Jason Simpkins
The World's Two Best Sin Stocks: Diageo (NYSE: DEO) and Philip Morris International (NYSE: PM)
The common misconception is that so-called "sin stocks" only perform well when the economy tanks.
But the truth is that purveyors of alcohol and tobacco take their lumps during a recession just like everybody else.
That was certainly true of the world's largest spirits company Diageo PLC (NYSE: DEO), which traded as low as $42 a share in 2008. Of course, the stock has more than doubled since then, closing Friday at $93.38.
Shares of cigarette-maker Philip Morris International Inc. (NYSE: PM) have nearly doubled in the past two years, as well.
Still, you don't have to worry if you missed either of those rallies because there's still plenty of room for these two sin stocks to run.
Indeed, more and more consumers are returning to their vices as the global economy improves.
For instance, liquor sales, which stagnated in 2009, rose 4% last year, while sales of top shelf spirits increased 5.3% — a near return to pre-2008 levels.
What's more is that these gains came at the expense of the beer market, which typically has the upper hand in tough economic times.
"People who are doing well are going out and spending on spirits as an affordable luxury," John McDonnell, chief operating officer for The Patron Spirits Co. and chairman-elect of the Spirits Council, told Bloomberg. "Also, spirits companies never stopped spending through the downturn."
The same goes for tobacco products, which have been gathering steam in emerging markets even while they fall out of fashion in developed countries like the United States.
So let's take a closer look.
Diageo is Uplifting Spirits
Diageo – the company behind Baileys, Captain Morgan, Guinness, Smirnoff, and Johnnie Walker – is the most obvious beneficiary of increased liquor sales.
These are powerful brands that helped Diageo actually increase its cash flow during the recession. And now that consumers worldwide are in a slightly more festive mood, sales are set to take off.
Diageo, which produces about 28% of the spirits sold in the United States, reported a 5% increase in liquor sales in the U.S. and Canada in the second half of 2011.
More importantly, the company continued to expand its business in emerging markets.
While volumes were flat in North America and Europe, Diageo generated 14% volume growth in Latin America, 7% in Africa, and 5% in the Asia-Pacific region.
And that's just the beginning for a company that has made developing markets the focus of its growth strategy.
This Defense Company has 24% Upside – Even with the Pentagon's Spending Cuts
When George W. Bush was first sworn into office on January 20, 2001, shares of defense contractor Lockheed Martin Corp. (NYSE: LMT) traded for $31.
By the end of his first term, they had doubled to about $60. And by mid-2008, prior to the October crash, Lockheed Martin had climbed to nearly $120 a share.
Those were the boom years – not just for Lockheed, but for most defense contractors.
Northrop Grumman Corp. (NYSE: NOC) shares doubled in the period stretching from December 2000 to January 2008, and General Dynamics Corp. (NYSE: GD) surged more than 133%.
But times have changed.
The last U.S. troops left Iraq in December and forces are expected to end combat operations in Afghanistan next year.
Meanwhile, the Pentagon is looking to cut spending by a half trillion dollars over the next 10 years. And war spending, which is funded separately by Congress, will likely fall from $115 billion this year to $88 billion in 2013.
Indeed, it's a new, leaner military that's taking shape amid talks of belt-tightening and austerity.
"Capability is more important than size," is the way General Martin Dempsey, the chairman of the Joint Chiefs of Staff, put it.
That means a change of tactics is in order for defense companies.
Some will rely on share buybacks and dividend increases, but that still might not be enough to fortify their stock prices. True success will only be accomplished by adapting to the new military's changing needs.
And right now there's only one company that fits the bill. We're talking about…
Three Luxury Companies That Can Bring You Closer to the Good Life
A lot of consumers are hurting right now, but you wouldn't know that looking at the earnings of major luxury companies.
Many luxury companies like LVMH Moet Hennessey Louis Vuitton SA (PINK: LVMHF), Burberry Group PLC (PINK: BURBY), Hermes International SCA (PINK: HESAF), and Coach Inc. (NYSE: COH) had a stronger-than-expected 2011 campaign.
Better still, they're set to expand on that success this year.
U.S. sales are regaining momentum and emerging markets – led by China – have been an outright boon for luxury companies.
Although you may not have realized it, China is now the world's second-largest market for luxury goods, behind Japan. And it could become the largest as soon as this year.
