Investment Asset Strategies

American Capital Strategies: A 9% Yield that is Sustainable

2007-10-29T08:57:00.001-07:00

American Capital Strategies (ACAS), which currently is trading around $41-42 a share, pays an enormous dividend of $3.68. This equals out to an approximate yield of 9%. More importantly, ACAS as a company has never decreased its dividend since its IPO in 1997. Furthermore, the company has raised its quaterly dividend 37 times according to Yahoo Finance. According to the company, $10,000 invested in 1997 in the Company's stock would be worth $69,584. That figures to a cumulative gain 595.8 percent. Whats more, is that the company has an above average credit rating compared to its peers and has very little exposure to the subprime fiasco accoring to its CEO, who spoke to this topic considerably in the company's most recent quaterly presentation. The company's success has even landed it a place on the S&P 500, a feet no other alternative asset manager has achieved. However, the company's share price has dropped recently because of worries about the subprime mess. The very subprime mess that ACAS has advoided. For investors, this presents a near perfect opportunity for high growth and significant income. For purposes of disclosure, I own shares of this company and has recently added significantly to my holdings.

A True Alternative Fuel Company

2007-08-07T12:08:00.000-07:00

Clean Energy Fuels (CLNE), according to the company's website, is "the largest provider of Natural Gas for transportation in North America with a broad customer base in the refuse, transit, shuttle, taxi, police, intrastate and interstate trucking, airport, and municipal fleet markets." CLNE serves approximately 200 fleet customers who operate approximately 13,000 Natural Gas vehicles in various markets, including public transit, refuse hauling, airports, taxis, and regional trucking. Moreover, the company owns, operates, and supplies 168 Natural Gas fueling stations as well as sell and lease Natural Gas fueling stations to third parties.

Moreover, the United States Government is currently subsidizing a significant percentage of the upfront costs incurred by customers as they switch from Diesel or Gasoline powered vehicles to Natural Gas powered vehicles. The reasons for this are simple. First, 100% of the Natural Gas used in the U.S. is currently produced by North American countries meaning, unlike oil, U.S. dollars are not flowing into the hands of unfriendly nations or violent extremists intent on harming U.S. interests. Second, Natural Gas is far cleaner than any other alternative fuel with the exception of Hydrogen, which is, at best, decades away from mass use. Moreover, producing Natural gas does not take up any valuable cropland away from food production. Natural Gas vehicles produce 95% less pollution than Gasoline or Diesel ones. Third, natural gas is far cheaper than Petroleum meaning substantial savings in the long run for Natural Gas operators. Fourth, Natural Gas is currently viewed by industry experts, including Spencer Abraham, the former head of the Department of Energy, as the most efficient feedstock to produce Hydrogen. Furthermore, much of the infrastructure built to support fleets of Natural Gas powered vehicles can be easily converted to distribute Hydrogen instead of natural gas when comes to do so. It is even possible to produce Hydrogen-Natural Gas blended fuels, which make good economic and environmental sense.

According to Jon D. Markman of the Street.com the potential for the Natural Gas fuel market in the U.S. alone is $21 billion, of which, a large portion will likely go to CLNE. Moreover, according to Mr. Markman the company is likely to earn between $0.60 and $0.84 per share in 2009. This is a 1900% to 2700% increase over this years projected earnings of $0.03 per share. Moreover, the company, which has almost no debt is only priced at roughly 71 times next years projected earnings and 27.5 times 2009 projected earnings, assuming the company only makes $0.60 per share in earnings. In short, this company is a buy and, for purposes of disclosure, I have recently acquired shares.

Stocks to Buy Now

2007-07-30T05:51:00.000-07:00

Considering the fallout from the subprime mortgage crisis, which is increasingly begining to affect prime morgages across the country, investors should focus their investments on those companies that are in solid financial shape and in no need of outside capital and whose business models revolve upon government or business spending rather than consumer spending. The reasons for this are simple. As more and more mortgages default, banks will tighten their lending practices signifigantly lowering the overall amount of liquidity in the overall market, thus affecting the ability of companies to raise cash. Furthermore, consumers have been able to spend much more than income would have allowed under more normal circumstances by raising dept through refinancing their homes. Such refinancing is rabidly becoming a thing of the past and thus the consumer will very quickly find themselves with a great deal of debt and far less cash to spend than anytime in the past several years thus greatly affecting consumer spending. With this in mind, the top stocks I am recommending now include Air Products and Chemical (APD), International Business Machines (IBM), and Flour (FLR). The first, APD offers investors a great growth story, with more upside exposure to the so-called hydrogen economy than any other U.S. company. IBM is a spectacular company in solid financial shape, which is selling chaep and growing earnings at a sustainable pace. Flour is a pure play in the infrastructure segment and is another great growth stock.

For purposes of disclosure, I currently own IBM and APD and looking to increase my holdings in each. I am also looking to buy FLR on dips.

Time to Buy American Capital Strategies

2007-07-25T08:50:00.000-07:00

American Capital Strategies (ACAS) is the largest publicly traded Private Equity Firm operating in the United States with over $15 billion in assets under management. According to its website American Capital Strategies is "an investor in managemnt and employee buyouts, private equity buyouts, and early stage and mature private and public companies. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalizations and securitizations. American Capital and its affiliates invest from $5 million to $800 million per company in North America and €5 million to €500 million per company in Europe."

Recently, concerns regarding the real estate market and the subprime mortgage market have caused shares in ACAS to tank falling over 19% from its 52 week high in a span of roughly six months. These fears are, however, overblown and have created a significant value opportunity for prudent investors seeking both high income and a chance of capital appreciation. First, ACAS is an extremely diversified firm with investments across many industries and geogrpahic locations with relatively little exposure to the current residential real estate and subprime mortgage woes. Second, the company pays a very large dividend and is currently yielding over 8 percent giving the company's shares a high degree of yield support. Third, the company enjoys an excellent credit rating, which means the company has an extremely low cost of capital thus ensuring any capital raised is very likely to be able to be invested at extremely beneficial rates as far as shareholders are concerned. Morevover, any concerns that private equity firms, hedge funds, and other alternative asset management firms will face any changes in their tax structure, which would severly impact earning of such firms is unlikely for several reasons (a small but very vocal group of Senators and Representatives are currently calling for such a change). Such a change in the tax structure lacks widespread support in either the House of Representatives or the Senate. Furthermore, President Bush is unlikely to be sympathetic to such a change in the tax structure as are the major Presidential candidates form both the Democratic Party and the Republican Party considering the vast and deep ties the leading candidates have within the industry.

