TheStockAdvisors.com

TransCanada (TRO): Gas is a 'screaming buy'

Fri, 10 Jul 2009 12:00:00 +0000

"Our focus this summer remains on building positions in the bombed-out natural gas market; there’s no other commodity this depressed, this unwanted and trading at such distressed levels," says Eric Roseman.

In his industry-leading, The Commodity Trend Alert, the resource expert explains, "Indeed, the bombed-out natural gas sector is screaming 'buy'." Here, he looks at TransCanada Corp. (NYSE: TRP).

"The way prices have been heading over the last several months you’d think the world doesn’t use this clean-burning fossil fuel anymore.

"Natural gas prices remain 70% off their 52-week high and more than 75% below their all-time highs almost four years ago when Hurricane Katrina smashed the Gulf of Mexico.

"And historically, the oil-to-gas ratio signals a major buy signal for natural gas with the spread or difference between crude oil to gas at 17.5. That’s a huge spread.

"Our newest portfolio position in this sector is North America’s largest natural gas pipeline operator – TransCanada. Based in Calgary, Alberta, TransCanada owns 36,500 miles of natural gas pipelines – most of which transport gas from Alberta to the eastern United States and Canada.

"Roughly 50% of all the natural gas produced in western Canada is brought to market vis-à-vis TransCanada pipeline. The company also generates a significant chunk of its revenues from wholesale power generation.

"Basically, this is one big company that is a powerhouse in Alberta. If you’re moving natural gas through a pipeline up there, then the odds are pretty good you’ll use TRP.

"What I like about TRP is that the pipeline business is stable and dependable. Gross margins and operating income have consistently improved this decade and the dividend has grown by more than 25% over the last ten years.

"The company is also nearing the completion of its first phase of the Keystone pipeline – a $12 billion dollar project that will eventually carry 1.1 million barrels of oil sands crude a day from Alberta to refineries in the U.S. Midwest and Gulf Coast.

""In a tough global economy TransCanada Corp. serves as a blue-chip stock TransCanada Corp. currently trades 31% off its 52-week high of $39.31 and 37% below its all-time high last fall before the September-October global crash.

"The stock trades at 13.9 times trailing earnings, pays a fat 4.9% dividend in Canadian dollars and will rally sharply once depressed natural gas prices get off the ground. This is a great stock for all investors."

Medco (MHS): Ben Graham value

Thu, 09 Jul 2009 12:00:00 +0000

The Cabot Benjamin Graham Value Letter assesses stocks based on the investing criteria of legendary value investor. Here, editor J. Royden Ward looks at Medco Health (NYSE: MHS).

"Medco is the largest pharmacy beneﬁt manager in the U.S. Spun off from Merck & Co. in 2003, the company processes and pays for prescription drug claims.

"As an intermediary, Medco negotiates discounts from drug manufacturers and sells at a discount to pharmacies, health plans and Medicare Part D participants. In addition, Medco lowers clients’ costs by encouraging the use of generic drugs.

"How cheap is Medical Health Services? The shares are undervalued at 16.3 times forward EPS. The company is well-positioned in the fast-growing pharmacy beneﬁt management (PBM) sector.

"MHS is proﬁting from the increasing use of mail order to purchase drugs, as well as the increasing use of generic drugs compared to prescription drugs. We expect the company to pursue acquisitions to ensure 20% EPS growth during the next several years.

"New health plans being considered in Congress should beneﬁt MHS. Overall, we expect MHS shares to advance to our Minimum Sell Price of 61.70 within two to three years."

Investing in Israel

Thu, 09 Jul 2009 04:00:00 +0000

"Our latest pick is a bet on a low-profile foreign market, Israel, which has turned out to be one of the world's top performers this year," says Nicholas Vardy.

In The Global Bull Market Alert, he explains, We recommend the iShares MSCI Israel Cap Invest Market Index (NYSE: EIS), as I expect the Israeli market to continue to perform well over the next few months."

"Global markets continue to be locked in a trading range, consolidating their gains of the last four months; this kind of see-saw trading is actually quite typical of the summer months, and I expect the range-bound trading to continue.

