SuperModels
Readers decipher the writing on the wall
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Here are their arguments for how everything from the Atkins diet to a weakening dollar will hit the Street in 2004 -- and the best ways for investors to play.
By Jon D. Markman
World culture, economics, business and politics will change over the next year in ways that we can’t imagine. Or can we?
Several hundred readers have written in over the past couple of weeks to propose global investment themes that they believe will play out in the next 12 months. Themes they believe are barely visible to the casual observer, but ultimately will come to electrify our imagination and attract scads of capital.
In no particular order, here are four reader-proposed themes that could have the most potential. Most are right out in the open; there are few secrets. Their power as investments pivots on whether you think they are already so well-known that they’re played out, or whether you think they’re only minor sideshows in the big circus of modern life.
Popularity of low-carbohydrate diets
Diet fads come and go, but one of the few with the potential to dramatically alter the eating habits of millions of people is based on the theories of the late Dr. Robert Atkins. The cardiologist first proposed that a low-carbohydrate, high-protein regimen would solve Americans’ battle with their waistlines and health two decades ago, but the unorthodox concept really has caught fire only in the past year. The catalyst appears to be a combination of positive medical studies and the achievement of a tipping point of success among normally diet-resistant men.Money 2004.
Smarter, faster and easier
than ever.
Assessment: It’s certainly popular here in Seattle, and I have learned why. I never had a serious weight problem, but last spring I decided to go low-carb on the advice of an evangelistic friend in an effort to lose a few pounds to compete better on the local triathlon circuit. It worked immediately, and I’ve stuck with it as a lifestyle change. I’m eating more meat, eggs, cheese and nuts, and virtually no bread, fruit juices or pasta -- formerly staples.
Though it seems like an already well-known theme, reader John Romero says the idea is nowhere near played out. He points out there are no low-carb magazines or restaurants yet, and low-carb products are only just hitting the mass-market stores and mainstream restaurants. On a recent hotel visit, I noticed Marriott has elevated a “low-carb/high-protein” choice to the level of menu prominence once reserved for the low-fat and vegetarian crowds.
Investment plays: Investment bank Goldman Sachs recently went straight to the source by buying a stake in Atkins Nutritionals, a private company. An obvious play in the public market is through the big meatpackers. Many of the obvious ones, such as Tyson Foods (TSN, news, msgs) and Smithfield Foods (SFD, news, msgs), have had trouble for a variety of reasons lately, but could see better days ahead. A better choice could be small-cap chicken processor Sanderson Farms (SAFM, news, msgs). It has a trailing price-to-earnings multiple of 8.5 and accelerating earnings growth. Seaboard (SEB, news, msgs), which is another low-valuation small-cap, a conglomerate focused on pork processing and ocean shipping, could be another option on your Atkins investment menu.
Romero, who runs the hedge fund Aptus Capital in Alabama, offers three more small-cap ideas: Cal-Maine Foods (CALM, news, msgs), an egg processor up 700% this year that sports a 16 P/E multiple; John B. Sanfilippo & Son (JBSS, news, msgs), a nut processor up 300% this year; and speculative dot-com Ediets.com (EDET, news, msgs), which sells a subscription low-carb diet service similar to Weight Watchers (WTW, news, msgs). Romero also proposes high-end public bakery retailers and wholesalers such as Panera Bread (PNRA, news, msgs) and Interstate Bakeries (IBC, news, msgs) as short-sells due to their waning share of low-carb baby-boomers’ dining budget. And one big cap in the space that Romero likes is Anheuser-Busch (BUD, news, msgs), which has gotten a sales boost from its low-carb Ultra sub-brand of Michelob.
Hybrid cars and cleaner emissions
Reader Terry Kay says his friends are standing in line to buy gas-electric hybrid car Toyota (TM, news, msgs) Prius and notes that Ford Motor (F, news, msgs) has announced plans for hybrid systems in its full range, including sport-utility vehicles. Another reader noted that tougher environmental laws in Europe are focused on diminishing destructive auto emissions. A third noted 2004 could be the breakthrough year for auto and residential fuel cells, which generate electricity much like a battery through electrochemical reaction rather than combustion.
Assessment: In Seattle, world capital for latte liberals whose hearts bleed green, Priuses probably outnumber Hummers 10 to 1. It’s a great thing when you can express your politics with your wheels. I think the hybrid system, which is very quiet and sips gasoline, will gain in popularity in other urban areas with the speed of a double shot of espresso. Improved catalytic converters on regular cars will help take the environmental sting out of your average gas-guzzler. Fuel cells, meanwhile, have been on the come for years; don’t count on them in 2004.