For purposes of disclosure, I own shares in this company and am bullish on its prospects.

A Telecomunications Company Worth Owning: Chunghwa Telecom

2007-07-23T16:53:00.000-07:00

According to its website, Chunghwa Telecom (CHT) "chiefly provides telecommunication and information-related services. Its scope of business covers city call, long distance calls, international calls, GSM, data communication, Internet services, broadband networking, satellite communication, intelligent network, mobile data and multimedia broadband." Furthermore, the company boasts the following in regards to its subscriber base, range of services, and cooperation with international partners:

CHT is the largest telecommunication operator in Taiwan with a subscriber base of over 20 million.
CHT has the largest range of services of any telecommunications operator in Taiwan with operations consisting of fixed line networks, GSM, and data networks throughout Taiwan and offshore islands.
Of all the telecommunication companies operating in Taiwan, CHT has the closest cooperation with other international telecoms with circuits to over 200 other countries.

Corporate Governance is also sound as CHT recently was awarded the coveted Best Financial Disclosure Procedures in the Asia/Pacific Region by Technical Criteria in 2007. Just as important is the fact that CHT trades at significant discounts in terms of Price/Earnings and Price/Sales relative to its peers despite offering superior margins and comparable growth rates. Moreover, the company boasts a hefty dividend of 4.6%. The advent of 3rd Generation Cellular Technology should also be a strong catalyst for future earnings for CHT.

For these reasons, it is my belief that this company is a strong buy for long term investors. For purposes of disclosure, I have recently obtained shares in this company.

Sunny Days for Suntech Power

2007-03-12T06:16:00.000-07:00

Business at Suntech Power (STP), China's most established photovoltaic cell and module manufacturer, is booming. The company just released its fourth quarter and 2006 year end earnings and investors have a lot to be pleased with. For starters, the company's quarterly results excluding items were 4 cents per share better than Wall Street's expectations coming in at $0.23. For the year, net income rose sharply to $106 million, or 68 cents per share, versus $28.2 million, or 26 cents per share, in 2005. Furthermore, the company upped production guidance for 2007. The only negative for the company was quarterly revenues slightly missed expectations. For investors in the company, this last bit of bad news should not be too discouraging. Overall, the company is firing on all cylinders and should continue to reward patient shareholders as China's ravenous demand for energy continues to grow. In short, this company is a buy for long term investors who can afford to buy and sit on an investment for many years. For purposes of disclosure, I do not own shares in this company.

Itron Powers Ahead

2007-03-09T13:42:00.000-08:00

"Helping the world to make the most of its energy and water resources" is both the business and passion of Itron, a Washington State based company. Itron (ITRI) produces a wide variety of products, including solid-state meters and automated meter reading technology to enterprise-wide software platforms and real-time analytic applications, for energy and water providers around the world. Currently, these products are in high demand as energy prices have skyrocketed and the nature of providing energy to consumers has changed drastically due to structural changes in the global and domestic energy markets. Furthermore, water resources are, in many parts of the world, well below sustainable levels given current usage patterns, propelling the sell of Itron's portfolio of water utility products as water providers desperately seek to curtail wasteful practices. These developments have, in turn, generated very positive results for shareholders.

The company recently reported strong fourth quarter and record yearly operating results for the period ending Dec. 31, 2006. The company also reported its future profit outlook, which was well ahead of analysts estimates. So far, the year-to-date performance of Itron's shares has been phenomenal and, as of March 8th, 2007, stood at 21.2 percent.

Recent events point to even further growth in the company's shares. On February 25th the company announced it would acquire Actaris, a European competitor for approximately $1 billion, a deal which will add 20 to 30 cents a share in 2007 earnings, according to management. Then on March 8th, the company announced it had received the largest ever international order for SENTINEL solid-state electricity meters from Mexico's largest utility. Itron's vice president and general manager of international relations, Doug Staker, in remarks regarding the deal, stated, "This is a very important step forward for Itron in this market." Speaking more broadly, Mr. Stoker stated, "On top of other meter sales in the region, this agreement makes Itron one of the top meter suppliers in Mexico. We're optimistic about continuing to grow our presence in Mexico and throughout Latin America." With a leading technological edge, Itron is poised to continue to generate awesome returns for shareholders and should be considered by all long term investors who can withstand the volatility that goes along with investing in small cap stocks.

PetroChina is Selling at a Deep Discount

2007-03-06T07:20:00.000-08:00

When analyzing stocks, my favorite valuation metric is the PEG ratio. This ratio is simply the product of the price the company sells for divided by the company's forward earnings divided by the company's 5 year projected growth rate. Any stock selling under 1 is generally seen as being a good buy. Any stock selling for a PEG of less than 0.5 is considered a steal. When the largest integrated oil and gas company in China sells for 0.38 its time to buy. As stated, PetroChina is China's largest integrated oil and gas company. Furthermore, the company has a virtual monopoly on its domestic market, due to the fact that it is partially state owned, and receives preferential treatment from the Chinese government in various matters for the same reason. According to Morningstar, PetroChina now yields 4.37 percent in terms of its dividend, which is much higher than the industry average of 1.43 percent. Morningstar goes further stating that the company's forward earnings yield (the annual return the company would generate if all of its profits were distributed to shareholders in the form of dividends) is also much greater than other companies in the Oil and Gas industry. In short, this company is a screaming buy for long term investors and should be bought aggressively.

Why Posco?