"On the one hand, it would take a spate of unexpectedly bad news to take global stock markets much farther down from their current levels. On the other, the markets are so technically oversold that they are due for at least a moderate bounce.

"In particular, I like Israel. First, before the onset of the global recession, Israel’s GDP has been growing solidly around 5% for the past few years.

"Barclays Capital sees Israel's economy rebounding in 2010 to grow 2.9%, following a drop of only 1.8% in 2009. The Israeli shekel also has been one of the strongest currencies in the world over recent years.

"That means U.S. investors in Israeli assets benefit greatly from Israeli currency exposure in a strengthening shekel environment.

"Second, Israel has just graduated from 'emerging market' to 'developed market,' according to Morgan Stanley Capital International (MSCI).

"By way of contrast, two of Asia's original 'tiger economies,' South Korea and Taiwan, were under review for an upgrade, but remained 'emerging markets.'

"In any case, rating Israel a developed market constitutes a vote of confidence in Israel's economy. It also means that developed market, index-tracking capital will be pouring into the Israeli stock market.

"Finally, even as far back as a decade ago, the Israeli stock market was covered not only by emerging market managers but also by mainstream technology investors. Israel's technology industry was that dominant.

"But with financial stocks, pharmaceutical and industrial chemicals each up approximately 20% of the MSCI Israel index, investing in this ETF is about more than just investing in the 'Nasdaq of the Middle East.' Buy with a stop at $36.50."

Perrigo (PRGO): A generic favorite

Wed, 08 Jul 2009 13:00:00 +0000

"Like others, I've been trying to figure out how to play President Obama's policy initiatives in healthcare," says Glenn Rogers.

The contributing editor to Gordon Pape's Internet Wealth Builder adds, "I think the generic drug makers have the best chance of coming out of the upheaval in healthcare smelling like roses." Here, he looks at one favorite: Perrigo (NASDAQ: PRGO).

"I've chosen two lesser-known generic drug makers to recommend; I think both should reward investors over the next 12 months with market-beating performances.

"Perrigo Company is a leading manufacturer of generic over-the-counter and prescription pharmaceuticals.

"When you go to your local drugstore and see the retailer's private label of Aspirin or cough syrup selling for substantially less than the branded versions, there's a good chance that Perrigo was the manufacturer of that product.

"The company also produces a broad range of over-the-counter consumer products including pregnancy tests, sleep aids, smoking cessation aids, anti-acids, etc.

"Recently they made large bets in the nutrition area by offering private-branded versions of popular multivitamins and other types of supplements.

"The company is also active in prescription pharmaceuticals through their Chemgis division, which provides active pharmaceutical ingredients for a variety of customers worldwide.

"Perrigo is headquartered in Israel but has manufacturing facilities in Mexico, the U.S., and Germany along with operational divisions in China, India, and the U.K.

"As you can imagine in a depressed economy, consumers are increasingly choosing generic versions of popular over-the-counter products, which has allowed the company to grow while the sales of more expensive mainstream name-brand products are flat to down.

"Revenue from their most recent quarter (to March 28) increased by 5% to $506 million as compared to $481 million in the prior year (figures in U.S. dollars). Sales of consumer healthcare products grew by 12%. Earnings came in at a record 50c per share.

"For the first nine months of the 2009 fiscal year, net sales from continuing operations were $1.5 billion, an increase of 19% over fiscal 2008. Reported gross profit was $432.1 million, increase of 13% over last year, driven by the consumer healthcare segment.

"Barron's recently ran a favorable article about the company, drawing attention to the fact that as long as consumers are under the gun they are likely to be frugal in their shopping habits.

"If they get used to using generic products it will be hard for branded manufacturers to persuade them to switch back when the economy recovers.

"None of the products in the company's portfolio are particularly exotic and verge on being nondiscretionary for most consumers. So even if the market corrects again I think the stock can provide some stability in your portfolio.

"The fact it pays a small dividend (22c a year) contributes to the overall return. The stock has recovered significantly from its March low of $18.54 but is still well below the 52-week high of $40, reached last September."

Biotech ETFs: Bets on health care reform

Wed, 08 Jul 2009 13:00:00 +0000

"Health care reform could mean opportunities for astute investors," says Brandon Clay in his top-notch Invest With an Edge.

