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QinetiQ Group (QNTQY): If You Like James Bond, You'll Love This Company
In the Digital Age one thing is valued above all others: security. And nothing is more crucial to security than information.
Whether acquired by HUMINT (human intelligence) or SIGINT (signals intelligence) information is a powerful weapon for governments and businesses alike.
The firms that provide this critical information gathering infrastructure will form the foundation for the next generation of security companies.
One of the major players in this growing sector is a Farnborough, England-based company.
Today it's called QinetiQ Group(QNTQY.PK)–pronounced "kinetic". But its beginnings are just as fascinating as its business.
QinetiQ: From 007's Aston to Railguns
Born as the Defense Evaluation and Research Agency (DERA) in the mid-1990s, the agency worked on "unique" problems and solutions.
In essence, DERA's business was staying one step ahead of the bad guys. But DERA's mission actually goes even further back in time.
Ian Fleming, a former intelligence officer and creator of the iconic James Bond character, actually patterned Bond's mad scientist/inventor "Q" and his labs on the formative QinetiQ back in the '60s.
Fifty years later, QinetiQ is now into everything from rail guns (guns that use electricity to launch rockets or shells), to Scramjets (new jet technology that's three times faster than today's jets), to non-lethal weapons and equipment that today's James Bonds are packing.
But today's QinetiQ has had a bumpy ride since its public offering in 2001.
Investing in Defense Stocks: Why Lockheed Martin (LMT) Is Too Big to Fail
Last year when Congress formed its much-lauded "Supercommittee" to sort out America's debt crisis, there was a lot of handwringing about draconian budget cuts.
But true to form, on the eve of an election year, our politicians did nothing and the sequestration clock began to tick.
In essence, they made the bold move to kick the can down the road.
The problem is if the clock is allowed to keep ticking, those same draconian cuts will happen anyway.
No industry is more aware of this than the defense sector.
For them it is literally like turning a battleship – the major players need a lot of lead time to readjust their bearings.
So it's no surprise that the defense sector, which has a budget bigger than the combined defense budgets of at least the next 30 countries in the world, is worried more than most about significant cuts.
And when corporate execs worry, so does Wall Street.
But somehow, I think the military industrial complex will survive. For investors, it will be all about picking the right players.
Investing in Defense Stocks: Lockheed Martin's Big Advantage
One of them is Lockheed Martin (NYSE: LMT).
As the great military strategist Sun Tzu once said, "Opportunities multiply as they are seized."
Today, there is no company better at seizing opportunities than Lockheed Martin.
Growth in Google's Android Pays Off for InvenSense Inc. (NYSE: INVN)
The exploding number of Google Android devices has become a cash machine for microchip maker InvenSense Inc. (NYSE: INVN).
InvenSense makes the tiny motion sensors used in 70% of Android phones and 90% of motion-sensing Android tablets.
Mobile device makers have enthusiastically adopted Android, an operating system developed by Google Inc. (Nasdaq: GOOG), because Google licenses it for free.
Growth in Android devices is exploding.
At the Mobile World Congress in Barcelona last month, Google Senior Vice President for Mobile Andy Rubin announced that 850,000 Android devices are activated every single day, for year-over-year growth of 250%.
That kind of growth offers tremendous potential for a company like InvenSense, which only went public last November.
With 512 million mobile devices expected to be sold by 2014, the market for InvenSense promises to be huge.
InvenSense: The Best Performing IPO of 2011
These motion-sensor chips, called Micro Electro Mechanical Systems (MEMS), are what enable mobile devices to react to tilting or shaking.
Although MEMS technology has existed for decades, it was when InvenSense's motion sensing chips were used in the Nintendo Co. Ltd. (PINK ADR: NTDOY) Wii controller in 2006 that the technology started to go mainstream.
Agricultural Stocks: Deere & Co. (NYSE: DE) and AGCO (NYSE: AGCO) Are Poised to Reap Gains
Many analysts are forecasting lower food prices this year, and that's taken a toll on many agricultural stocks.
But there are two reasons why investors shouldn't be so quick to abandon the sector.
In fact, two stocks, Deere & Co. (NYSE: DE) and AGCO (NYSE: AGCO) are poised to reap gains now that ag stocks have pulled back
Here's why.
- Much of the pessimism surrounding crop prices is overdone.
- Many ag stocks are still excellent long-term plays – despite any short-term trepidation.
I'll explain.
It's true that farmers currently are planting more staple crops in an effort to exploit high prices. But as we've seen in just the past few months, floods, droughts, and rapidly rising demand could easily intercede to keep prices near record levels.
The most important crop to watch right now is corn.
Preliminary USDA data suggest that farmers this year will plant the biggest corn crop since World War II. However, that's exactly what will be needed, since corn is facing the greatest supply constraints of any staple crop.
Indeed, even a bumper crop will first have to compensate for the shortages of the current crop year, which are significant. By this year's autumn harvest, global stocks of corn as a share of consumption will have fallen to the lowest level since 1974.