2007-03-03T14:27:00.000-08:00

That is the question many investors have been asking themselves since the recent announcement that Berkshire Hathaway owns a minority stake in the South Korean Steel Company. As of Friday's (3/2/07) close, the 4 percent stake purchased by Berkshire Hathaway in 2005, according to CBS MarketWatch, is worth $1.35 billion. Already, the initial investment has more than doubled, rising over 102 percent and providing Berkshire shareholders a considerable return on the initial investment. More intriguing than this, however, is the fact that Warren Buffet, Berkshire's legendary Chairman, is still very bullish regarding the company stating, business is "outstanding." After a quick look at Posco's website, the source of Buffet's optimism becomes self evident. According to the company, net profits for the fourth quarter, 2006 increased 148 percent year-over-year. Furthermore, the company's credit rating has been upped to A (Stable) from A- (positive) by S&P. The current rating is, by far, the highest of any company in the steel industry and signifies the confidence, which analysts have in the firm. The company is also rapidly expanding its international presence with major products throughout Southeast Asia, India, and Mexico and has significant technological advantages over its competitors. Additionally, Posco has a virtual monopoly on its domestic market (South Korea) and the steel industry as a whole has experienced rapid consolidation in recent years, which shows no signs of letting up. Even better, the company trades at a significant discount to its peers in terms of its one year projected earnings and the company has an impeccable balance sheet. All of this points to higher earnings for Posco and higher stock prices for the firm's shareholders. I am currently long on this stock and am buying shares.

Some Stocks Are Cheap! Some Stocks Are Cheap! Some Stocks Are Cheap

2007-03-02T05:47:00.000-08:00

Now is the time buy. There, I have said it. Considering the market's recent behavior, these may be foolish words. However, I do not believe that to be so. For sure, many of the stocks that dropped during this week's correction, which I believe is almost over, were overvalued given their prospects and fundamentals and some may still be. Others, however, were simply victims of a market that blindly slashed the prices of good and bad, cheap and expensive equally. The good and cheap are the companies to buy. Bold investors need to act in the next few trading days for these bargains will not last forever. Dynamic and innovative companies such as Allegheny Technologies and Sasol now sale for PEG Ratios (5 year expected) for 0.88 and 0.68 respectively. Both companies are in good financial shape and Sasol pays a dividend in excess of 3 percent. The key is to strike before the market realizes the error in its ways and bids these companies to new heights. Furthermore, there are literally dozens and dozens of quality companies now selling for bargain bin prices that investors would be wise to snap up.

For purposes of disclosure I own shares in Sasol. Additionally, for those who are unfamiliar with the PEG ratio, I will explain it. It is simply the price divided by earnings divided by the projected 5 year growth rate of a given company. Any company trading at less than one should be considered a bargain.

Amcol Goes On Sale

2007-02-28T08:56:00.000-08:00

Yesterday's market crash has presented prudent investors with an unbelievable buying opportunity in a number of fast growing firms. One such firm is Amcol (ACO), which according to the company's website, is a leading international producer and marketer of value-added, specialty minerals and related products. Headquartered in Arlington Heights, Illinois, Amcol operates over 50 facilities worldwide and employs more than 1500 employees. The company recently reported fourth quarter earnings that handily beat the street consensus estimates and rose 43 percent year over year. Earnings for the year were also significantly better than consensus estimates and rose 22 percent from fiscal 2005. The company also boasts a return on equity of 18.22 and a five year projected growth rate of 30.11 percent according to Reuters. Furthermore, despite these solid fundamentals, the company still sales for only 13.47 times next years earnings. The bottom line is that smart investors can get a great growth company at bargain bin prices. For purposes of disclosure, I own shares in this company and am very bullish on its prospects.

Is the Chinese Stock Market Going to Burst?

2007-02-27T05:03:00.000-08:00

Shanghai's Composite Index shed nearly 9 percent last night amid concerns that additional macro-tightening could be introduced following the annual session of the China National People's Congress, which gets underway in early March. Does this represent the beginnings of a correction or, worse, a recession or a mere blip in the indexes upward march? While this is a question that cannot be answered with absolute certainty, there are certain economic and financial truths regarding market cycles as well as statistical evidence that when properly analyzed can give investors insight as to the likelihood of a recession or a correction occurring in the Chinese Stock Market. The first and most important metric investors should consider is the valuation of the Chinese Stock Market. By the standard measure of price-to-earnings ratio, local currency denominated "A-Shares" are trading at a relatively high average ratio of about the mid 30s. Worse, many companies on the index are now trading at multiples much higher than the average. Indeed China Life Insurance trades at well over 100 times current earnings. One needs to ask him- or herself if these kind of valuations can be justified given China's economic growth. The answer, in my opinion is that they cannot be justified. China is growing its economy very quickly. Still, when compared to U.S. companies who are growing earnings at an equal rate to their Chinese counterparts, the Chinese companies trade at a premium to the U.S. companies. The same is true of for European, Japanese, Taiwanese, Korean, and many other countries. Investors are currently placing a premium on Chinese shares regardless of circumstances. These developments clearly indicate the Chinese Stock Market is overvalued at least in the short term.

Furthermore, the Chinese Stock market is coming off a year when its main index gained 134% and several years of extremely high economic growth. As the old saying goes, what goes up must come down. At this point, I would not invest any new money in Chinese stocks nor those industries, which are over reliant on Chinese demand for growth as I predict quite a bit of near term pressure. This being said, I do believe that the Chinese stock market is poised for rapid growth over the long term.