Here, eyes two biotech ETFs that "should be on everyone's watch list." The advisor notes, "With health care on the front burner in Washington, these biotechnology ETFs may finally be ready to pop."

"Investors in health care should think outside the realm of traditional pharmaceutical companies and health insurers. Those sectors are each facing headwinds that make stock picking difficult.

"In addition, several big pharma companiesare desperate to reload their empty pipelines in the face of increased competition from generic drug makers. Acquiring a smaller biotech firm is the easiest way for a pharma giant to find a potential new blockbuster drug.

"The best way to play the government-sponsored health care boom is through biotech ETFs. Today, we focus on the two that should be on everyone’s watch list.

"As a trading vehicle, we like the iShares Nasdaq Biotechnology Trust (NYSE: IBB), the most popular and liquid of the biotech ETFs with an average trading volume of nearly one million shares per day.

"The bid/ask spreads are typically well maintained, even though it holds 123 stocks. This ETF mirrors the performance of the Nasdaq Biotechnology Index and has been steadily advancing the past two months.

"For longer-term investors, we like the S&P SPDR Biotech ETF (ASE: XBI), which holds 25 equally weighted stocks and tracks the S&P Biotechnology Select Index.

"XBI does a good job of mixing solid large cap names such as Amgen (AMGN) and Gilead Sciences (GILD) with riskier small cap fare. This ensures good diversification within the biotech space and gives you the opportunity to profit from the smaller players.

"XBI lagged the market dramatically since late February, making now a great opportunity to get on board without the risk of buying an overextended ETF.

"With health care on the front burner in Washington, these biotechnology ETFs may finally be ready to pop after missing the recent market rally.

"They offer exciting profit potential on Washington's next boondoggle, and their defensive characteristics may insulate investors if the market turns down again. To play health care reform defensively, go with IBB or XBI."

Fuqi (FUQI): Peter Lynch jewel?

Wed, 08 Jul 2009 04:00:00 +0000

In his Validea newsletter, John Reese assesses Fuqi Int'l (NASDAQ: FUQI), a designer of jewelry in China,on the long-term investment strategy 0f the legendary investor Peter Lynch.

"The company develops, promotes and sells a range of products in the Chinese luxury goods market.The compay has 69 retail jewelry counters and stores in China.

"According to the Lynch model, this company would be categorized as a fast grower.

"The Lynch strategy suggests that investors should examine the P/E (10.82) relative to the growth rate (42.99%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company.

"This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for FUQI (0.25) is very favorable.

"This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years.

"The Lynch also likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for FUQI is 43.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'.

"This methodology would consider the Debt/Equity ratio for FUQI (19.97%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company."

At home with real estate

Tue, 07 Jul 2009 04:00:00 +0000

"While many won't agree with me, I believe U.S. real estate prices have bottomed and are on the rise," says Larry Edelson. In Uncommon Wisdom, he eyes an ETF in the sector.

"Mind you, my forecast doesn't mean property prices in every town in the US have hit bottom. Nor does it mean you should run out to blindly buy property and expect to get rich on it overnight.

"But all the evidence I see tells me real estate prices in the U.S. are now a bargain ... that we're at the bottom ... and that there will be a recovery in property prices, albeit slowly, over the next several years. Amongst the evidence I see ...

#1. New home inventories are now at previous recession lows. This is not to say inventories of new homes can't fall lower. But as inventories fall, so does the supply of new homes, which is generally bullish for prices. Looked at another way, the bulk of the oversupply of new homes has largely been worked off.

#2. Existing home inventories have also fallen sharply. Although they have not plunged as low as one might expect from looking at this chart, they have not only peaked, but they have fallen to an area that should find support

"The inventory of new homes has fallen well below its 40-year average, to levels that have marked previous recession lows in inventories.

"Also note that due to foreclosures, short sales, and other workouts going on in the real estate market, existing home inventory data is likely to lag the bottom in real estate prices.

#3. Anecdotal evidence points to a pickup in demand. The Pending Home Sales Index, a leading indicator and a measure of home sales that will go to contract within two months, has risen for four months straight.