"There has been no rebound in global corn stocks," Ed Allen of the USDA's economic research service told the Financial Times. "This has maintained very tight markets for corn."
And while global corn production is expected to rise, there's still a chance bad weather will damage the harvest just as it has in the past two years.
Last year, wet weather early in the season delayed planting while hot weather in the summer scorched young stalks. That contributed to two consecutive years of shrinking supplies.
Analysts say a third straight year would be rare, but according to economists at the University of Illinois, there is a 40% chance corn yields will fall short in any given year.
"The odds slightly favour a corn yield above trend in 2012, but there is certainly precedent for another year below trend," the economists wrote last month. "More specific expectations about the 2012 average yield will depend on how the planting and growing season unfolds."
Good News for Agricultural Stocks
Corn isn't the only crop facing supply constraints, either.
January droughts in Argentina and Brazil reduced global soybean production by 7.2% this year. And with farmers focusing on corn there's less land available for soybeans. The USDA anticipates soybean production will fall by 12.7 million metric tons this year.
On Oct. 1, the start of the next season, soybean inventories will be 20% lower than they were last year, according to Jefferies Bache LLC. As a result, soybean prices, which are up nearly 9% year-to-date, will gain another 6.7% by June, the New York-based commodities trader estimates.
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The Keystone Delay Won't Stop These Canadian Oil Sands Stocks
I'm not a knee-jerk hater of the Obama administration.
But the President's decision to reject the Keystone pipeline was one of his worst.
Aside from creating jobs, the pipeline would have decisively swung U.S. energy supplies more toward domestic sources and those of our friendly neighbor Canada.
Granted, the pipeline wouldn't create energy independence but it would mean importing less oil from the Middle East.
It is the kind of switch that could help save the U.S. large amounts of blood and treasure in the future.
Because in practice, our dependence on Middle Eastern oil forces us to incur huge foreign costs – after all, we just finished paying $800 billion for the Iraq war. As you know, that is just a drop in a much larger bucket.
Add in the human losses and the costs are incalculable.
In this case, caring less about what goes on in the Middle East – other than ensuring the safety of our ally Israel – would save us all those costs, and get us that much closer to balancing the damn Federal budget.
So let's just say shelving the Keystone pipeline wasn't exactly the president's finest hour.
Bullish on Canadian Oil Sands Stocks
However, while the Keystone Pipeline continues to twist in the wind, investors shouldn't ignore the Canadian energy sector – especially the Athabasca tar sands.
Because with oil prices on the rise, these Canadian resource plays are likely to offer investors serious returns.
Here's why: oil prices are headed higher.
In fact, Fed chairman Ben Bernanke's recent promise that U.S. interest rates will remain near zero until the end of 2014 has given a huge boost to commodity and energy prices.
What's more, the $600 billion injection into EU banks and the promise of another $600 billion this month just adds more fuel to the inflationary flames.
Eventually, oil prices will get so high that they will cause a recession all by themselves, just like they did in 2008. But remember, that happened at $147 per barrel, so we've still got quite a way to go. This time oil could get closer to $200 per barrel.
That's bullish for places like the Athabasca tar sands.
Five Stocks That Will Thrive After the Solar Energy Industry Shakeout
With as much as two-thirds of the struggling solar energy industry expected to either fail or be acquired over the next three years, the table will be set for the survivors to capitalize on a market with enormous growth potential.
The process has already begun, with three solar companies – Evergreen Solar Inc. (Nasdaq: ESLR), Spectra Watt Inc. and the notorious Solyndra LLC – having declared bankruptcy this year.
Solar companies have struggled to keep their heads above water as the price for solar panels has fallen as much as 40%. The average operating margin in the solar energy industry plummeted to 0.1% in the third quarter from 13.7% a year earlier.
The stocks have been pummeled, as a result. The Claymore/MAC Global Solar Index (NYSEARCA: TAN) exchange-traded fund (ETF) is down 58% this year and the Market Vectors Solar Energy (NYSEARCA: KWT) ETF is down more than 60%. Several individual solar stocks have lost more than 70%.
"It's just a really difficult time," Morningstar Inc. (NYSE: MORN) alternative energy analyst Stephen Simko told The Globe and Mail. "The profitability of the industry has collapsed… Unless more bankruptcies happen and more production is shut down, this is a problem that is going to persist."
Few Will Be Left Standing
The tremendous pressure on margins has most people both outside and inside the solar energy industry predicting massive consolidation.
"This is the decade of mergers and acquisitions," Jifan Gao, chief executive officer of Changzhou, China-based Trina Solar Limited (NYSE ADR: TSL), told Bloomberg News. "From now until 2015 is the first phase, when about two-thirds of the players will be shaken out."
The Macquarie Group Limited (PINK ADR: MQBKY) agrees. In a recent report the Australia-based research firm said consolidation would claim 66% of the world's solar companies. Macquarie predicts that only four out of 35 solar companies in China will survive the next three years.