S&P Downgrade Creates a Buying Opportunity in Amgen Stock

2007-02-24T07:26:00.000-08:00

On February 23 of this year, Standard and Poor's Equity Research downgraded and lowered their target price of Amgen (AMGN) stock, based in large part, on the decision by Thomson Corp. to remove one of the company's new drugs from the USP DI, a drug reference guide, for certain uses. This decision by Thomson Corp. is unlikely to have significant impact on earnings for Amgen in the foreseeable future. The drug, known as Aranesp, is used to treat anemia. However, recent data suggests that in cancer patients, who are not undergoing chemotherapy, the drug's potential risks may outweigh the rewards of use. As a result, Thomson delisted the drug for treatment of anemia of cancer, a condition many researchers believe is actually caused by cancer itself. The potential impact of this development upon sales of Aranesp could be as significant. 10 percent of Aranesp sales is believed to be derived from the treatment of anemia of cancer. Sales of Aranesp were $4.1 billion in 2006, so this development could, at most, reduce Amgen's overall revenues by $410 million dollars. Considering that Amgen's total revenue for the trailing 12 month period time period amounted to a whopping $14.27 billion, the worst-case-scenario in relation to this setback for investors is largely unsubstantial. Despite, this fact, Amgen's shares are down significantly YTD and represent an excellent value for long term growth investors.

As stated, Amgen is a quality investment for those investors willing to look beyond the relatively, insignificant events of late and focus on the company's long term advantages within the biotech market and the extremely cheap multiples that the stock currently trades. Amgen has a significant advantage compared to most of its major competitors regarding its product pipeline, which is both deep and broad. Furthermore, management has proven itself very capable of navigating the very tumultuous landscape of the biotech industry. Furthermore, the company currently trades at a forward PE ratio of 13.33 and has a PEG of 1.01 according to data from Thomson and Capital IQ. This compares with a forward PE of 24.71 for Genentech (DNA) and 22.66 for Gilead Sciences (GILD). It should also be noted that Amgen has $6.28 billion in cash on its balance sheets, which can be used for acquisitions or returned to shareholders through dividends or buybacks, and the company is expected to grow at a 15 percent annual rate for the next 5 years according to analysts consensus provided by Capital IQ. For purposes of disclosure, I do not own any of the above stocks currently, but do recommend AMGN at current prices.

RTI International Is the Top Investment Choice Among Basic Mining and Metal Stocks

2007-02-23T13:35:00.000-08:00

Titanium will rule in 2007, states Cleveland Research analyst Chris Olin, in a article appearing on Forbes.com in December of last year. According to Mr. Olin, the industry's growth will be driven, in large part, due to increased spending in the aerospace market. New airplanes, such as the Boeing 787 and the Airbus A-380, are increasingly being constructed with titanium as a primary metal. The Boeing 787, for instance, is constructed of 15 percent titanium according to the manufacturer. To understand the full significance that the increasing role of titanium in new jet designs will have on titanium demand, it is vital for investors to have a precise realization of the changes the entire airline industry is undergoing and what the projected demand for new aircraft is over the next several years. By one estimate, given by Airbus, the overall demand for new aircraft between now and 2025 could equate to over $2.6 trillion in aerospace spending. The company projects that over 22,700 new passenger and freight aircraft will need to be produced to meet the demand over the same time period. Aerospace is not the only catalysts for sales of titanium as many new weapon systems, such as advanced fighter aircraft, spy satellites, and missiles, are increasingly being constructed out of the lightweight metal. Titanium is also being utilized heavily in the energy industry due to its resistance to corrosion and extreme strength in stressful environments and could play a vital role in the future of biofuels. These developments will ultimately be a tide that lifts all boats, however, investors, looking for the safest and highest returns, should focus on the company with the best management and long term potential. The company that meets this description is RTI International for several reasons (For purposes of disclosure, I own shares in this company).

The company, which is one of Olin's favorites in the industry, is based in Ohio and is a member of the S&P 600 and S&P 1500. With a 7 percent share of the rapidly growing titanium market, RTI International has room to grow and capture additional market share. Furthermore, the company has a long history of beating earnings targets, which can be attested to by the company's recent blow out fourth quarter and full year results for the year 2006. Another positive for shareholders for RTI is the lack of analysts who cover the company's stock, which is indicative of many small companies. As Wall Street begins to discover this hidden treasure trove and analyst coverage grows, the stock is bound to appreciate for increased coverage, if positive, will generate buying momentum among institutional and retail investors. As for financial strength, the company boasts a healthy 5.8 current ratio and zero debt. Moreover, the company reported having $3.34 a share in cash, as of the most recent quarter, a sizable amount that can be used for increased capital spending or returned to shareholders through dividends or buybacks. In summation, RTI International is poised to continue to reward shareholders for many years to come.

The Irony of Blackrock

2007-02-21T11:52:00.000-08:00

Blackrock (BLK), an investment management company, which offers a range of equity, fixed income, cash management, and alternative investment products, boasts an incredible three year annualized return of 46 percent as of 1/31/07 according to Morningstar. Moreover, the Street.com rates the company has one of the top ten fast growth stocks, indicating Wall Street is still very keen on the stock, despite the recent run-up in price. The streets optimism in Blackrock shares has so far been richly rewarded in 2007 as well. The company’s shares have, already, put in a 14.6 percent performance YTD, due in large part to Blackrock raising full year guidance for the year. The company now expects 2007 earnings of $7.25 to $7.55 per share on an adjusted basis. Given its dominate position in the alternative investments, fixed income, and risk management businesses, I expect BLK to continue to outperform the market and recommend this stock for those investors who have a long term time horizon. Unfortunately, for those investors banking on Blackrock mutual funds, I am not so optimistic. While shareholders in the company have reaped huge profits from the mutual fund side of Blackrock’s business, shareholders in the actual mutual funds have not done so well because of several factors. At this point, I would not recommend a single Blackrock fund to any investor. Outrageous expense ratios, front-end loads often exceeding five percent, and sub-par performance mark this company’s offering. Moreover, the company often steers its best investment management talent to its alternative asset business leaving mutual fund shareholders with those who could not cut it at the firm’s more prestigious hedge fund offerings and other exotic investment vehicles. Those investors, unlucky enough, to have invested assets in Blackrock funds should sell their holdings and seek better opportunities at a more shareholder friendly mutual fund establishment. Fidelity, Vanguard, Dodge and Cox, and Selected Funds instantly come to mind as solid recommendations.

