Now that the U.S. Presidential race is down to two candidates, Barack Obama and John McCain, our energy policy has become one of the most pressing issues… even outweighing the economic state and the war in Iraq. For this reason, I feel that it is time to get you all up to par on the truth about crude. These downright foolish ideas to artificially lower prices will never work; I’ll get you “in the know” on why prices are the way they are, and what we can/can’t to do fix it.

Why Are Gas Prices So High?

In short, gas prices are high because of two driving factors: high demand and increased speculation. The energy bubble that existed in the first half of 2008 has since popped, but prices are still pretty high at the pump. This holds true mainly because of a jet lag in the pipeline. Essentially, there are several steps in the oil-production business. You need to explore, find, drill, refine, transport and sell. That’s a lot for a few trips to the grocery store, eh?

There is a rumor floating around that gasoline prices actually bump up faster than they go down. I’m not trying to completely disprove this, but it is a bit ridiculous to think that despite anti-trust policies… all the nations gas stations have some secret agreement to raise prices at the same time at the same rate. Otherwise, if one seller kept prices low, you better believe that they’d get all the business. One thing I will explain further down is that the oil & gas companies are actually losing money and profit margins are dwindling.

How about speculation? While this is debatable, I feel that throughout the first half of the year… investors were gambling excessively on the futures in oil, which will drive the actual price of crude upward. I suppose that the Securities and Exchange Commission (SEC) could have made longs on oil illegal, but other than that there’s just not a lot you can do. Surely, if investors are feeling that demand is soaring while supply is crunching… things are going to get interesting. This isn’t so much anyone’s fault as it is a problem with the way we trade to make money on the open markets. But as you’ll soon find out… the heart of the problem is a bit closer to home.

Who’s At Fault?

Exploration and Production Companies
Obviously, somebody has to do the dirty work to go out and actively find oil and natural gas reserves that we can unlock later for production. Are Exploration and Production (E&P) companies making money? Yes. Are they making excessive amounts? Absolutely not. Let me explain.

One thing that people fail to realize is that these E&P companies deserve to profit, and aren’t making money hand over fist. If you want proof, let’s just look at the profit margins to find out how profitable their ventures are versus other companies:

• EnCana (NYSE: ECA) – 13.16%
• Apache (NYSE: APA) – 33.01%
• Anadarko (NYSE: APC) – 9.64%
  ————————————–
• Microsoft (NYSE: MSFT) – 29.26%
• Intuitive Surgical (NYSE: ISRSG) – 24.68%
• Goldman Sachs (NYSE: GS) – 23.68%

Crude Oil Refiners
You might be thinking that the companies that come in and refine the oil for commercial use would be making big profits… but this couldn’t be further from the truth. In fact, the majority of these companies have been eaten up by their reliance on the spot price of oil. Since all of their business relies on obtaining crude oil from someone else, they have very small guns to flex in the face of the E&P companies.

The oil refiners have some of the smallest margins in the business, and add the least to the bottom line. The crack spread, aka the margins refiners make, is absolutely free falling… as major refiners like Valero Energy (NYSE: VLO) and Tesero (NYSE: TSO) have seen their stocks dumped 50%+ in the face of a broader energy rally.

Gas Stations
Since most Americans aren’t aware of anything but the gas pump, a lot of people assume that this is where their money is going down the drain. In actuality, the gas station business is in one of the worst states as they, like the oil refiners, have almost no control over pricing initiatives. Over 1,000 gasoline stations closed down last year, and many were actually losing money every time you came to the pump in order to stay competitive.

The gas station business is so unprofitable, that major integrated oil companies like Exxon Mobile (NYSE: XOM) and ConocoPhillips (NYSE: COP) are closing thousands of branches a piece… basically cutting and running from the horrible markets where consumers complain despite the fact that station owners no longer make money.

The Government
Not so fast! Sure, a lot of us have figured out that the government has instated a gas tax… but this really doesn’t effect the price you pay at the pump. Why? The current gasoline tax has an indirect effect because of the drilling policies that are in place. What would be a lot more effective (in my opinion) would be to open up all the U.S. territory for drilling. This would discount the futures back to the present and have an immediate impact on the price of gas.

The People
So now we work down to the actual reason gasoline is so high… you. Yes, the United States demands more gas than any other nation in the world, and we just can’t get enough. Once you get down to it, it really is as simple as reducing demand. Clearly, once average gasoline prices hit a high of $4.11, we’ve been under $4 from then on out. This is mainly because Americans started driving less once prices got out of control… and it worked. Reduce demand for the commodity, reduce the price. No one-day protests. No shifty business ideas to “force” companies into cutting rates more. It’s a question of conserving what we have and being less reliant on crude oil.

