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We all know the economy has a tough row to hoe… We're facing severe unemployment. Almost 50% of those unemployed have not been able to find a job in six months. We've also seen huge bankruptcies over the past two years, such as General Motors, CIT Group and Lehman Brothers, and more than 100 banks have either closed their doors or have been seized by the FDIC in the past year alone!
That's why the Federal Reserve has kept rates at near zero for more than a year and a half, and supported all types of stimulus measures.
We're nowhere near out of the woods yet, and that leaves us to contemplate a "new market."
With all the doom and gloom talk on the financial news wires of a possible double-dip recession, I think it's time to examine what our markets would look like if the Federal Reserve kept interest rates effectively at zero.
Let me be more specific…
Will Keeping Interet Rates Low Do Anyone Any Good?
If economy and market analysts are honest, they'd tell you these low interest rates scare the heck out of them. And why not? If we were in a true organic recovery, the government and the Fed would be dealing with skyrocketing inflation. We'd be using dollars to mop up floors and other unsavory things.
That aside, low rates may have some benefits. I wouldn't go so far as to call it a silver lining, but it might be a hint of light in all this doom and gloom. And if our economic situation isn't going to change much in the near term, we're all going to have to learn how to invest in these new market parameters.
What's the first thing investors and economists think of when they see a cheap currency? Exports…
A falling dollar, or a really cheap dollar, looks more attractive to international markets. That means our goods look cheaper, and more people buy them.
Manufacturing, Maybe… Moving Goods, Yes
In these situations, most investors' eyes go directly to manufacturing. And they'd be right… for the most part. According to a BusinessWeek report from back in October 2007, however, big U.S. manufacturers spread their plants around the globe. That means they're not really taking advantage of a cheaper dollar.
(If you recall, the U.S. dollar was experiencing a really sharp decline back in the second half of 2007, which precipitated the global economic crisis…)
That doesn't mean they've stopped exporting, though. And that is where we may find an opportunity.
The moving of goods throughout the country and into international markets is an interesting way to play both recovering global demand and the over printed U.S. dollar. It's also one where we find a couple of companies boasting zero debt.
(By the way, if you'd like more financial analysis, sign up for regular Taipan Daily editors Adam Lass and Justice Litle's investment commentary.)
Planes, Trains and Ocean Freighter Ships
When you're talking about moving manufactured goods, you're talking about ocean bulk carriers, rail cars, air cargo services, inland barges, 18-wheelers and logistics, among a number of other freight and bulk services.
There is a wealth of companies to sift through… And these are just a handful.
Landstar Systems, Inc. (LSTR:NASDAQ) is mainly a trucking company, but also offers rail, air, and ocean services and logistics. The company operates these services between the U.S., Canada and Mexico, though it does have some other international capabilities.
Here's what I like, though… For the company's most recent quarter (ending June 26, 2010), it posted 30.6% revenue growth and 36.8% earnings growth!
Pretty fantastic, particularly when you note that Landstar's P/E ratio is well below the industry average (25.53 versus 33.35).
Another company to take a look at is CH Robinson Worldwide (CHRW:NASDAQ). It's an air freight delivery services company that has contracts with 47,000 transportation companies. That's a huge customer base.
Though quarterly earnings slipped 1.6% in its most recent quarter, revenue climbed 22.9%, dwarfing the industry average of 4.3%. But here's the best part: With $282.3 million in total cash, this company has zero debt…
It's not the only one either.
Expediters International of Washington, Inc. (EXPD:NASDAQ) is also in the air delivery and freight services industry, but like CH Robinson, that's not its only business. In fact, it runs rails and truck services between the U.S., Canada and Mexico , and also consolidates bulk shipping between the U.S. and China.
EXPD, as I mentioned, has zero debt on its balance sheet, and holds $1.04 billion in cash. It also boosted revenue by more than 31% in its most recent quarter, and enjoys a much higher operating margin than the industry on average.
The only thing is, you'll be paying for it with its higher-than-industry-average P/E ratio at 37.47. That said, of these three, EXPD has climbed the most in the past year: more than 26% versus about 22% and 14% for CHRW and LSTR respectively.
As noted, these aren't the only companies moving our "cheap" goods around the country and around the world, but with two with zero debt, they're worth taking a hard look at when you're investing in a zero-interest rate market.
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