"Existing home sales have also been on the rise, increasing 6.2% since the start of the year. Meanwhile, the median sales price of existing homes has jumped almost 5% in the same period.

#4. Housing affordability has come back down to the CPI inflation trend line. I find this chart especially interesting. Courtesy of Investech Research, it's a picture of housing prices vs. inflation as defined by the (conservative) Consumer Price Index since 1980.

"The median family home price has collapsed back to the growth rate of inflation, per the CPI. Put another way, the median home price is back to inflation-adjusted levels, with the majority of the price deflation behind us.

"What's more, the National Association of Realtor's Housing Affordability Index is now in record territory, indicating that housing prices are now more affordable than they've been since this index was created in 1970.

#5. On an international basis, U.S. property prices are cheaper than they've been in at least 10 years. Consider the following: The U.S. median home price has fallen 21.3% — more than $56,000 — since its peak at $262,600 in March 2007.

"In terms of the international purchasing power of the dollar, which has declined precipitously, the median price of a single-family home has fallen more than 35% to levels last seen in 1998.

"That's due to the decline in the international purchasing power of the dollar since 2001, coupled with the decline in housing prices in dollar terms.

"In my view, the decline in the value of the dollar will become an important stabilizing factor in U.S. real estate prices. It means more foreign investors should soon be investing in U.S. property, bolstering demand and even pushing up prices.

"Indeed, based on my travels, particularly through Asia, and considering especially metropolitan areas and their suburbs in places such as Hong Kong, Singapore, Shanghai and even Bangkok — I would say that U.S. property prices now represent some of the best bargains on the planet.

"What about interest rates? Right now, they're historically low and a boon to the property market in the United States. But here's a little unconventional wisdom: Don't expect any rise in mortgage rates to kill off a recovery in U.S. property prices.

"Quite to the contrary, I would consider rising long-term interest rates bullish for U.S. property prices. Chief reason: Rising interest rates will likely set off a stampede of potential buyers and investors to get into real estate — before rates head higher.

"Indeed, historically the biggest bull markets in real estate have occurred in conjunction with rising mortgage rates, not declining rates.

"To play the recovery in property prices I would consider the ProShares Ultra Real Estate ETF (NYSE: URE), which tracks twice (200%) the daily performance of the Dow Jones U.S. Real Estate Index.

"Though leveraged and not a pure real estate play in the sense that it also includes commercial REITS in its holdings, I believe it's one of the better ways to play a turnaround in property prices."

Happy July 4th

Fri, 03 Jul 2009 04:00:00 +0000

We wish all our readers and advisors a happy and safe July 4th holiday.

Yum Brands (YUM): A global meal

Thu, 02 Jul 2009 04:00:00 +0000

"Yum Brands (NYSE: YUM), the world's largest restaurant company, is our latest featured stocks," says Alex Kolb, editor of Zacks Elite Stocks. Here, he looks at the firm's global reach.

"The company has more than 36,000 restaurants in more than 110 countries and territories. Four of its brands -- KFC, Long John Silver's, Pizza Hut and Taco Bell -- are the global leaders of the chicken, quick-service seafood, pizza and Mexican-style food categories.

"The company, which is based in Louisville, Kentucky, saw more than $11 billion in total revenues in 2008 and is #239 on the Fortune 500 List. Solid Income Yum recently declared a dividend of 19 cents per share.

"The company said it continues to return cash and build shareholder value through its dividend program first initiated in 2004, adding that it has increased its dividend four-fold since then.

"Yum is a dividend leader among its industry peers, offering an annual dividend of 76 cents per share, which translates into a yield of 2%.

"In late April, Yum reported robust results, including first-quarter earnings of 48 cents per share, excluding items.

"The result topped the year-prior 42 cents and exceeded Street expectations by 20%. Yum saw worldwide sales growth of 1%, including 2% growth in mainland China, which offset weaker U.S. sales.

"Management said the power of Yum's global portfolio allowed the company overcome a challenging environment by accelerating productivity and managing costs while continuing to drive and invest in global growth strategies.

"Yum issued a full-year earnings guidance of $2.10 per share, which represents 10% over last year. Analysts are in agreement, pegging full-year earnings at $2.11 per share, 11% higher than the year-prior. For 2010, the consensus forecast stands at $2.34."