China's National Statistics Bureau says that there are now more people living in the country's towns and cities than in the countryside – making China a predominantly urban nation for the first time in history.
Worker pay is rapidly rising in China, with officially mandated base wage minimums up an average of 22% in 2011. And a new class of workers as well as a wealthy elite are driving luxury sales globally.
Two good examples of this are Burberry and Compagnie Financiere Richemont (PINK: CFRUY).
Luxuriating in Success
Burberry, the U.K's largest luxury-goods maker, reported third-quarter sales that beat analysts' estimates, and said it sees no reason to change full-year forecasts even in light of a "challenging" economy.
Burberry's revenue in the three months ended Dec. 31 climbed 22% to $882 million (574 million pounds). Asia-Pacific sales climbed 36%, while sales in Europe surged 20%. Sales rose 4% in the Americas and 31% in the rest of the world.
The company said it can weather any fallout from Europe's sovereign-debt crisis because Chinese consumers will help offset losses.
Chinese customers alone account for 10% of Burberry's total sales.
Swiss-based luxury goods group Compagnie Financiere Richemont also has benefited from China.
Four Natural Gas Companies Investors Can Buy Right Now
Natural gas companies are hurting – there's no doubt about it. But that doesn't mean natural gas companies are bad investments.
In fact, some of these companies are currently on the bargain rack. You just have to know where to look.
Take EOG Resources Inc. (NYSE: EOG), for instance.
Traditionally known as a natural gas producer, EOG has reinvented itself as a major oil producer.
It's still heavily involved in the natural gas market, but the company also has managed to increase its total liquid oil production by 49% to 130,000 barrels per day.
Chief Executive Officer Mark G. Papa said he expects to reach 200,000 barrels per day this year. That would make EOG the second- or third-largest oil producer in the United States.
The effects of this transformation are evident in the company's earnings.
After taking a third-quarter loss of $70.9 million in 2010, EOG reported net income of $541 million for the third quarter of 2011.
That's not all. EOG's potential for growth is outstanding, since it has huge oil shale reserves. The company is the largest oil producer in both North Dakota's Bakken Shale and the Eagle Ford Shale in South Texas.
These two shale oil fields have played a key role in ramping up U.S. oil production over the past few years. They each have an estimated 4 billion barrels of recoverable reserves.
Earlier this month, analysts from Goldman Sachs Group Inc. (NYSE: GS) raised their EOG share price target to $118, while RBC Capital Markets (NYSE: RY) analysts set their target at $119. Those targets estimates represent a 13% to 14% premium from yesterday's (Tuesday's) closing price of $104.55.
And that's just one natural gas company with a strong investment pedigree.
Here are three others… To continue reading, please click here…
The Verdict Is In: End Congressional Perks
Three-day workweeks. A full pension. Retirement benefits. Gym memberships. Car service. Free flights to anywhere in the world and travel allowances worth thousands of dollars…
With so many Americans struggling to just find a job, isn't time we put an end to Congressional perks like these?
That's the question we put to you just a few short weeks ago. And we're happy to say the response has been overwhelming.
We've been inundated with comments and responses. Here's just a small sampling:
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All You Need to Know About Iran, $200 Oil, and $6.00 Gas
If you're unsettled by the thought of gasoline at $4.00 a gallon, brace yourself.
With tensions between Iran and the West quickly escalating, we could see gas jump to $6.00 a gallon at the pump in a matter of months.
Make no mistake about it: If Iran were to follow through on its threats to close the Strait of Hormuz, oil prices would surge as high as $200 a barrel in matter of days.
But that's just the beginning…
A wider Iranian war could throw the entire region into chaos — making $100 oil seem like a bargain.
None of this is hyperbole. In fact, these dangers are likely according to of one of world's leading energy analysts, Dr. Kent Moors.
Dr. Moors is an advisor to six of the world's top 10 oil companies, including natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa. He also consults for high-level officials from the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments on all things energy related.
In short, Kent's insights are invaluable.
That's why we've given Dr. Moors a chance to address all of the concerns swirling around the energy market today.
In the interview that follows you'll learn what you really need to know about Iran, the global oil market, and most importantly, what you can do to profit…
Dr. Kent Moors on the Brewing Crisis in the Gulf
Q) Dr. Moors, how serious are the recent developments in Iran?