Zoltek: A Promising Alternative Energy Stock for the Long Run

2007-02-20T08:34:00.000-08:00

Zoltek (ZOLT), according to Forbes magazine, manufactures carbon fiber, a new age material that is simultaneously light-weight and 100 times stronger than steel. Currently, the major applications for Zoltek's carbon fibers are the propellers for wind mills and aircraft brakes. However, applications for the use of carbon fibers are increasing everyday. BMW has announced, that by 201o, they hope to build an automobile entirely out of carbon fiber.

For shareholders, Zoltek has offered a bumpy ride. Things are looking up, though, as the company reported an incredible first quarter. Gramercy Capital Management, regularly featured in Forbes magazine, has gone on record with a 2008 target price of $40 for the company's shares. If obtained, that price target represents a 103% gain on investment for those investors who bought shares in the company at the beginning of this year. As for those of you who do not already own this potentially break-out stock, I recommend waiting for dips before establishing a position in the company, as the company's stock has appreciated significantly in the past month and a half. For purposes of disclosure, I do not own shares in ZOLT.

Electricity Transmission Constraints Pose a Formidable Challenge to Policymakers and Significant Opportunity and Risk for Investors

2007-02-19T15:08:00.001-08:00

In August of 2006, the United States Department of Energy (DOE) released a study detailing electric transmission congestion in the United States. The report, which is titled the “National Electric Transmission Congestion Study,” identifies several areas of the country that are either affected by or will be affected by in the near future, unless remedial action is taken, severe congestion in the transmission of electricity. The DOE identifies the cause of such congestion as being due to either inadequate transmission capacity, inadequate base load power generation, or both. According to the DOE, the costs of high levels of congestion can be extremely high, in terms of basic costs for electricity and power outages (both localized and regional) caused by grid failure.

The two areas of the country, which are identified as “Critical Congestion Areas,” by the report, are:

The Atlantic Coastal Area from Metropolitan New York southward through Northern Virginia, and

Southern California

“Critical Congestion Areas” are areas of the country where it is critically important to remedy existing or growing congestion problems because the current and/or projected effects of the congestion are severe. As stated, the DOE has identified two such areas, each of which is large, densely populated, and economically vital to the Nation.

The four areas of the country, which are identified as “Congestion Areas of Concern,” by the report, are:

New England

The Phoenix - Tuscan Area

The Seattle – Portland Area

The San Francisco Bay Area

“Congestion Areas of Concern” are areas where a large-scale congestion problem exists or may be emerging, but more information and analysis appear to be needed to determine the magnitude of the problem and the likely relevance of transmission expansion and other solutions.

Several areas of the country have been identified as “Conditional Congestion Areas,” by the report. The following is a representative sample of these areas:

Montana-Wyoming (coal and wind)

Dakotas-Minnesota (wind)

Kansas-Oklahoma (wind)

Illinois, Indiana and Upper Appalachia (coal)

The Southeast (nuclear)

These are areas where there is some transmission congestion at present, but significant congestion would result if large amounts of new generation resources were to be developed without simultaneous development of associated transmission capacity. According to the DOE, these areas are potential locations for large-scale development of wind, coal and nuclear generation capacity to serve distant load centers.

To address these concerns, the DOE is calling for further deregulation of the power industry to foster inter connectivity between regions, advancements in power generation and transmission technology, conservation, and greater decentralization within the overall power infrastructure. Investors should take notice of these growing problems for they represent phenomenal investment opportunity and phenomenal risk if the problem is not addressed.

High Temperature Superconducting technology is, according to the DOE, a key and vital cornerstone of any long term solution to our nations energy woes. Furthermore, the DOE predicts that widespread adoption of the technology is only a few years out. This is significant for several reasons. One, current grid losses have grown to more than 10% of all electricity generated, and transmission limitations have recently caused widespread blackouts in the United States. Second, the DOE estimates that 2,200 miles of underground transmission cables are quickly becoming outdated and could be replaced with HTS lines that may carry two to five times the power within the same duct size. The DOE has partnered with numerous corporations and university labs to develop HTS grid applications.

The DOE, also, is conducting three large scale projects concerning energy storage and has partnered with numerous university labs and corporations to develop advanced energy storage technology. These projects includes the largest Battery Energy Storage System in the world with an output capacity of 20MW and 14 MWh of stored energy.

The DOE has also funded numerous research and development activities related to distributed energy, control systems security, and advanced electric distribution.

In my opinion, investors wishing to reap the proceeds from these developments should focus on emerging micro-cap, small, and smaller mid-cap companies with quality balance sheets, strong management, realistic plans for profitability if not already profitable, and leadership in their respective market niche in relation to the firms' technology.

Companies that fit this mold are, in my opinion, American Superconductor (AMSC), Zoltek (ZOLT), Itron (ITRI), and SunPower Corporation (SPWR).

For purposes of disclosure, I do not own any shares in the above companies.

For those investors wishing to read a complete copy of the DOE report on grid congestion go to the DOE website at www.energy.gov

American Capital Strategies (ACAS): It Is Time To BUY!!!

2007-02-18T16:56:00.000-08:00

I recently bought shares of American Capital Strategies (ACAS) for a number of reasons. They pay a great dividend, which management is committed to growing, and are the class of their industry. Peers such as Apollo Investments and Allied Capital simply cannot compete at the same level as ACAS. Moreover, ACAS is increasingly turning to alternative-asset management for future growth. The company's current investment in alternative-asset management now stands at $11 billion. However, this number is expected to roughly double in the next year to somewhere between $17 and $23 billion dollars. This is significant for two, related reasons. One, this type of business is highly profitable and offers incredible profit margins. Two, because alternative asset management is so profitable, companies that are involved in this type of business command very high multiples. Take Blackrock (BLK) and Fortress Capital (FIG) for example. Both companies trade at price to earnings (trailing 12 months) multiples of over forty. Now one should not assume that American Capital Strategies will soon be trading at a similar price to earnings (trailing 12 months) multiple to BLK or FIG any time soon or ever for that matter. One should assume, however, that as Wall Street realizes that ACAS is not just your typical Business Development Firm and that the company is entering into a new and very lucrative business arena, the price to earnings multiple on the company will expand considerably. This will, in turn, create even more wealth for American Capital Strategies' shareholders.