The Solution

We’ve found the problem haven’t we? Nowhere along the oil & gas production line do we see excessive gains being taken off the table. In fact, it’s been just the opposite! Just take a look at the 1-year stock charts for Exxon Mobile, Chevron or ConocoPhillips! You can say that one of these companies is making $1000 a minute… but when you are the biggest company in the world like Exxon, it’s hard not to. The fact remains that demand and the low crack spread have companies across the board reeling.

Are we doomed then? I don’t think so. Throughout time, our government has found ways to innovate and react to shortages on the market. I truly believe that it is not the government that will solve this, but the free markets and the intuition of the worldwide intellect that is working around the clock on a solution. Maybe it will be the Pickens Plan, with natural gas as a headline alternative, or maybe it will be the flaunted alternative energy sources of solar, wind and clean coal. Perhaps we even find a way to use nuclear technology, the most effective (but dirty) production means, in an innovative way.

In the meantime, we can fix the problem by using alternatives to driving and demanding oil. America alone uses about 1.3 trillion gallons of gas per year. Other countries like India use about 1/20th of that! True, America is a nation that was literally founded on the use of petroleum… and you’d be surprised to realize that the amount used per capita is currently about half of what it was in the 1980s. That being said, prices probably will rise from here… but this isn’t a problem we can’t fix.

-Jimvesting

Disclaimer: Many of these investing ideas brought to you by BullishBankers.com

Related posts:

1. Best Energy Stocks – Oil & Gas Calls for 2008
2. Stock Market 2008: Energy
3. Stock Market 2008: Industrials Sector

I try to maintain daily posting, but sometimes it’s just not in the card. Many bloggers advocate writing a stock-hold of posts and saving them as drafts so that you can fill blank days with pre-designed articles. I probably spend about twice as much time per post as your typical blogger though, so setting aside 7-8 hours for three good posts isn’t worth my while. It’s never a smart idea to post for the sake of posting, so I decided to take a break. On to a new week, fully refreshed, and ready to go. Let’s uncover some of the best posts for the week ending July 12, 2008.

• The University Kid – How To Tell When Someone Is Faking It
• Ades Blog – Firefox Plugin: Gmail Multi-Account Switcher
• Affiliate Confession – Facebook Ads are a Disappointment
• Zac Johnson – Where Top Affiliate Challenge Went Wrong
• Stephan Miller – I Wanna Be an Ass Hat SEO, Please

In all honesty, this is one of the best week of posts I have seen and I really enjoyed a lot of them. Jason from The University Kid went over how to analyze a blog to see if they are faking any stats. Affiliate Confession went over the pitfalls of Facebook ads. Zac Johnson had a smart post on the big “Top Affiliate Challenge” competition’s downturn. I caught a hysterical response post from Stephan Miller about my black hat seo techniques post, and even a cool FireFox plugin from Ades Blog.

Stock Market
The roller coaster 2008 stock market continues with the close of another week in the red. This time around, things were caused mostly by Freddie Mac and Fannie Mae, two firms that have faced major concern over a government bailout despite the constant assurance that they are accurately capitalized. On the breaking news front, the Federal Reserve has spelled out a Fannie-Freddie rescue net plan that would kick in liquidity in the event that things take another turn for the worse.

Pending home sales came in at 4.7% below April’s levels, which was a bit worse than expected. However, many are using this opportunity to claim that the housing market has bottomed out and is in repair mode as things improve. Other than the housing market, we had some slightly positive news regarding an improving trade deficit. This week, expect to hear about the PPI and CPI inflation report as a big week in earnings releases kicks off when we hear from the likes of Microsoft, Google and Coca Cola. This week could set an overall tempo for the rest of the summer!

Blogosphere
As I went through some of the better posts of the week, I continue to support the claim that things are improving as the summer progresses and people get more settled in to their roles as bloggers. Despite the fact that this fool keeps leaving you unexpectedly for breaks (haha), it would appear that the Top Affiliate Challenge and Blogging Idol competitions have largely blown over as people turn toward self-improvement.

Speaking of the Blogging Idol competition, have you seen my recent rant post about how the contest is unfairly biased?! Or how about my run-down of the method I used to successfully execute the classic “link bait” article. Hey, it got me tons of attention, links back, conversation, traffic and almost 70 comments. I like to see a break away from the standard tutorial posts every now and then, and I feel that a quick lesson in orderly debating can serve you well. Definitely have a look at the two when you get the chance.