Moors: This is the most serious U.S.-Iranian crisis since the fall of the Shah in 1979. There's a very dangerous situation inside Iran that is only being accentuated by the oil market problems that have resulted from Western sanctions.
First off, on the Strait of Hormuz: This is the most significant oil choke point in the world. Some 35% of the world's seaborne oil shipments and at least 18% of daily global crude shipments pass through this narrow channel in the Persian Gulf. And while the Iranian Revolutionary Guard Navy is not large enough to blockade the Strait of Hormuz for any length of time, it could disrupt traffic.
Q) What effect would closing the Straits of Hormuz have on oil and gas prices?
Moors: Closing the strait would result in a rise in crude oil prices of between $20 and $40 a barrel in a matter of hours. Any interruption beyond 72 hours would push prices to between $150 and $200 a barrel.
As far as gas prices are concerned, the basic rule of thumb is that each $1.00 rise in a barrel of oil results in a 3.2-cent rise in a gallon of gasoline. So $200 oil would equal $6.00-plus gasoline.
Q) Why is this crisis unfolding right now?
Moors: Three major elements are causing Iran to become belligerent:
2012 Oil Price Outlook: How to Profit From $150 Oil
2011 was an up-and-down year for oil prices, but don't expect that pattern to repeat in 2012.
In the coming year, the trajectory for oil prices will be far more linear – and it's pointed up.
In fact, we could even see $150 oil by mid-summer.
There are two key reasons why:
Put An End to Congressional "Perks"
With a median net worth of $891,506, Congress members are nine-times wealthier than the average American household – and some Congressional leaders are exceedingly richer.
In fact, a recent analysis of financial disclosure forms showed Congress members' collective net worth was more than $2 billion in 2010 – a 25% leap from 2008.
If members of Congress are that rich, then why are average Americans footing the bill for so many of their luxurious perks?
Just look at what a member of Congress gets in addition to base pay of $174,100 a year:
- Three-day workweeks.
- A 401(k)-like plan that "matches" up to 5% of its input.
- The chance to choose from 10 different first-rate health plans and access to an on-site doctor.
- A full pension.
- Retirement benefits.
- Gym memberships.
- Car service.
- Free parking at two regional airports.
- Free flights to almost anywhere in the world.
- And a per diem travel allowance of $3,000 per trip.
And yet members of Congress still find time (and the audacity) to complain about political gridlock and federal spending.
Well, if we want to reduce "capital waste" we might as well start by scaling back Congressional perks. And if we want a governing body that's more solutions-oriented, then maybe we should increase urgency by making members of Congress live like the rest of us.
How?
2012 Oil Price Outlook: How to Profit From $150 Oil
2011 was an up-and-down year for oil prices, but don't expect that pattern to repeat in 2012.
No, next year, the trajectory for oil prices will be far more linear – and it's pointed up.
In fact, we could even see $150 oil by mid-summer.
There are two key reasons why:
- Despite the economic crisis in Europe, oil demand proved resilient in 2011. It is poised to remain steady in 2012, and then escalate drastically for the foreseeable future.
- Supplies will once again be constrained, and the potential for political upheaval in major oil-producing nations has increased.
These are the principal reasons oil prices have surged about 30% since dipping below $80 a barrel in early October. They're also why the world's upper-echelon of energy forecasters has oil prices building a floor above $90 a barrel and rising from there.
Indeed, Goldman Sachs Group Inc. (NYSE: GS) recently recommended that traders buy July 2012 Brent crude futures in anticipation of a rally to $120 a barrel. It was one of the bank's top six trades for 2012 published in its "Global Economics Weekly" report.
Barclays Capital agrees.
"Even in the worst case scenario, the downside to oil prices is unlikely to be anything as severe as during the 2008-2009 cycle," Barclays analysts Roxana Molina and Amrita Sen wrote in a report earlier this year. "As a result, we maintain our price forecast of $115 per barrel for Brent in 2012 and expect $90 per barrel to hold as a sustainable floor even under gloomy macroeconomic conditions."
As for West Texas Intermediate (WTI) crude the Energy Information Administration (EIA) expects it to average nearly $94 a barrel next year.
And even that's a conservative estimate.
"Given the oil volume constriction oncoming and the continuing increase in global demand – this drives the price, not North America or Western Europe – we will reach $150or beyond by July 4," said Money Morning Global Energy Strategist Dr. Kent Moors.
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