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Non-Tech : Companies that BENEFIT from a recession -- Ignore unavailable to you. Want to Upgrade?

To: zebraspot who wrote (10)	4/28/2006 4:27:33 PM
From: Sid Turtlman	Read Replies (1) \| Respond to of 34

I also have some bearish real estate related plays, although here we are getting off topic for this thread. What bothers me is that the bearish case for real estate is so obvious, that it may be frustrating because of all the shorts already in it. On the other hand, if the dollar gets real weak at the same time the economy does, the Fed may not be in a position to cut interest rates, or the debt market may just not allow it. That would be great for gold though. One difference between now and 2001-2, when Home Products and other PP users saw their costs plummet in a weak economy, is that then PP was one of only a few commodities whose price had zoomed. So a dropping PP price was consistent with what was going on elsewhere in the commodity world. And back then China and India weren't yet strong enough to have such an impact on commodity pricing as they do now. So if the US was in a recession, commodity prices would drop, and that was that. Now it is easy to imagine a world where the US is in a recession, the dollar is weak, China and India are still strong due to internal growth, and commodity prices in the US don't go down. Plus, the world is so much more precarious in terms of energy supply that I can't be that confident that PP, or any product made out of natural gas, is going to go down regardless of the economy. As to GFX, it could well be available cheaper. Numbers will come out for the March quarter, its third, on May 11, and the company will host its first ever conference call. GFX has been making a major push for long term growth, which involved it hiring lots of people who may take a few quarters to bring in enough new business to cover their extra expense. They are doubling the R&D staff, which ought to result in GFX offering cartridges for many more brands and models of printers and bringing them to market sooner, but although the expense is here now, the new cartridges aren't yet. They have been hiring new sales people, same gap between when they start to get paid and when the new accounts that they open place enough orders. The company needed a new CFO, and he doesn't work for free either. So while I expect sales and earnings for the March quarter to be well above last year (not hard to do, since in March '05 the company moved its main operation, causing disruption and one time expenses), the numbers may not be good enough to impress anyone. And I know of a couple one shot expenses, such as severance for the previous head of engineering, that will hurt earnings in the quarter. So if it dropped closer to $3 I wouldn't be shocked. (I'm not predicting that, just saying that it seems plausible.) That doesn't change my opinion that the stock gets to double digits next year, and possibly a lot higher over the following year or two. The growth in demand for cartridges for color laser printers will be 35+% for years to come. GFX ought to address increasing amounts of that market. The share of market that will go to lower priced non-brand-name cartridges should rise from 1% or wherever it is now. The complexity of engineering products that will do the job and not violate the IP of the name brand printer companies will keep the number of competitors for that niche down. And the printer companies will continue to price their cartridges with a 70%-90% gross margin because, well, because they can, leaving room for GFX to make a nice buck.