Wealth Creation Through Common Stocks: The Power of Dividends

2007-02-18T15:00:00.000-08:00

The surest and safest way for investors to build wealth is to take advantage of the power of compounding. Compounding is the process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period. One way for investors to take advantage of this process is by investing in dividend paying companies. Such companies are not hard to find. Indeed, most well established companies, both foreign and domestic, pay dividends. The key to unlocking real gains, however, is to, first, invest in a company that both pays a great dividend and is committed to growing that dividend over time.

To see how this strategy can pay off, consider the following data:

Company	Price on Jan. 2, 1985	2006 Dividend Per Share	Percent of original investment received in 2006
Pfizer (PFE)	$1.68	$0.96	57.1%
Johnson & Johnson (JNJ)	$2.23	$1.46	65.3%
Aflac (AFL)	$0.63	$0.55	87.0%
Citigroup (C)	$2.08	$1.96	94.1%
Altria (MO)	$3.33	$3.32	99.8%
Wells Fargo (WFC)	$0.96	$1.08	112.7%

All values split-adjusted.

Data Provided by the Motley Fool

The second key is to reinvest the dividends in more company stock. Consider the following example:

A hypothetical investor who bought ten shares of Pfizer in April of 1960 for a total of around $350, who reinvested all dividends, would currently own 9,100 shares. Those 9,100 shares would pay $10,500 in dividends alone to our hypothetical, but very lucky, investor. That represents a yield, on the original investment, of around 3000%.

I could provide numerous other examples just like these, but why bother. I think the point is crystal clear. To create wealth one does not have to be a genius or, for that matter, much of anything. All it takes is discipline, patience, and a little starting capital. Good luck investing everyone!

Why Tax Cuts Do Not Stimulate The Economy

2007-02-17T07:14:00.000-08:00

The common belief among most investors is that tax cuts stimulate economic growth. Indeed, there is even a group of misguided theorists known as Supply Side Economists (Supply Side Economics is Crank Theory and it is not Taught at a single accredited University in the Country, however, many politicians as well as voters believe such non-sense so it is worth mentioning here) who go so far as to state that a Government can cut the tax rate, which will then result in economic growth, and actually receive more revenues in the form of tax receipts. According to Supply Side Theorists this is because there is a larger "economic pie" to tax despite the fact that the "economic pie" is actually being taxed at a lower rate. To see the fallacy in the Supply Side Economists theory and the fallacy in the idea that cutting taxes can stimulate economic growth itself, one only has to ask oneself what actually makes an economy grow? The answer is, of course, an increase in the capital supply. Supply Side Economists insist that by cutting taxes a government is increasing the capital supply because there is more capital in the hands of consumers and less in the hands of government. While, this last assertion may be true, Supply Side Economists miss one crucial and, in my opinion, obvious fact. That being, the government is a consumer just like an individual citizen is. By cutting taxes all a government actually accomplishes is the shifting of the capital supply one from one consumer (the government) to another group of consumers (the citizens of that government). Thus, the capital supply is not increased from tax cuts and there is no economic growth as a result of said tax cuts. Now some may argue that individual citizens are better or more efficient spenders and investors of capital than the government and, therefore, economic growth does arise from tax cuts as tax cut advocates assert. This is not the case either. While the government (lets take the United States for instance) may be enormously wasteful in its spending so are citizens. It is true the government may spend billions and billions of dollars on military goods, far above what the country needs, that have no economic value and, thus, zero possible return on investment or it may allow billions of dollars it collects in tax receipts to go down the drain because of fraud, as what happened after Katrina and what is currently happening in Iraq because of lack of oversight. It is also true, that individual citizens are highly wasteful with the capital they earn or receive from investments. Think of how many people buy very expensive cars only to see them plummet in value ten minutes after buying them or those people who smoke tobacco, an addiction that not only costs tremendous amounts of capital but also ensures a short and unhealthy lifespan. All in all, most citizens are unwise when it comes to deploying their capital and so are the governments that these citizens form. The only way to artificially boost an economy is to either increase the education level of that economy's workforce, increase the number of individuals that comprise the workforce of an economy, or through deficit spending, which only is beneficial in the short term and is disastrous in the long term. Notice, however, that all of these actions will increase the supply of capital either in either tangible or intangible ways unlike tax cuts. Tax cuts can not stimulate an economy and investors who constantly desire tax cuts on the basis that it will improve economic growth should be careful for what they ask for. Especially, if those tax cuts result in either deficits or cuts in government services they rely on. That said, I will state that there are certain forms of taxation, such as the double taxation that dividends used to receive in this country and others, that are harmful for economic growth.

Beyond Deicing: Compass Minerals Delivers the Goods in an Increasingly Wide Variety of Ways

2007-02-16T15:15:00.000-08:00

Compass Minerals (CMP) is, according to their website, a worldwide leader in the production and distribution of inorganic minerals. Their products include water softener salt, magnesium chloride, animal feed supplements, packaged deicers, industrial salts, road deicing, as well as sulfate of potash (a specialty fertilizer). The company, based in Kansas City, operates some of the largest and longest running salt mines in North America and the United Kingdom. Up until recently, Compass Minerals, was almost entirely dependent on its deicing businesses for the vast majority of its yearly revenues. This has begun to change, however, as sales of Sulfate of Potash have expanded greatly and accounted for 13.8% of revenues for the three months ended December 31, 2006. Moreover, the company has entered into the data storage business and has recently completed an acquisition of Interactive Records Management (A UK firm) more than doubling capacity in that very lucrative area. Other positives for shareholders of Compass Minerals are that the company is strongly committed to paying down the enormous debt it acquired as a result of being bought out by a Private Equity Firm a few years ago, as evidenced, by the recent retirement of a significant percentage of its outstanding debt. Furthermore, the company is currently yielding 3.7% in terms of its dividend. I am long on this company and believe that it will outperform the market for many years.