The Week In Focus
This week, I’m going to be putting out a small contest. And by small, I mean that I’m giving away another Flip Mino video camera to the winner. Sound fair to you!? Not to distract from content (as I constantly protest), I intend on publishing a money making method or two that should offer you the chance to boost your stats and income. We’re in the thick of summer, so why not earn some extra spending cash to get out and about every now and then!

-Jimvesting

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2. Sunday Link Love & Announcements
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With high global threat levels, the United States defense budget has historically increased regardless of the presidential party in power. Don’t listen to the fools that tell you a democrat president will cut the defense budget, that is simply not true. The funding put into homeland security as well as our defense budget is set to increase (President Bush recently introduced a $3.1 trillion dollar budget) regardless of the War on Terror’s outcome, and the big five defense firms are set to benefit.

There are pros and cons to each of the main defense contractors, but I want to defend the notion that they are all winners in this environment. Which companies? I am talking about United Technologies, Lockheed Martin, General Dynamics, Raytheon and Northrop-Grumman.

United Technologies (NYSE: UTX)
UTX is the largest of the Defense companies, and offers a favorable mix of risk-reward at this point. A widely expected healthy first quarter could be a huge catalyst for the rest of the year. United Technologies does everything from industrial turbine engines to elevators, and it is this diversity that really makes them the General Electric of defense contractors. The weak dollar actually bolsters a potential earnings beat (+15%) for 2008, despite a rocky economy, because European sales account for about 25% of United Technologies’ total.

Many investors have voiced concern over the recent announcement to acquire Diebold. I believe that speculation since the bid isn’t likely to be hostile and the relative size of the expense is small on UTX’s books. Other potential risks include a weakening in commercial construction markets and a slowing residential construction recovery, but I think that a strong aerospace backlog along with a geographic diversity balances their resume enough to ensure a strong year under even the worst conditions.

Lockheed Martin (NYSE: LMT)
Lockheed Martin is the kind of company that never gives you the value you want, but always performs with off the charts fundamentals and margins. I think a lot of analysts with HOLD ratings on the firm are underestimating LMT’s ability to drive profit out of even the bleakest of market conditions. This company has the most risk behind a 2009 administration changeover, but the threat posed is hyped beyond what will actually happen in my honest opinion.

Truth be told, I’d rather have you in a different defense contractor in the short term, but LMT’s performance is truly remarkable and I still have a BUY on these perennial EPS outperformers. They were up 32.8% during the last 2001 recession, and are poised to outperform the market again in 2008. What’s more, their 10-year annualized return is up at 7.3%. What I am trying to say is, Lockheed Martin is historically one of the top performers in a recession, and this go-round shouldn’t be any different.

General Dynamics (NYSE: GD)
General Dynamics is poised to be the largest holding in the Nittany Lion Fund, LLC., and I am generally stoked about their prospects for the year. GD has a leading market position in the areas essential to the U.S. military and has a strong track record of generating capital under every market condition imaginable.

The new Gulfstream G650 aircraft, from the leading unit of GD Aerospace, has really improved on fuel efficiency and speed (among other things) and I feel like the long-awaited release could really benefit sales. This is pretty much the world to GD, and offers a huge amount of visibility with low risk. Other than this, I continue to recommend General Dynamics because of their “no surprises” business model that continues to perform well, offering beatable 2008 EPS guidance and great long term prospects, that guarantees a safe investment.

Raytheon (NYSE: RTN)
RTN is really a conviction buy in the fact that they have an increasing foreign exposure, above average cash flow and a recession-proof portfolio. A lot of investors have Raytheon as the #1 defense company stock for 2008, and I really can’t argue with them. I do not like the fact that this company is overly tied to the Bush Administration, and would be effected slightly by a reduced US presence in Iraq or a more pro-China President (because of arms supplies to Taiwan). However, you need to consider that the defense budget is relatively stable.

Raytheon is set to benefit from some big contracts in homeland and border security, such as a $5+ billion Saudi middle east border contract and the ability to capitalize on cyber security after acquiring Oakley. Strong foreign orders and redeployment of cash should drive Raytheon into a profitable 2008/2009, and I stand by the hype.

Northrop-Grumman (NYSE: NOC)
All the buzz over Northrop-Grumman has been the contract win over Boeing to supply a new tanker worth a potential $35 billion. Despite Boeing’s dispute, NOC will more than likely come out with the win on this one. Regardless, I feel that the bigger development is Northrop’s “Guardian System,” a missile-jamming “pod” that can be attached to aircraft to prevent them from getting shot down in hostile flight areas. Before this system was released on March 26th, it was widely expected to favor Raytheon and BAE Systems… I think this can be a huge driver for NOC that has really gone unnoticed in the market.

