Jason Simpkins
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…
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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:
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.
Gold Prices Back on Track for $2,500 an Ounce
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Cyber Warfare Growing on a Global Scale – And We Have the Best Way to Profit
In the Internet era, cyber warfare is growing on a global scale.
Corporations, governments, armies, and anonymous groups of thrill-seeking hackers are playing a perpetual game of cat and mouse.
For that reason, worldwide spending on network and data-security technology will rise to more than $10 billion by 2016 from about $6 billion last year, according to a market-outlook report by technology-forecaster ABI Research.
Another recent study, by Forrester Research Inc. (Nasdaq: FORR), found that the share of business IT budgets devoted to security nearly doubled from 7% in 2007 to an estimated 14% last year.
If you're wondering what's behind this growth, you need look no further than some recent newspaper headlines.
Earlier this year, hackers infiltrated Sony Corp.'s (NYSE ADR: SNE) PlayStation Network and accessed the personal information of 77 million accounts in what's considered the biggest such security breach in history.
That was followed this summer by phone-hacking scandal at British tabloid The Daily Mirror that wreaked havoc on News International, media mogul Rupert Murdoch's British newspaper arm.
And finally, this past weekend Sesame Street's YouTube channel was compromised, and hardcore pornography videos displaced the likes of Elmo and Cookie Monster.
Of course, all of this is harmless troublemaking in the grand scheme of cyber warfare.
Indeed, a well-coordinated cyber attack on U.S. military installations or the country's power grid poses an even greater threat to stability.
And it's clear that that threat comes primarily from China.
Chinese "Cyber Militias" Conducting Cyber Warfare
U.S. officials blame China's government, or agents acting on its behalf, for the theft of neutron bomb designs, the defense secretary's e-mails, and private sector intellectual property worth billions of dollars.
Indeed, the Financial Times recently reported that the People's Liberation Army (PLA) already has partnered with China's private sector to form "cyber militias," units of young computer programmers tasked with cyber attacks and cyber defense.
Mainstream Media Finally Recognizes Zombie Threat
An article on TIME magazine's Website currently poses the question: Is Bank of America a Zombie?
Well Money Morning Global Investment Strategist Martin Hutchinson told readers two years ago that it was.
And more recently, on June 13 of this year, Global Macro Trends Specialist Jack Barnes issued a "Sell" call on the company, citing its poor prospects. That was three months before the U.S. Federal Housing Finance Agency sued BofA and 16 other banks over the lousy mortgage securities these institutions created in the run-up to the financial crisis.
Gold Prices Hit Another Record – But Silver is the Play to Make
Gold prices had another record-breaking day yesterday (Monday), with gold for December delivery climbing 2.1% to close at another all-time high of $1,891.90 an ounce on the Comex.
But as impressive as gold's run has been, silver may be the better bet.
Silver prices rose 2.5% yesterday to settle at $43.47 an ounce.
Make no mistake: Gold prices are headed higher, but silver, since it took a spill earlier this year, actually has more upside at the moment.
This is no secret to "insiders."
The latest CFTC data for the week ended Aug. 16 revealed tactical investors increased their exposure to every precious metal with the exception of gold. Net fund length in Comex Gold fell by 3,500 lots. Speculative length in Comex Silver, on the other hand rose.
The fear is that gold prices, which have been on an absolute tear through the month of August, have gotten ahead of themselves. Gold is up 16% this month, which means its set for its best monthly gain since 1999.
Safety Stocks: Three Ways to Profit From Market Mayhem
There's never been a better time to invest in "safety stocks."
The Dow Jones Industrial Average is down 14% since July 22 and the Standard Poor's 500 Index is down 15% in that time. The U.S. economy is grinding to a halt, and a double-dip recession could be in the offing. Meanwhile, the U.S. Federal Reserve continues to undermine the dollar with expansive monetary policy.
Indeed, with so much bad news and chaos, there's never been a better time to stock up on the essentials – gold, guns, and cheap food. These are the things people turn to when the going gets tough – and the companies that provide these bare necessities shine the brightest when everything else seems to be falling apart.
That said, here are three safety stocks that are worth a look:
- Newmont Mining Corp. (NYSE: NEM).
- McDonald's Corp. (NYSE: MCD).
- And Sturm, Ruger & Co. Inc. (NYSE: RGR).
Let's examine each in a little more detail.
Newmont Mining Corp.
Gold has been the can't-miss profit play of the past three years.
The yellow metal settled at yet another record high yesterday (Tuesday), surging 1.7% to $1,743.00 an ounce on the Comex division of the New York Mercantile Exchange (NYMEX). And Money Morning Contributing Editor and global resources specialist Peter Krauth says it could more than double from there.
"I expect gold to reach $5,000 before this bull market peaks," said Krauth. "I'm very open to the possibility that gold could correct from here, but I'd expect that to be nothing more than a short-term pullback."
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