Investment play: Toyota, maker of the Prius as well as the Corolla and Lexus, is a conglomerate for which the Prius will have only marginal impact. But it’s also a decent play on the rebound in Japan anyway, so what the heck. To play improved exhaust pipes and fuel cells at the same time, consider an investment in miners of platinum and palladium, two metals that are critical to manufacture both. Leading miners are Stillwater Mining (SWC, news, msgs) and North American Palladium (PAL, news, msgs). The metals are the “catalyst” part of a catalytic converter; platinum ruthenium is the catalyst in proton membrane fuel cells; platinum is the catalyst in phosphoric acid fuel cells; and platinum and palladium are the catalysts for the potassium hydroxide electrolyte at the heart of alkaline fuel cells.
China, China, China, China
Tens of readers mentioned the accelerating rise of Chinese manufacturing as an impetus for worldwide economic growth, the consumption of base metals mined and refined overseas; the surge of buying power among the country’s middle class.
Assessment: If China’s banking system doesn’t collapse or the economy overheat in a paroxysm of inflation, it’s hard to argue against the thesis. China has become the low-cost factory to the world in much the same way that England and Germany once were, and the United States once was. Although painful to European and American manufacturers now, it is ultimately a positive development in world history.
Investment plays: The Chinese are already the world’s top consumers of mobile phones; a reader proposed China Unicom (CHU, news, msgs), a leading telecom conglomerate, is a conservative way to play. Reader Ed Auerbach, who has visited and studied China, likes China Unicom but prefers popular beer-maker Tsingtao Brewery (TSGTY, news, msgs) and gasoline/chemicals refiner China Petroleum & Chemical (SNP, news, msgs), also known as Sinopec. Said Auerbach: “Sinopec is one of only two real refiners in China, and it is very undervalued.” Car sales in China have almost doubled this year, and Auerbach suggests the two refiners cannot keep up with consumer or industrial demand for energy.
As a refiner, thus a net buyer of petroleum, you buy Sinopec if you believe oil prices are going to head down over the next year and the demand for chemicals will rise. If oil stays within OPEC’s $24-$30 band, then Sinopec’s earnings could be robust, potentially compelling an expansion of its current 11 P/E multiple. If you believe oil prices are going to head up instead, then consider Chinese oil and gas explorer CNOOC (CEO, news, msgs). However in a recent report, Goldman Sachs’ Asian energy analyst disagreed with this thesis, arguing that fundamental developments do not merit an upgraded opinion of the Chinese energy companies and warning that “poor capital discipline” and the potential for a reversal of liquidity in the region were big unfactored risks.
Weaker dollar brings further strength to gold
Reader Mark Sullivan, who described himself as a professional risk manager for a major U.S. bank, said he and a group of his colleagues believe investors over the next 12 to 24 months will grow increasingly interested in ways “to protect and store long-term liquidity” in hard assets rather than in intangible stocks. Among his arguments are the twin U.S. deficits of trade and spending; the decline in the U.S. personal savings rate and the inability to maintain consumption except through borrowing; an increasingly aged U.S. population dependent on government insurance programs; the outsourcing of manufacturing and services jobs overseas; and the rise in the number of car leases will ultimately leave investors holding the bag if auto demand slackens. He adds: “The dollar as the universal ‘store of value’ is at risk. It is being eclipsed by gold, with maybe a short period of the euro. We have been 30 years since Nixon took the United States off the gold standard and deified the Fed. Market forces are causing a return to gold.”
Assessment: Every time that gold prices get some momentum going, metals bulls and doom-saying intellectuals enrapture the public with a list of reasons that the U.S. dollar is doomed. All of these same arguments were in vogue four or five years ago. When the metal rally breaks, these guys will fade away again.
Investment play: In the meantime, or even if they’re right, Sullivan has provided a short list of “junior gold” stocks to consider. (Senior golds are the big-cap players like Newmont Mining (NEM, news, msgs) in Colorado and Barrick Gold (ABX, news, msgs) in Ontario.) Sullivan’s favorites: Eldorado Gold (EGO, news, msgs) of British Columbia; Richmont Mines (RIC, news, msgs) of Quebec; Cambior (CBJ, news, msgs) of Quebec; and Glamis Gold (GLG, news, msgs) of Nevada.
Fine Print
Learn more about the Atkins diet here. Costco Wholesale (COST, news, msgs) sells a great low-carb bread made by Seattle-based Franz bakery. . . . To learn more about platinum, visit the Platinum Today Web site. . . . If you believe that auto sales will decline in the next year, by the way, count on silver and platinum prices -- and the mining stocks -- to suffer. . . . Read up on the gold-mining companies before investing; they are not all alike. Most of the miners’ Web sites explain their capacities and mines well. Here’s the one for Eldorado Gold. Keep in mind that successful miners must be low-cost producers, it’s not just about having large reserves. Brazil has very significant gold deposits; probably the fourth largest in the world. Here’s an interesting short historical study explaining how gold replaced cane fields. More is available here. And a list of major world gold mines and their owners is available here.
Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdm@oddpost.com. At the time of publication, Markman controlled accounts with positions in the following securities mentioned in this column: None. |
