Horacio R. Marquez
- Buy, Sell or Hold: AT&T Inc. (NYSE: T) Offers a Stable Dividend With Room to Grow
- Buy, Sell or Hold: BCE Inc. (NYSE: BCE) Has Canada Covered
- Buy, Sell or Hold: Tata Motors Ltd. (NYSE: TTM) Is Kicking Into High Gear
- Buy, Sell or Hold: The Clorox Co. (NYSE:CLX) Is Cleaning Up
- Buy, Sell or Hold: Peabody Energy Corp.'s (NYSE: BTU) Global Dominance Is Heating Up Profit Growth
- Buy, Sell or Hold: United Technologies Corp. (NYSE:UTX) is Really Taking Off
- Buy, Sell or Hold: Siemens AG (NYSE: SI) Will Benefit from Germany's Strength and the Euro's Weakness
- Buy, Sell or Hold: Joy Global Inc. (NYSE: JOYG) Could Be a Gold Mine for Investors
- Buy, Sell or Hold: Enbridge Energy Partners, L.P. (NYSE: EEP) Brings Some Stability to a Volatile Market
- Buy, Sell or Hold: Cummins Inc. (NYSE: CMI) is a High-Powered Engine Maker That's Revving Up Its Revenue
- Buy, Sell or Hold: A Copper-Price Rebound Could Mean a 50% Gain For Freeport McMoRan Copper & Gold Inc. (NYSE: FCX)
- Buy, Sell or Hold: TransCanada Corp.'s (NYSE: TRP) Low Risk and High Dividend Yield Break the Waves of Uncertainty
- Buy, Sell or Hold: Deere and Co. Thrives on Strong Global Trends and Flawless Execution
- Buy, Sell or Hold: Citigroup Inc. (NYSE: C) Is a Turnaround Play that Investors Can't Afford to Miss
- Buy, Sell or Hold: Cypress Semiconductors Boasts a Strong Showing Since Dec. 14 Recommendation
- Buy, Sell or Hold: Bank of America Corp. Could Offer Investors a "Double Play"
This has created a lot of volatility, and if you already have enough strong growth plays in your portfolio, adding some large, established companies with stable cashflows and hefty dividend yields could ease some of the anxiety you may be feeling.
Such an approach in my opinion is superior to bonds, since bond yields are just too low at these levels. That means you actually risk capital losses if they go up. In addition, safe dividends paid by leading companies are higher than bond yields. And unlike bonds, big companies usually can adjust prices in accordance with inflation.
There are a lot of companies for an investor to choose from, but BCE Inc. (NYSE: BCE) jumps out at me immediately. It is a dominant, well-managed company, and it has strong upside potential.
To take advantage of that trend, I recommended a very pro-cyclical play in my trading service, which you can only see by subscribing. But I also kept up my search and was able to find another good opportunity to recommend here. That opportunity is Tata Motors Ltd. (NYSE ADR: TTM).
About a month ago, my colleague and Money Morning Managing Editor Jason Simpkins articulated a view of the Indian economy that clearly details how that country is looking to accelerate growth. The major headwind for India has been inflation - more specifically, food prices.
However, India is experiencing a normal monsoon season and will soon see its production of food increase and food prices drop - the recent spike in wheat prices notwithstanding. This drop in food prices, coupled with renewed fiscal discipline will help bring inflation down from around 10% to about 6% by year end.
This continued the company's trend of improvement. But more importantly, the bulk of Clorox's profit and margin growth came from its international unit, and the firm projected an expansion in earnings per share of at least 10% to 14% for next fiscal year.
Boring is beautiful when you're dealing with consumer staples, since share prices improve with incremental increases in sales and margins. In Clorox's case, this has meant taking advantage of low rates and dependable cashflow to finance expansion plans. But the good news is that the high financial leverage results in an exorbitant return on equity.
As these emerging economies - especially China and India -grow, there is a strong trend toward urbanization. People are leaving the countryside for the cities in droves in order to reap the promise of the global economy. This secular process alone places huge demands on the existing infrastructure.
This growth is also boosting manufacturing and energy needs. China has surpassed the United States in both car production and energy consumption. And India's Tata Motors Ltd. (NYSE ADR: TTM) launched the cheapest car in the world, the Nano, which costs roughly $2,500. The critically acclaimed vehicle's mass appeal and affordability is creating additional congestion on India's famously overcrowded streets. Adding more fuel to the global-demand fire, most emerging economies implemented a strong dose of infrastructure spending within their budgets as a result of the global financial crisis of 2008.
The result of all that infrastructure development, urbanization and increased consumer affluence is a myriad of new road, bridge and building construction, additional urban development, and stepped-up production of cars, home appliances and other consumer goods. All of these developments require two key ingredients to become reality: Steel and energy.
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The company reported earnings and hit it out of the ballpark. UTC reported quarterly earnings of $1.20 per share - even including the loss of 12 cents a share due to restructuring charges. That's 4 cents higher than analysts had expected - 16 cents higher, if you take out the one-time restructuring charges.
The good news did not stop there, either. UTC raised its guidance and share repurchases for the year, despite new challenges in Europe. Sales beat expectations and profit margins were higher across the board. Engine maker Pratt & Whitney and international elevator brand Otis were especially strong. That's remarkable considering the market's fear of a double-dip recession and the U.S. Federal Reserve's "uncertain" status about the strength of the economy.
