It seems to me the concern is misplaced. Google's sales came in at $3.87 billion, which is 58% higher than they were a year ago. The stock price is up 20% on the year. Profits may have been down a bit, but that's a natural result of the kind of growth that Google has been pursuing. This is a company that will continue to grow as online advertising revenues grow, through its acquisition of DoubleClick, and through the management's continuing efforts to find new markets. I believe its profits will return over the long term. The company clearly suffers from high expectations, and that, more than anything, drove the small panic over the earnings report. For many investors, the dip in the share price will be a way to get in at a 7% discount.
I'm not the only one who feels this way. Lehman Brothers issued a report on July 13 predicting the share price would hit $610 in the next year. The report based this, in part, on overly optimistic expectations for earnings for the second quarter, but the prediction did factor in the higher operating expenses that helped cause Google to miss its earnings forecast. In other words, this latest report from Google shouldn't have been the shock it was given that analysts knew some of the costs of growth would come home to roost in the short term.
I am always keeping an eye on what is happening on Capitol Hill. In 2002, the Farm Security and Rural Investment Act was passed to provide a boost to many different companies with interests in agriculture. This bill is due to expire this September, but analysts on the Hill predict that the renewed legislation will likely resemble the current farm bill.
This is good news for biofuel interests, fertilizer producers, and farm equipment providers (like Archer Daniels Midland Co. (NYSE: ADM)). The agriculture bill will also give a boost to manufacturers of rail car and rail equipment, whose products are needed to carry the agricultural products. For this reason, I think it might be a good time to pick up American Railcar Industries (NASDAQ: ARII).
American Railcar is easily considered one of the leading manufacturers of covered hopper and tank rail cars in the United States. The company also repairs and refurbishes rail cars and provides fleet management services for businesses using rail transportation. In addition to carrying grains and dry foods in its covered hopper rail cars, the tank rail cars transport the liquid products such as vegetable oil, corn syrup, and ethanol.
The 2007 Farm Bill is likely to bring big gains in particular to agriculture-based renewable fuels, like bioethanol -- which in turn will bring gains to the carriers of such commodities. Further, American Railcar is relatively undervalued versus its competitors. The P/E is 16 compared to the industry average of 27.3. In short, I like this company now -- and into the future.
Type of stock: A cyclical stock in the industrial materials sector, ARII makes and repairs rail cars.
Price target: I think that the upcoming farm legislation will likely help push this stock back to its 52-week high of $41. Currently, ARII is hovering at $30.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
Flamel Technologies SA (ADR) (NASDAQ:FLML) is in the business of making drugs that are already on the market work better. This company, based in France, creates biotechnology. Its two products in use right now are Medusa and Micropump -- both are controlled release mechanisms, allowing patients to take a drug less times a day, and without as many side effects.
Flamel makes deals with other big pharmaceutical companies to team with its technology, receiving a royalty in exchange. For a recent and exciting example, Flamel recently struck a deal with GlaxoSmithKline plc (ADR) (NYSE:GSK) to create a controlled-release version of GlaxoSmithKline's heart-helper, the beta-blocker Coreg. The new product is called Coreg CR. Users only need to take one dose a day, which is going to draw consumers like flies to the product.
Detractors of Flamel point to the fact that while Coreg is wildly successful right now, with roughly $1.3 billion in sales in 2006, it will lose its patent protection this year. But other analysts point to this deal as establishing Flamel's strong position in the field, prompting other Big Pharma firms to take it seriously as well. Also, its technology works well, so people may not switch to the generic version of Coreg as quickly.
There is a problem inherent in the general Flamel business model, however. While the company is clearly strong in technology development, it relies on partners to get that tech into the marketplace. It simply isn't a big enough company to do it on its own. But I love what it's creating, and teaming with heavy-hitters like GlaxoSmithKline points to its ascendancy in the field.
Additionally, there are great products in the Flamel pipeline; among others, it has an insulin product in Phase II clinical trials called Basulin that awaits approval by Food and Drug Administration. For me, if the product is novel and works, the big companies will come to Flamel as partners. As royalty income grows, operating margins have a chance to fall.
Type of stock: A small player in the biotech field who teams with Big Pharma to license its innovative products.
Price target: Currently trading at $29, I'd wait for Flamel to dips to the $25 level and then buy. This is one to hold onto for a few years as I think it's going to continue to make strides as a smart new bio-technology.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
As you might have noticed, I have been focusing on Chinese companies over the past few days, seeking to highlight some sectors where the massive influx of tourism and business and money into China is having a positive effect.
What is more natural in a booming economy than advertising? As people's spending power increases, so too does the need for companies to market products for them to buy. And let's not forget: 2008 Olympics are being hosted in Beijing. This is going to bring a boost to the already growing arena of new media advertising.
Enter Focus Media Holding Limited (ADR) (NASDAQ:FMCN), China's largest publicly-traded advertising firm. This company specializes in "out-of-home advertising" -- in other words, it uses in-store, commercial location, outside light emitting diode (LED), and mobile handset networks to broadcast advertisements. In 2003, Focus Media went from being a traditional ad agency to focusing on the out-of-home market, and it was smart to jump into the game that early. After many acquisitions, it staked out the market terrain and are now the leader in the outdoor ad market, directly operating in 50 cities and indirectly in 36 more cities. It's flying along. Net income for 4th quarter 2006 was $30.1 million compared to the previous year's $9.4 million, and sales tripled to $68.3 million. This market is particularly important in China, where ads can capture bored people in long lines!