PetroChina: Is It Time To Buy?

2007-02-16T09:21:00.000-08:00

Year to date, the stock price for PetroChina (PTR), the largest integrated oil company in China, has fallen 13.5%. Given the recent volatility in the price of oil, this is not surprising. However, one has to wonder, is the current drop in price a great opportunity for long term investors to either add shares to existing positions or add PTR to their portfolio? Common sense would dictate that it is. China is one of the fastest and largest economies in the world with a rapidly growing middle class. Furthermore, PetroChina is partially state controlled meaning that the company is in a position to receive favorable treatment from the Chinese government, that would not be afforded to say Exxon-Mobil or BP, in regards to everything from access to drilling on government property to access to debt financing from government lending associations. Warren Buffet even has a stake in the company, which in my opinion is a testament to management's character and ability. The company is also heads and tails above most emerging market companies in terms of their accounting standards and PetroChina meets the requirements for listing on the NYSE as an ADR (American Depository Receipt). As for the fundamentals, the company is trading within its historical norms from Price to Earnings and other popular valuation measurements. While future growth depends on the company's ability to continue to replace reserves and the price of oil and natural gas remaining high, the likelihood of gas or oil prices falling significantly for any length of time is in my opinion almost negligible. Those analysts currently making statements to the affect that we will soon see $40 a barrel or lower oil are just plain wrong. As far as PTR being able to replace its reserves, the company has a very good record at not only replacing 100% of its existing reserves, but increasing them. Another plus for shareholders of PTR is the enormous dividend the company pays out. The current yield on the stock is about 4%.

The only dangers I see for investors is a breakdown in the Chinese economy such as a recession. To answer my own question, I do think its time to load up on PTR (Currently, I do not own this stock).

Why Loading Up on Cash Securities Might Make Sense

2007-02-15T15:10:00.000-08:00

While most economists and investors remain bullish on the overall stock market and recent evidence suggests that the so-called Goldilocks scenario will come to fruition, there is a strong case for choosing cash securities over equities in today's market environment. Money market funds, high yielding certificates of deposits, and t-bills offer exceptional rates at the moment. Check out the following data:

3 Month T-Bill 5.00%
6 Month T-Bill 4.92%

Vanguard Prime Money Market Fund 5.10%
Cash Management Trust of America 4.78%
Fidelity Money Market Fund 4.95%
Fidelity Cash Reserves 4.93%

1 Year CD from Vanguard 5.35%
6 Month CD from Vanguard 5.30%

Considering that the annual performance of the S&P 500 for the last five years has only averaged slightly over 7% and that the above securities are, for all practical purposes, risk free,
investors who might not invest in such boring assets should take a second look.

Why Investors Should Back A Government Sponsored Health Care System

2007-02-15T07:48:00.000-08:00

Currently, the US health care system can be aptly described as employer based, meaning that employers pick up the majority of the tab for the health care treatment of most Americans. This is very, very bad for investors who own stock or even bonds in American companies. You see, American companies compete in a global marketplace where every single major foreign competitor hails from a country that utilizes a government based health care system. Therefore, these competing companies that are increasingly pressuring US companies have no health care related costs. In effect, the US system acts as a reverse subsidy, which ultimately punishes US investors. Even if it means a small tax hike, which Presidential Candidate John Edwards has called for in his government based health care plan, American Business and American investors will come out well ahead if such a universal government based health care plan is implemented in this country. We are talking about an event that could bring about massive increases in EPS for American companies and ultimately a more stable health care system for all. Its a win-win situation for everyone.

Shorting Allied Capital: A Losing Proposition

2007-02-14T16:39:00.000-08:00

Allied Capital (ALD) describes itself as "one of the nation's leading business development companies" with over $4 billion in assets. The company provides equity and debt financing to private middle market companies. For the last five years, Greenlight Capital, a hedge fund has been shorting Allied Capitals stock and launching numerous allegations against the company (some ludicrous some not) in hopes of bringing down the share price of the company. Since shorting ALD, Greenlight Capital has taken a beating. The share price of the stock has risen more than 50% and has paid a hefty dividend. The average yield on the stock, since the inception of Greenlight Capital's crusade against Allied Capital, has averaged north of 7%. The main allegation made against Allied Capital by David Einhorn (the manager of Greenlight Capital) is that the company does not properly value its portfolio of investments correctly. This accusation is so blatantly wrong, however, that even the CEO of Allied Capital's main competitor, American Capital Strategies (ACAS - for disclosure purposes, I own shares in this company and am very bullish on it's prospects) has stated that Allied Capital's method of valuing its investments is not "aggressive" and is typical of private equity firms. Given the prospects for growth in Allied Capital's share price when Greenlight Capital finally gives up what Fortune Magazine has termed a blood feud and closes its short position, this could be worthwhile opportunity. As for an update on Allied Capital, the company just reported excellent numbers and raised its quarterly dividend by 1.6%. While that may not sound like much, consider this last increase in the context that it is the fourth dividend increase in a row since December of 2005.