Germany, for example, has the lowest debt to gross domestic product (GDP) ratio of all the major advanced industrial economies. And right now, it is taking measures to bring its budget deficit quickly into line. Despite a very rigid labor system, Germany is the second-largest exporter in the world, right after China. And the recent euro sell-off has given an extra "subsidy" of some 25% to German exporters.
This "subsidy" is likely to last for quite a while, since the structural situations of weaker European Union (EU) member countries will take time to resolve. It goes way beyond just having European banks pass some stress tests. So we are going to take advantage of a prudently managed exporting powerhouse with Siemens AG (NYSE ADR: SI).
Siemens is a conservatively run firm. It has very low levels of debt, which is rated in the middle of the investment grade scale (A). And despite the weakness in Europe, it has managed to increase its bottom line by 50% from last year's levels.
For one thing, the speed of recovery has varied from country to country but emerging markets and commodity-producing nations continue to post strong growth. And while the global slowdown has brought about very high fiscal deficits, particularly in Europe, fears that the Eurozone economy is edging towards collapse are beginning to dissipate.
The European debt problem should be addressed at the end of this month, when the European Central Bank (ECB) publicizes the results of its stress tests. I expect the results will bring renewed confidence in the system. It's likely that the largest financial institutions will most probably all be sound, while there will be some smaller institutions that need restructuring. These smaller banks will either quickly recapitalize or be absorbed by larger institutions.
That means we could soon see a strong short-term bullish market trend.
Meanwhile, the International Monetary Fund's (IMF) recent World Economic Report Update showed global growth estimates for the next year and a half that were much stronger than expected.
This week we will see the initial consequences of the weekend's all-important Group of 20 (G20) meeting. A lot of very important issues are up for debate among the world's top 20 countries, as are policies that will shape the intensity and distribution of global growth in the months and years ahead.
The meeting will be fraught with controversy as each economy is proceeding at its own distinct pace of growth and faces its own set of challenges.
China, which recently showed a superlative 50% year-over-year increase in exports, has run out of excuses to justify its undervalued currency. The country also is facing strong inflationary pressures, which include labor strikes by workers demanding higher pay.
Founded almost 100 years ago and publicly traded since 1957, Cummins dominates the diesel truck engine market in the United States and is strongly increasing its international presence.
The high quality, efficiency and durability of the engines Cummins designs and builds are the foundation of the company's leadership. And its strong and disciplined cost controls, inventory, and receivable management are vastly superior to that of its competition.
Let me explain ...
Last week, I provided a solid "defensive-investing" pick for readers who wanted to balance their portfolios - and wait for the latest global-financial storm to pass.
During the past week, we got very strong indications that strong hands see value in the market:
The European debt crisis is taking center stage and eliciting strong policy responses from key European governments. And while those policy responses have moved in the right direction, we're still waiting on sustainable progress.
In addition, we are dealing with the uncertainties related to the oil spill in the Gulf of Mexico, which could have very important economic and financial implications. As if this were not enough, we saw an escalation of the rhetoric in the seemingly endless animosities between North and South Korea, and Hamas and Israel. And Iran continues to pursue a nuclear arsenal.
In typical fashion, Deere continues to be conservative in guidance. And as I will explain below, the agricultural cycle this year is poised for a large upside surprise, as it is at the very beginning of a prolonged secular pickup.
The bottom line of Deere's performance last quarter is a prelude of things to come. Agriculture is zooming, and thus machinery in that sector is - and will continue - to command premium pricing. At the same time, global inflation is picking up slightly, but is still very subdued, which will help margins some more.
Citi, guided by a prudent and savvy investment banker, Vikram Pandit, has embarked in one of the most ambitious and difficult transformations ever attempted by a financial institution. It is shedding bad assets, cutting costs, raising capital and has segregated the impaired assets and businesses that Citi would like to dispose into a so-called "bad bank," a subsidiary by the name of Citi Holdings. The success of the restructuring will depend on both Citigroup's execution and on the underlying strength of the U.S. and global economies.
But therein lies the huge upside. As I have written before, there are few investment opportunities more profitable than the restructuring and turnaround of a business. And given the huge size of Citi's balance sheet and the fact that banks are pro-cyclical to the economies in which they operate, the potential gains are extremely large.
Back on Dec. 14 of last year - as the market had "inexplicably" risen and investors were jumping ship - afraid that the market would correct - I issued a call to buying Cypress Semiconductors Corp. (Nasdaq: CY).
I mentioned back then that, at $10.40 per share, the stock was a steal and that several factors would propel it much higher. Today, with the stock having rallied some 10%, we will review these reasons to analyze their validity moving forward:
Bank of America at the time had just agreed to acquire Merrill Lynch and Co. The strategy I recommended called for taking a prudent position in the bank by buying increasing amounts of shares on any market pullbacks.
The strategy appeared to go as planned at the very beginning as the shares dropped in value as predicted, improving the average buying price. But Bank of America subsequently revealed large amounts of troubled assets that had not been evident in prior releases. The company's president and chairman lost his job as a result, and the stock continued to drop. Today, after a very strong recovery BofA stock is still trading some 30% below our initial recommended entry price. So, depending on how one executed the entry strategy, one would be some 10-15% down even today.