But in the aftermath of the carnage, the surviving solar companies will emerge stronger and in prime position to make the most of an exploding market.
In fact, the solar market has grown in 2011, but because capacity has exceeded demand, prices have continued to fall.
A Growing Market
According to the Solar Energy Industries Association, solar is the fastest-growing energy sector in the United States. The group says solar panel installations in June were up 69% over the previous year.
That pace of growth is expected to continue for an industry that supplies just 1% of the electricity in the United States. The U.S. Energy Information Agency projects installed solar energy capacity to increase 20 to 40 times 2010 levels over the next decade.
The primary reason for such optimism is the same reason the industry is suffering – falling prices that make solar competitive with traditional sources of energy like coal, oil, and gas.
First Solar Inc. (Nasdaq: FSLR), for example, says the solar panels it makes now can produce electricity for 14 cents to 16 cents per kilowatt – still significantly above the average cost of electricity in the United States of 11.6 cents per kilowatt.
But the solar energy industry has steadily improved panel efficiency, and expects the advances to continue. First Solar says that by 2014 its panels will produce electricity for 10 cents to 12 cents per kilowatt.
"At that point, there's a tremendous amount of interest," First Solar spokesman Alan Bernheimer told USA Today.
But which companies will survive to reap the benefits of the golden days of solar?
Amazon Kindle Tablet Will Plump Revenue and Disrupt Market
A rumored Amazon Inc. (Nasdaq: AMZN) Kindle Tablet will deliver billions of dollars in fresh revenue next year.
In addition to its hardware sales, the tablet will provide a quick and convenient way for Amazon to capture a bigger chunk of the digital media market and allow customers to buy any of its millions of offerings from almost anywhere.
The 7-inch tablet is expected to appear within the next month or so and cost just $250. Such a low price from a trusted brand like Amazon will disrupt the entire tablet market.
"A proprietary tablet would allow Amazon to widen itscompetitive moat, improve consumer experience and benefit from the rapid growth in mobile usage," Jefferies & Co.'s (NYSE: JEF) Youssef Squali wrote in a report.
Although analysts expect Amazon to make little profit from the tablet itself, its potential for selling more of its digital wares such as e-books, movies, music and Google Inc. (Nasdaq: GOOG) Android apps is boundless.
The Kindle e-reader shows how hardware can drive media sales. It has helped Amazon capture 90% of the e-book market.
The Kindle e-reader will account for 9.9% of Amazon's total revenue next year, just five years after its debut, according to Citigroup Inc. (NYSE: C) analyst Mark Mahaney. Mahaney estimates about half of that revenue, $6.1 billion, will be from sales of the device, with the other half from e-books.
An Amazon Kindle Tablet will open up multiple digital avenues of growth.
Take online video sales, for example. Amazon has just 4.2% of that market, well behind the 65.48% share of Apple Inc.'s (Nasdaq: AAPL) iTunes Store.
In terms of additional revenue, the Kindle tablet could quickly rival that of the e-reader.
Hot Stocks: Star-Crossed Sony Corp. (NYSE ADR: SNE) Will Continue to be Bad Luck for Investors
What else can go wrong for Sony Corp. (NYSE ADR: SNE)?
After years of struggling to invigorate its turnaround strategy, Sony got slammed with Japan's March 11 earthquake and a devastating hacker attack on its PlayStation network in April.
The quake forced Sony to take tax credit provisions in its March quarter that resulted in a $3.2 billion loss for its 2011 fiscal year – the once-dominant consumer electronics company's third consecutive annual loss.
Investors have grown increasing disenchanted with Sony, sending the stock down about 30% this year. It has made several new 52-week lows in the past few months, most recently touching $24.21 on June 24. In 2008, the stock was trading at more than $50 a share.
"Sony said this was going to be its year but it looks like it then got a smack in the eye," saidShiro Mikoshiba, an analyst at Nomura Holdings Inc. (NYSE ADR: NMR) in Tokyo.
Sony said last month that the combination of the March 11 disasters and the hacker attack would erase $2 billion from its operating profit in the current fiscal year, though it still forecast a net profit of just under $1 billion.
Hot Stocks: Toyota Motor Corp. (NYSE: TM) Won't Be Back on Track Any Time Soon
Don't count on Toyota Motor Corp. (NYSE ADR: TM) to regain its place as the leader in global auto sales any time soon.
Because even though the company is ahead of schedule as it looks to bounce back from the horrible wave of disasters that engulfed Japan in the spring, it now faces another roadblock in the strengthening yen.
Indeed, the good news for Toyota is that it now expects full production in Japan to resume by September, two months earlier than originally predicted. But the bad news for the company is that the dollar has slid from over 90 yen a year ago to about 80 yen now, making all Japanese exports increasingly expensive. The break-even point for Toyota is around 85 yen to the dollar.
For every yen of appreciation, Toyota would need to raise the price of its autos in the United States by 1.25% to maintain the same profit, an unappealing alternative in a challenging economy.
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