Northrop is a steady performer at an attractive price. With a PEG at 0.88 and a Beta at just 0.38, they seem to be ripe for investment. Not only are the valued well, but they have that low debt that we love (debt/equity is just 0.23). The numbers are good, they are getting contracts nobody thought they would get, and they carry low risk in a poor market environment. NOC is good.

The power behind defense in a down market is the ability to lock in contracts, backed by a rising national defense budget, for the long term. The big five all have their advantages, and I would expect most of them to capitalize regardless of what twists and turns are in store for the rest of the market. Sometimes, the best offense is a good defense!

-Jimvesting

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1. Stock Market 2008: Safe Growth Stock Investments for an Unpredictable Market
2. Stock Market 2008: Industrials Sector
3. Four Steel Stocks That Thrive In A White-Hot Global Steel Market Boom

What makes utilities companies so much different from your typical stock is in the way they are regulated. They are essentially allowed to hold monopolies in a free market system, which makes for a big advantage in troubled times. The problem now seems to be with federal interference. The U.S. Energy bill signed back in December of 2007 has really struck a chord with bitter utilities companies, and they sometimes struggle to expand in hard times. Regardless, we like the hedged exposure many have to oil and natural gas markets . Let’s pick up some great utilities stocks!

Electric Utilities – Exelon (NYSE: EXC)
If you are going to own an electrical utility company, I think the one for you is Exelon. Electrical companies like Exelon, despite the recent energy bill, may soon find themselves in the spotlight if legislature restricting carbon emissions progresses further. Most analysts covering the stock will tell you that the firm is undervalued with respects to their potential upside from such a move. I give you a price target of $88.20 versus their current trading under $80, but I think you can grab them closer to $75 .

Other than carbon emission speculation, EXC has a lot more going for them. Commodity prices for coal and gas have improved after increased profitability at nuclear plants. Also, Exelon has seen better than expected capacity prices at its big Chicago plant. These guys really haven’t fallen off the map as their competitors have, down just over 2% on the year (and enjoying a 2.7% dividend yield!).

What exactly does Exelon do? Well for starters, they are known for being the premier provider of nuclear energy in the U.S. People are turning to nuclear technology in order to save themselves from the increasing expenses in gas and coal, and EXC is sitting back with a grin . Bottom line: These guys are too cheap, despite not getting hit this year. Try Exelon for some solid growth in 2008.

Industrial Utilities and Power – PPL Corp. (NYSE: PPL)
Deutsche Bank says PPL is “sitting pretty within the diversified utilites.” Clearly, there is no arguing this case. Catching them around $45 where they are now is a steal on this domestic utilities powerhouse that I set a 12-month target at $60. They have been brought down somewhat unfairly by the broader economy, despite putting out earnings that beat expectations and slightly bumping guidance into the future . I think that people fail to realize that power is generally more resistant to the market than is currently implied.

PPL’s exposure to a tightening power market is definitely a good thing for business. They have systematically generated some risk-adjusted returns for shareholders, and are really taking every expansion, sale and upgrade in the most cautious light as possible.. which has turned out to be a huge advantage. They are working on expanding their nuclear plants (like that in Susquehanna), and have been flying under the radar for too long. You need to keep a keen eye on PPL with constant barrages of political contracts, but its hard to mess with a 2.90% dividend yield, a beta under 0.5, double-digit margin growth and returns above the industry across the board .

Water Utilities – SABESP (NYSE: SBS)
If I had to go one place in 2008 for stock market success, it would be Brazil. So why not take one of the safest plays (utilities stock) in one of the fastest growing markets? Companhia de Saneamento Basico do Estado de Sao Paulo (whew… I’ll just call ‘em SABESP again ) is just the international player we want in a diversified portfolio. SBS is a sewage company. To put it simply, a thriving economy like Brazil is going to leave a lot of sewage behind… and SBS basically has their work cut out for them. It’s really that simple!

These guys are winners. Plain and simple. Down just 0.7% for the year (I consider that a win), they have really been waiting to break back into their classic upswing. SABESP provides water to more than 25 million people in 367 Brazilian cities, and they are DIRT CHEAP compared to their peers. I mean c’mon… a P/E of 0.7 versus an industry 22.66?! Get out of here . If you can bring me a company that is international, undervalued (like nuts), carries a 53.57% gross margin and hasn’t been killed in 2008 as of yet… more power to you. I’m sticking with the utility with the long name, SBS .

