Domestic Stocks
1. Annaly (NLY)
P/E Ratio: 9
Yield: 5.2%
Annaly is a hedge fund disguised as a real estate investment trust that makes its money by investing in mortgage-backed securities. What distinguishes Annaly from its out-of-favor Wall Street peers is the fact that it doesn't take credit risk, only interest-rate risk. It buys mortgage-backed securities issued by government-sponsored enterprises like Fannie Mae and Freddie Mac; in other words, it has no exposure to subprime mortgages. What makes Annaly's business model so compelling right now is the widening gap between its borrowing costs and the yields on the mortgage securities it holds. In the third quarter, that interest-rate spread more than doubled, from 0.32% to 0.67%. This widening spread is fueling massive earnings growth - 57% in the third quarter and a projected 53% in 2008, according to analyst estimates. It boasts a 5.2% dividend yield and trades at a mere nine times estimated 2008 earnings.
Personal take: The story is very compelling especially the part about widening spread is very enticing if it is true. Need to research more on this. Moreover, financial stocks are beaten down so much that it may be worthwhile to take a look into this.
2) Electronic Arts (ERTS)
P/E Ratio: 28
Yield: 0%
If there's one tech niche that should be immune to a slowdown, it's videogames. Videogame sales rose 39% in October, according to the NPD Group, after a 64% rise in September. Electronic Arts stock has stagnated since 2004, with earnings falling and critics charging that EA was too reliant on aging franchises like Madden N FL. But things started to look up in early 2007 when ex-president John Riccitiello returned as CEO. Riccitiello reorganized EA into four divisions and spent $860 million to acquire BioWare and Pandemic, two smaller game studios that improved EA's lineup. EA has also worked hard at playing catch-up in the red-hot Wii market. It's now the No. 2 developer of Wii games, behind only Nintendo. The result: Analysts expect earnings to rise 76% next year.
Personal take: Good turn around story. The most attractive selling point is No.2 developer of Wii games. Need to research if that is true. The video game software makers are usually back-end loaded because of the cost to develop the software and profit is usually at the tail end. Moreover, this should have very little impact from U.S economy slowdown or recession.
3. Jacobs Engineering (JEC)
P/E Ratio: 26
Yield: 0%
Normally we wouldn't recommend a stock that has doubled since the start of '07. But in a slowing economy, you want to own companies that can demonstrate superior earnings growth regardless of what's happening around them. Jacobs Engineering is such an enterprise. Jacobs is one of the fastest growers in an exploding industry: construction and engineering. The company is hired to design and build oil refineries, biodiesel plants, hospitals, bridges, and water-treatment centers.Earnings jumped 39% in the fourth quarter of the fiscal year ended Sept. 30. That makes the company's 26 P/E look reasonable, especially since Jacobs should maintain a 35%-plus growth rate into 2008: It has a $13.6 billion backlog of orders (up 39% from the year before).
Personal take: Already own this.
4. Petrobras (PZE)
P/E Ratio: 16
Yield: 1.9%
The Hottest Fund Manager in America - a.k.a. CGM's Ken Heebner - laid out an argument that $100 oil is not only coming but will be here to stay. "There is still strong growth in Latin America, China, India, and a host of smaller countries like Poland and Thailand," he says. That means a need for some 1.5 million more barrels of oil a day. That brings us to Petrobras, Brazil's largest oil company and the stock Heebner thinks is the best way to play oil right now. With petroleum prices so high, a big risk for oil companies is that host countries will demand a bigger share of the profits in the form of taxes or royalties. "One way you can avoid this," says Heebner, "is if the government owns half the company you've invested in. That's Petrobras." Petrobras is cheap enough, at 16 times earnings, that it can be a winning investment even if Heebner is proven wrong about $100 oil. The company just announced a huge find offshore from Rio de Janeiro, a field said to have up to eight billion barrels of recoverable oil.
Personal take: I believe in the global oil shortage story. Global exposure. Love it.
Full article is at:
http://money.cnn.com/galleries/2007/fortune/0712/gallery.investorsguide_stocks.fortune/
Foreign Stocks
1) Mobile Telesystems (MBT)
Worldwide mobile-phone adoption reached a remarkable milestone in November. The number of cellular subscriptions hit 3.3 billion, equal to half the world's population, according to research firm Informa Telecoms & Media. That's a sign of just how quickly mobile technology has spread over the past two decades, but it also indicates that the global wireless-phone market has room to expand. As people in developed and developing countries alike become more affluent, companies such as América Móvil, China Mobile, and Turkey's Turkcell Iletisim Hizmetleri have opportunities for continued growth. At the same time, even in areas where the cellphone market is mature, customers are using more voice and data services, both of which add to their bills and translate to higher revenue for providers. For those reasons, CGM Funds manager Ken Heebner, whose Focus fund is among our top choices for 2008, has loaded up on shares of a couple of Russian firms: Vimpel Communications and Mobile TeleSystems, or MTS. Since mobile-phone penetration in Russia is already over 100%, meaning that many in the country have multiple lines, both Vimpel Communications and MTS are expanding into neighboring states, such as Belarus, Ukraine, and Uzbekistan. MTS, for example, added about 3.3 million customers in the third quarter, 1.6 million of them outside Russia. "Each of the markets is smaller, but collectively they provide a lot of growth potential," Heebner says. In all, MTS, majority-owned by Russian conglomerate AFK Sistema, has 79 million subscribers. (AT&T Wireless, by comparison, has 62 million.) The ADR shares have soared 80% in 2007. Still, with 60% earnings growth in 2007 and a P/E of 15 based on estimated 2008 earnings - lower than Vimpel Communications' 18 - the stock still sounds like a good call.
Personal take: I love the story of expending business in the region. Global play.
2) Potash Corp. of Saskatchewan (POT)
Fertilizer has really been a growth business of late (forgive us). As prosperity spreads across the planet, swelling the ranks of the middle class, agricultural needs are growing too. At the same time, higher energy prices have increased global demand for ethanol, raising corn prices. What's more, as developing countries like China convert more land to industrial use, the acreage left for agriculture is shrinking. All that points to a bull market for fertilizing nutrients. Canadian producer Potash Corp. of Saskatchewan stands to benefit long-term. "They will continue to see an expanding market globally as the need to feed the world's population grows," says James Gendelman of Marsico Capital Management, who also manages the Harbor International Growth fund. The stock has steadily climbed higher, roughly doubling in the past six months. But analysts expect the company's earnings to soar more than 50% next year. And with inventories low, prices, which have already run up, could climb even further. "Potash pricing can conceivably continue to go up 25% or 30% over the next couple of years," says Gendelman - fertile territory indeed.
Personal take: I believe the agriculture play is here to stay in 2008. Very compelling story and love the earning story. If the oil price remains high, the ethanol price should be high; thus, corn prices. Global play. Biggest fertilizer producer - Love the monopoly.
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