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Rooting for the Underdog

What a great Super Bowl game! I have to admit, I was pulling for the Saints, but mainly because of what the Saints mean for that city. I’m sure we all remember the horrible aftermath of hurricane Katrina. The very existence of New Orleans was in question. The Saints considered moving, and I recall suggestions that only the French Quarter be saved and made into a corporate convention amusement park.

Of course, that would have been an absurd commercialization of a proud and rich heritage. That New Orleans has come back to resemble the city it was before Katrina is nothing short of miraculous, and now the people of New Orleans have a Super Bowl trophy to crown their achievement. Congratulations, New Orleans and the Saints.

*****It’s tempting to extend the metaphor of New Orleans to the United States as we rebuild after the financial crisis. Of course, I have no doubt that we will recover. But there will likely be no single event that crowns the recovery like the Lombardi Trophy does for New Orleans.

And besides, we’re investors. It is our desire to be properly positioned for a growth in stock valuations, all the while avoiding the pitfalls of overvalued stocks and worsening economic conditions. 

Clearly, investors have been pondering the potential of weaker economy as some stimulus policies end, Europe faces debt problems and China moves to slow its economy. Bloomberg reports that investors pulled $9 billion out of global equity funds during the last week of January. And investors have bet heavily on an extended sell-off as evidenced by huge volumes of put option activity.

At the same time, 73% of S&P 500 companies have beaten 4th quarter earnings expectations. That’s the best performance since 1993. Strong earnings, coupled with the recent 7.3% decline, have left the P/E for the S&P 500 at 18, down from 24. The forward P/E, based on future earnings expectations, is below 13.

TheStockAdvisors.com

China Natural Gas is currently trading at only 10.9 times trailing earnings, yet the company grew net income in 2008 by 66%. I expect growth in 2009 will be only marginally higher than in 2008 due to the severe drop in gas prices. But the fact that the company could grow at all after a 70% decline in natural gas prices is a testament to its growth prospects and solid operations. And if natural gas prices rise in 2010 as I expect, than look for China Natural Gas to reap big profits. China Natural Gas should grow earnings by more than 25% in 2010, which would mean the stock is currently trading at 9.3-times forward earnings. This is very inexpensive – Chesapeake Energy is trading at 11.6-times analyst estimates for 2010, yet is forecast to have essentially flat earnings growth. China Natural Gas is a buy here. The stock should trade at least 25% higher in the next few months and push past its October 2009 high of $14.81. I expect to increase my target price in January. This agriculture sector has been red hot, and China fertilizer companies like China Green Agriculture have...
FEI Company is the leading provider of the highly sophisticated instruments and systems used in nanotechnology research, development, and manufacture. Its products include scanning and transmission electron microscopes, focused ion beam systems, and dual beam systems that combine the two on a single platform. Other FEI products include ion mass spectrometers, nano profilometers, and software systems to help maximize semiconductor production yields. Research labs and industrial customers generate 44% of FEI’s revenues. The electronics industry, and in particular semiconductor manufacturers, contribute 19%, and servicing and component sales account for around 24%. These core businesses generate solid if unspectacular growth of around 10% a year. Greater growth potential, however, lies in the life sciences area, which currently accounts for some 13 percent of revenues. Increasingly the pharmaceutical and biotech industries are focusing on three-dimensional structural biology, including the study of biological pathways and cellular structures. These areas offer fertile markets for FEI’s products. Other industries looking to tap nanotech’s potential also could be powerful engines of growth for FEI in the longer run. The mining and energy markets are two prime examples. In mining, automated mineralogy using FEI’s systems promises to speed up the discovery of...

Jutia Group

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