The Case for Titanium and Various Super Alloys

2007-02-14T12:46:00.000-08:00

Titanium and super alloy demand is currently skyrocketing due to increased aerospace and defense spending, rising energy production, and new technologies based upon such elements as Hafnium, Cobalt, Nickel, and Tantalum. For example, the new semiconducting medium, developed by separate teams at Intel and IBM (IBM is a stock I recommend and own) that allows for much greater performance than conventional poly silicon chips, is a hafnium alloy. New airliners such as the Boeing's Dreamliner and Airbus' A380 Super Jumbo Jet use incredible amounts of titanium and many super alloys due to their low weight, incredible strength, and ability to resist corrosion under extreme operating conditions. So do the F-35 Joint Strike Fighter, F-22 Raptor, Dassault Rafale, and Eurofighter Typhoon. Other military applications for these metals include the US Navy's planned CX-1 class warships and DDX Destroyers, ballistic and non-ballistic missiles, and spy satellites. What's more, is that demand is being driven by the increase in electricity demands that is resulting in the building of additional power plants all over the globe. Titanium and many super alloys are used in the construction of these plants due to the same reasons for their use in domestic airliners and defensive and offensive weapons. A new possible catalyst for titanium demand as well as super alloy demand, that, in my opinion, is not priced into the market is the adoption of biofuels in the United States and around the globe. Ethanol, which is primarily composed of water cannot be transported by conventional methods. The pipelines used for gasoline, which are made from an advanced steel alloy, will corrode quickly if utilized for ethanol transport. The same scenario will result from such gasoline-ethanol blends as E-85. Train and other transportation methods face the same obstacles as the container cars in the case of trains and and those used in tanker ships are also made from steel. If these tanker ships, container cars, and pipelines were made from titanium or, perhaps, a super alloy this problem would be alleviated. Without such a solution there will never be a widespread adoption of any fuel containing high amounts of ethanol. Moreover, ethanol production facilities face the same hurdle and will need to construct their machinery and storage tanks out of corrosion resistant materials, which will create even more demand for titanium and super alloys. Domestic stock plays in the Titanium and super alloy industry are Allegheny Technologies (ATI), Titanium Metals (TIE), RTI International Metals (RTI), and, to a lessor extent, Carpenter Technologies (CRS). There is also a Russian player, which I might add is the world's largest producer of Titanium but does not trade on any domestic exchanges. For purposes of disclosure, I own shares of RTI International (RTI).

The Efficient Market Hypothesis: A Populor Misconception

2007-02-14T10:20:00.000-08:00

The Efficient Market Hypothesis, first asserted by Professor Eugene Fama of the Chicago School of Economics in the 1960s, is often cited by Indexing fans as a case against actively managed portfolios. According to the hypothesis, which I will show to be false, prices on traded assets such as stocks and bonds reflect all known information regarding said assets. If the Efficient Market Hypothesis is correct, it would be impossible for market timing strategies or individual security selection to yield results greater than the market consistently over the long run. As to what EMH advocates mean by subjective terms such as "consistently" and "long term" is unclear for the terms are never defined. However, a safe assumption for the period of time, referred to by EMH advocates, when they utilize the phrase "long term" is anything over ten years. The fact that many investors produce returns far above that of the market consistently and over the long term refutes directly the conclusions reached by EMH advocates. Investors such as Peter Lynch, Warren Buffet, Benjamin Graham, and many others can attest to this. However, the case of the EMH is not just a case of advocates of a theory misinterpreting its necessary conclusions. Indeed, if the EMH were correct, the conclusions advocated by EMH theorists would be correct for their arguments, in this one aspect, are valid. As previously stated, however, the problem with the EMH is that it rest upon false assumptions. First, according to EMH, all investors have access to all relevant information about a traded asset and make use of that access. This is clearly a false assumption. Just think of how many investors who do not even know the names of the CEOs of the companies they own stocks or bonds in. The second assumption is that all investors are perfectly logical. Last time I checked, investors like all other humans were illogical more often than not, choosing to make decisions based upon emotion rather than facts and logic. The third assumption is that there is no time delay between when a relevant event occurs that affects a particular asset and when investors learn of the event. This last assumption is just as insane as the other two. In summation, the EMH is clearly wrong. Investors who base decisions regarding their choice of investment strategies on the conclusions of EMH would be wise to reexamine their portfolios.

Alternative Energy Plays for the Long Term

2007-02-13T18:27:00.000-08:00

As a Long Term Investor I rarely focus on short term trading opportunities. Research has shown time and time again that heavy trading more often than not creates less than stellar results. In this spirit, I want to discuss two companies that I believe offer great long term prospects based upon their unique technologies, demographics, growing resource shortages and / or constraints, and economic trends. The first company is Sasol. For the purposes of disclosure, I own shares in this company.

Sasol is an energy company based in South Africa. For those of you who do not know, the history of the modern South African State is unique and bears mentioning. After South Africa gained independence from Great Britain, the minority population (Whites) imposed a harsh and degrading system of rule upon the majority population (Blacks) known as Apartheid. Because of this, many nations imposed economic sanctions against South Africa. As a result, the country could not be sure of its ability to meet the energy needs of its population and turned to local resources to alleviate the situation. South Africa, however, possesses little oil and could not produce any where near the amount of diesel, gasoline, and other petroleum products needed by their economy. Fortunately, for them, South Africa is rich in coal and using a technique developed by the Germans in World War II, they were able to synthesize all the fuel and chemical feedstock they needed. Sasol is the company that was created by the South African Government to carry out this task. Today, it is a private enterpise and is a global player in the alternative fuels market. The company is currently expanding its operations in South Africa, building two Coal-to-Liquids plants in China, a Gas-to-Liquids plant in Quatar, and developing several other smaller projects. Fundamentals on the stock are good. Low debt to equity, strong balance sheet, excellent earning growth, and a dividend yield north of 3%. Oh, I forgot to mention, the process Sasol uses to make its fuel and feedstock are profitable as long as oil is north of$30 according to most analysts. Anyway, for those of you that are interested in a highly profitable alternative asset play that does not rely on government subsidies such as ethanol or solar, check this one out (the ticker is SSL).

The second company in the alternative energy arena that I recommend strongly (although, only on dips) is American Superconductor. The ticker here is AMSC and I do not own any shares as of yet. This company, like the name implies, makes products based upon 2nd generation superconducting technology. With everything from ship propulsion engines to fault current limiters to inter connectivity solutions to superconducting cables this company has it all and is a winner. Most importantly, AMSC has a strong balance sheet and enough cash to last until projected profitability (management recently stated that profitability would be achieved in 2009 once production of its 344 superconducting wire reached commercial scale. Given the current congestion on the power grid in the United States, developed Europe, Japan, and South Korea this company could be the next big thing. Again, Check it out.