DuPont (DD): 'World class'

Thu, 02 Jul 2009 04:00:00 +0000

"DuPont EI de Neumours (NYSE: DD) is a world-class company with a world-class dividend yield," says growth & income expert Bryan Perry. Here's the latest from The Cash Machine.

"Some of the biggest winners in a recovering economy are those stocks of companies engaged in the basic businesses such as industrial chemicals, plastics, and adhesives.

"The firm can implement price increases along the way, which could translate into phenomenal earnings surprises and set a stock like DuPont in motion higher.

"Since 1802, DuPont's business has been focused on science-based products and services by using science to create sustainable solutions essential to a better, safer, healthier life for people everywhere.

"Currently, the company has operations in more than 70 countries, and offers a wide range of innovative products and services that include agriculture. It stays ahead of their competition by investing in research.

"With greater emphasis on the execution of its product development efforts, DuPont delivered more than $10 billion in sales from new products that are less than five years old in 2008.

"And in the first quarter of 2009, DuPont commercialized more than 500 new products to the market, nearly double compared to first quarter 2008.

"The shares are sporting a dividend yield of 5.70%, one of the highest yields for any blue chip stock traded today. 2010 sales are estimated to rise by 6.5%, and earnings are forecast to advance by 12% -- not bad for a company doing $26 billion in sales.

"In the latest quarter, the company earned 54 cents per share, beating Wall Street estimates by two cents, and maintained forward guidance for the second quarter.

"Overall, DuPont is a world-class company with a world-class dividend yield poised to benefit from the eventual upward pressures of inflation. From and fundamental and technical standpoint, DuPont looks good to go. The stock deserves to be on our Conservative High-Yield Buy List."

MannKind (MNKD): High risk bet on inhaled insulin

Wed, 01 Jul 2009 12:00:00 +0000

"In looking for a highly speculative stock for our portfolio, I have settled on MannKind Corp. (NASDAQ: MNKD), a company that is developing an inhaled insulin product," says Nate Pile.

In his growth-oriented Nate's Notes, the advisor cautions, "I believe we are looking at a situation in which we will either lose most of our money, or triple (or better) our investment in a fairly short period of time."

"In a nutshell, the company’s near-term fate hinges upon AFRESA, a novel, ultra rapid acting mealtime insulin therapy being studied for use in adult patients with type 1 and type 2 diabetes mellitus for the treatment of hyperglycemia.

"Working against the company is the fact that there has never been an inhaled insulin product approved for commercial use that has worked very well.

"Thus, if MannKind’s product manages to both win FDA approval and achieve commercial success, MannKind will truly be treading where no one has gone before.

"Indeed, an inhaled insulin product is one of those ideas that has been around forever, but, for all its promise, has never really resulted in anything but heartache for investors over the years.

"For example, though Pfizer managed to get its inhaled insulin drug (Exubera) approved a few years ago, the product was pulled from the market in late 2007 after generating only $12 million in sales.

"While this implies that MannKind may be facing an uphill battle, it should be kept in mind that Pfizer’s product required users to become proficient at loading and 'pressurizing' a cumbersome apparatus – and releasing the powder and inhaling it with precisely the right technique.

"But MannKind has managed to develop a much more compact and discreet device for delivering inhaled insulin.

"AFRESA passed its Phase III clinical trials with what appear to be sufficiently robust results to warrant approval for the control of hyperglycemia in patients with type 1 or type 2 diabetes, a New Drug Application has been filed with the FDA based on those results, and a ruling is expected early next year.

"In anticipation of approval, the company recently acquired an insulin production facility in Germany from Pfizer. If approved, this facility will nicely complement MannKind’s existing facility in Danbury, Connecticut.

"An additional 'intangible' value associated with this story is that it is still being led by its founder (and largest stockholder), Aflred E. Mann, who has started -- and then sold -- several biomedical companies.

"We again caution that the stock has already made very nice run in recent months (and thus may be due for a pullback before new highs are set again. In addition, the stock has the potential to be even more volatile than your typical development stage company.