It seems like yesterday that CMGI Inc. (NASDAQ:CMGI) was one of the hottest stocks to own. These were the Internet days -- now seven years ago. The stock prices of companies that were internet -based went to the moon and "incubator" companies that invested in internet companies went even farther into the galaxy. CMGI was one of those stocks. The good news is that CMGI stayed alive and looks like it may finally be ready for a comeback.
CMGI consists of two divisions. One is ModusLink which, according to the company's website, "provides industry-leading global supply chain management services and solutions that help businesses market, sell and distribute their products around the world." CMGI's other business, @Ventures, founded in 1995, focuses on identifying, financing and fostering new companies -- especially those engaged in developing cutting-edge technologies.
CMGI announced this week that it invested in an alternative energy company, Earthanol, Inc., which builds and operates waste-to-ethanol production plants. Earthanol's website explains that the "most logical feedstocks to turn to (to produce ethanol) are the millions of tons per year of waste residuals from agricultural, industrial, and urban activities. Earthanol believes that the conversion of these feedstocks through acid or enzymatic hydrolysis and thermal conversion/syngas catalysis is the next big wave in renewable fuels development."
Although @Ventures' total investment is only $2 million, the investment did catch the eye of Wall Street last Friday. The investment consortium was one area of interest to all who saw this press release. The team of investors also includes Nth Power, Sail Venture Partners, and Calvert Funds. The total investment is approximately $7 million.
More importantly, this is not the first investment in clean energies. In February, CMGI invested in "H2Oil," a Utah-based cleantech company that specializes in the "reclamation of valuable hydrocarbons and fresh water from oil and gas exploration and production processes." To me, this is an even more significant venture. I believe that the future, in the near term, for clean technologies and alternative energy will be finding ways to assist traditional fossil fuel production in a way that is cleaner and safer for the environment -- until the day comes when we rely only on renewable fuels from the sun and wind and our agricultural production. CMGI has also invested in solar. Last year, the company invested in Advent Solar, a solar operation that develops photovoltaic technology to convert sunlight into electricity. The company's solar cells are focused on cheaper technology to achieve the same effective result as the more expensive competitors.
Type of Company: A well-managed and tenacious publicly-traded company that has a portfolio of investments in start-up technologies (originally internet-focused, and now cleantech, alternative energy and diversified technologies) and another division which works to help businesses sell, market and deliver their products and services throughout the entire order-to-supply-to-delivery process.
Stock Price Target: Don't be surprised if this $1.70 stock more than doubles and hits $4 in the very near future. I have seen many companies enjoy a second life and this management team is smart and committed. The former CEO, David S. Wetherell, brought in a top notch team to rebuild the business and hit profitability and receive shareholder return by making the right investments at the right time.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
Overhill Farms, Inc. (AMEX:OFI) is a smartly-positioned California company that manufactures frozen foods and packaged frozen meals. Its products include frozen soups, sauces, and entrees for retail sale under the Chicago Brothers label. The company also provides private label and co-packing agreements with such retailers as Costco, Sam's Club, and Safeway; as well as Jenny Craig, the weight loss company. Overhill Farms also serves several domestic airlines. The company has two manufacturing facilities in Vernon, California.
Overhill Farms reported record net income of $1.6 million for the first quarter ended December 31, 2006, on revenues for the quarter of $40.5 million. This is a 156% increase in net income from the $607,000 for the first quarter of last year, and a 2.4% increase in net revenues from the $39.6 million reported a year earlier. What I really like here is year-over-year quarterly earnings growth of 156%.
Also, Lehman Brothers is the biggest institutional shareholder with Wellington a close second. Even CALPERS, California's huge state pension fund, has a piece. Why would they invest in such a small business?
The answer is easy and goes beyond being the supplier of meals for Jenny Craig. Overhill Farms has a broad array of clients and will be able to survive food and transportation inflationary pressures because of the high quality nature of its food and its varied customer base, which includes high-end supermarkets, the airlines, and the ever growing ranks of American dieters. Quality is the key here along with an image of organic-like quality and freshness in frozen food.
James Rudis, Chairman and CEO of Overhill Farms, believes the company will have a revenue run rate of $200 million by the third quarter of this year. Overhill Farms recently signed a three-year agreement to produce meals for a major national food brand which is expected to generate first year sales of approximately The company is also scheduled to being production, late in the second quarter, of 24 new private label food items being introduced by a major West Coast grocery chain.
Type of Company: A small cap gem that has the chance to be acquired or grow rapidly with accounts ranging from high end restaurants, to discount grocers and the airlines. Stock Target: Overhill's stock price has room to keep growing from its already lofty $5.80 to at least $10 by the end of 2007.
Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.
For the past several days, I've been giving tips about how to predict trends and ride them to profits. My last tip is that sometimes you can make money by taking a clear trend -- and then ignoring it and investing in a less trendy stock, or even a stock that seems to be losing out because of that same trend.
My email inbox is full these days with investors wanting to know how to manage these fickle and turbulent markets. It is true that, given the increasing complexity and sensationalism (mortgage defaults, Chinese dominance, global warming) plaguing the financial markets, it is easy to lose one's way. 
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