"Further, a delay or denial of approval from the FDA will almost certainly results in a major 'haircut' in the stock price. As such, you do not want to become too overweighted in the stock until after the risk surrounding approval has been removed.

"For now, we would encourage speculative investors to start building a position in the stockso that you at least have a bit of 'skin in the game', as the saying goes. We rate the stock a buy under $10 and a strong buy on any pullbacks under $7."

Immunogen (IMGN): Antibody play

Wed, 01 Jul 2009 12:00:00 +0000

"How does one go about investing in the antibody space?" asks biotech specialist John McCamant. In The Medical Technology Stock Letter, he eyes Immunogen (NASDAQ: IMGN).

"As background, T-DM1 is a second generation Herceptin that may even exceed the original in sales because the armed antibody has been more potent to date by showing effectiveness in mBC patients who have failed either Herceptin or Tykerb.

"The company will continue to benefit from Genetech's extensive antibody experience as they continue to run all development for Immunogen's T-DM1.

"In addition, the armed antibody companies can offer significant patent extensions for naked antibodies after they lose patent protection. This additional patent protection is a significant long-term value, especially given the very strong current and projected sales for naked antibodies.

"Companies will spend lots of money to protect/extend patents on blockbuster drugs. Thus, we believe that a premium buy-out from Roche or one of their competitors could happen in the next few years as antibodes become even more pervasive in the drug sector.

"Given the recent pull back in IMGN’s share price from the low $8 level to $7 after the stock's recent secondary offering -- the company sold 5,000,000 shares of its common stock at $7 per share raising $33 million -- we are raising our buy limit to $8 to reflect our growing confidence in the company and it’s significant long-term growth potential.

"While dilution is rarely positive, the fact that the company raised cash after the stock has almost doubled in price over the last year makes it much easier to digest. Additionally, IMGN has not raised cash in a very long time, making it that much more tolerable as they run a tight fiscal ship.

"With the offering out of the way, we expect more positive news flow either in the form of additional partnerships or more data on T-DM1 later in the year. We believe that T-DM1 is a potential blockbuster drug candidate that will provide the company with a very good revenue stream.

"Any other progress from the company’s pipeline would just be icing on the cake. In addition, any progress in the pipeline would probably trigger a buyer to try and buy them at a premium.

"With cancer antibodies expected to be the largest class of drugs, armed antibodies represent both better drugs and excellent patent extension vehicles. Overall, we believe that Immunogen is an undervalued antibody play. We rate the stock a buy under $8 with a target of $17."

NovaGold (NG): 'Exceptional bet' in mining

Wed, 01 Jul 2009 12:00:00 +0000

"In the 2000s, as we’ve alternated between deflationary and inflationary worries, gold has been the only major investment to rise every year," says Stephen Leeb.

In his The Complete Investor, he explains, "We think that many miners are exceptional bets today. And among our favorite gold investments is one that we hold in our small cap value model portfolio: NovaGold Resources (ASE: NG)."

"The case for mining stocks is that the price of gold rises faster than miners’ costs, allowing margins to increase.

"That’s not to deny the risks, such as possible shortfalls in production, sudden price increases, environmental costs, and so on. Still a miner that can increase production and maintain or boost margins will outperform the metal over time.

"NovaGold -- and its relationship with Barrick (NYSE: ABX) -- illustrates particularly well the potential a superior miner can have even when gold prices are flat.

"Barrick, now Nova’s partner in developing one of the world’s largest gold deposits, proves that miners can rise independently of a bull market in gold. Between the mid-1980s and early 1990s, Barrick climbed more than fifty-fold on extraordinary increases in gold production.

"Production of gold, copper, and silver from Nova’s major properties, Donlin Creek and Golore, may come close. The Donlin discovery, one of the largest ever in North America, is estimated to contain at least 54 million ounces of gold.

"How much gold is this? In 2006 with gold trading below $700, Barrick offered to buy Nova for the equivalent of $16 a share. Then as now Barrick had a 50% interest in Donlin.

"Today, in the midst of a credit crunch, Nova has been beaten down to where it trades at some 80% below Barrick’s 2006 bid. Barrick still has a 50% interest in Donlin, whose potential reserves are considerably higher than in 2006.

"Moreover, the other significant holding of Nova is Galore, which represents one of the largest undeveloped copper deposits in the world.

"What are the risks? The only meaningful one is that the company does not get the financing to develop the properties. But that’s extremely unlikely given Barrick’s 50% interest in a deposit that would more than double its North American gold resources.

"Clearly any company that has no production and is dependent on others for its continued existence has to be rated as highly speculative. That said, from a risk/reward perspective you won’t find a better play than NovaGold."

Guangshen Railway (GSH): On track in China

Wed, 01 Jul 2009 04:00:00 +0000

"A focal point of China's ambitious $586 billion stimulus package will be railroadsl in fact, investment in railways has already tripled over this time last year." explains value Investor Nathan Slaughter.

In his Half-Priced Stocks he adds, "Guangshen Railway Limited (NYSE: GSH) looks to be an obvious choice to benefit from this trend. Indeed, pricing flexibility, stellar efficiency and utilization has made Guangshen the most profitable rail company in China."

"Growth in China's railways doesn't come as a surprise. Years before this plan was put in motion, China already had bold ideas about building out its railway system -- and was bankrolling those ideas with about $200 billion in government cash.

"And now, those commitments will be supplemented with an additional $100 billion earmarked from this latest stimulus package.

"To be sure, the sprawling country is certainly in need of additional rail capacity, and many rural areas have no service at all.

"Meanwhile, we all know that China has a ravenous appetite for iron ore, petroleum, coal and just about every other raw material.

"Much of the nation's commodities production takes place in the Western provinces, and those goods must then be shipped to population centers and economic hubs on the Eastern seaboard.

"However, the Chinese Railway Ministry estimates that railroads can only handle about 35% of the country's massive cargo demand -- the other two-thirds must be carried by less efficient means of transportation.

"But this is all changing. Thanks to heavy investment from both foreign and domestic sources, more than 10,000 miles of new railroad networks will be on the ground within the next few years.

"Guangshen Railway Limited operates both passenger and freight lines, and it's sitting on some prime real estate -- including routes between Guangzhou and Shenzhen, as well as the only network linking Hong Kong with the Mainland.

"Despite damaging earthquakes, record snowfall and other headaches, GSH still carried about 83 million passengers to their destinations last year -- representing volume growth of +15%.

"And the company has started off 2009 on the right foot, posting healthy double-digit first quarter gains in both revenues and earnings. Going forward, recent acquisitions and continued optimization of existing lines should lead to solid (though not spectacular) growth.

"I like the fact that GSH is sitting smack in the middle of the Pearl River delta of Guangdong Province, among the most affluent and rapidly expanding regions in all of China.

"This is a heavily traveled artery, and the company has it all to itself -- as a state-owned enterprise, I don't see many competitors being allowed in.

"The shares are currently approaching a 52-week high, but I think they could continue on this path and take investors on a quick ride to fair value at $30. Nevertheless, the stock is still best suited to risk-tolerant investors, preferably with a wide +25% or greater margin of safety."

Noble (NE): 'Jackup' profits

Tue, 30 Jun 2009 04:00:00 +0000

"Noble (NYSE: NE) offers a compelling combination of deepwater and international 'jackup' drilling exposure," says energy expert Elliott Gue in his The Energy Strategist.

"The stock is cheaper on a price-to-earnings and price-to-cash flow basis than most other contract drillers.

"In total, Noble has 14 deepwater and ultra-deepwater rigs operating in the Gulf, with all but one of these rigs contracted through early to mid 2011. Its booked contracts amount to around $10.6 billion, a solid base of defensive, visible earnings.

"The fundamental upside turnaround potential for Noble resides in its jackup fleet, which consists of 40 rigs of varying qualities.

"In total, Noble has 12 jackups working for Mexico's Pemex, primarily at day rates in the $125,000 to $160,000 range; these rigs offer exposure to any improvement in international jackup rates.

"In addition, Noble has eight harsh environment jackups working in the North Sea, a market that appears to be showing signs of stabilization.

"Finally, Noble is a conservative operator with an outstanding balance sheet and a solid backlog of rigs. I am adding Noble to the Wildcatters Portfolio."