Electric and Gas Utilities – MDU Resources Group (NYSE: MDU)
Montana-Dakota Utilities should be a buy on everyones list. They’ve won the hearts of Wall Street investors (10 buys, 1 hold, 0 sells)… now let them win yours! If you are interested in catching some of the Natural Gas & Oil action, MDU has a safe correlation to the commodities. Their operations in Natural Gas & Oil, Electric & Gas, Construction Services and Pipeline & Energy came in higher than expected, with their laggards found in the construction materials & mining segment. I see nat gas & oil alone driving earnings beyond their low-end guidance in 2008, but they could be hurt by residential construction. You should still be buying them, but just with a more cautious eye.

MDU Resources Grp. ended 2007 on a high note, and have taken a hit in 2008. However, they have continued to surpass earnings expectations and I feel that they will recover their losses in the short term and continue to impress in the long term. With a number of key acquisitions that have just been completed, MDU has taken their lumps and is ready to perform. The stock price continues to intrigue me at $25 versus my target set at $33. I think that following the economic stimulus plan, you can expect for lots of money to be thrown at previously unappreciated old-timer public works projects like those found under MDU. They haven’t ignored the strong pull of “green technology,” and really seem ready to break from an unfortunate downtrend. Consider them in your research.

That’s a wrap for the utilities sector. These stocks can add a huge layer of safety to any investment portfolio. While they might not have much in the way of sex-appeal, in a recession… you need some trustworthy under-the-radar successes like EXC, PPL, SBS and MDU. You need to be careful that you don’t catch them in the middle of a legislative disputes (happen somewhat often in the industry), so remember to do your homework.. and invest smart!

-Jimvesting

Related posts:

1. Stock Market 2008: Energy
2. Stock Market Got You Down? – Why Jimvesting Is A Buyer In This Market!
3. Best Energy Stocks – Oil & Gas Calls for 2008

Telecom Services – AT&T (NYSE: T)
Wireless momentum continues to power the market in 2008, and AT&T is right there leading the pack with over 65 million subscribers in the United States. They met expectations in their forth-quarter earnings call (that’s the 11th straight quarter of double-digit growth in earnings), but the really important news here is that wireless results were above expectations and guidance for 2008 was reaffirmed. I think AT&T has what it takes to lead the market into the mobile age of technology. Already, we have seen 57.5% year-over-year growth in wireless data revenues, driven by this increasing adoption of smart phones and 3G wireless devices. Essentially, computers are becoming smaller, and I think that these iPhones and Blackberrys are simply early models of the personal computers of the future.

What’s wrong with Verizon (NYSE: VZ)? I really can’t say, as it is a bit of a crap shoot at this point. I’d have to give the edge to AT&T because of their proven ability to grow earnings despite being so large, and their willingness to open networks toward new computing technology. What really pushes T over the edge for me is its steady 4.5% dividend yield, earnings visibility, growing wireless business, favorable balance sheet, long-term strategy and strategic acquisitions (successful acquisition of BellSouth in 2007). You can look toward their IP-services and whatnot… but you want AT&T for their superior wireless dominance in 2008.

Telecom Services – Millicom (NYSE: MICC)
Once again, Millicom blew away expectations by producing an amazing 3.4 million net subscribers and 41% revenue growth in the forth quarter alone. This company is on cloud nine right now, and while margins were slightly below expectations… guess what… they were 40.0%. Essentially, what Millicom is doing is bringing wireless technology to places that are underdeveloped. They charge by the second, rather than minute, to increase their value to thrifty subscribers and are very active in emerging markets. I am confident in their growth, and Millicom is my Telecom stock for 2008.

MICC is going to kick off 1Q08 with a bang due to their 4Q recorded net-add increase. Broken down by region: Central America growth should drive from new 3G technology and higher-quality customers, African markets have seen dramatic margin increases with new subscribers, Columbia has been negatively impacted by connection fees but should rebound nicely and Asian market investments should continue to propel strength in this key market. MICC is impressive across the board, and their huge international exposure should prove beneficial in 2008.

Comm. Equipment – L-3 Communications (NYSE: LLL)
The Telecom sector of the Nittany Lion Fun, LLC. regards L-3 as a communications company. We argue in jest back and forth, but I’ll give them the benefit of the doubt here and put them in my Telecom portfolio for now. Anyway. L-3 is NOT a value play, they are just a great recession-weathering, military-contracting, growth-driving powerhouse that trades at a premium and deserves it. Analysts that put this company at a HOLD rating just don’t understand their fundamentals. Again, L-3 raised guidance for 2008 in the face of a recession. Cash is still king for LLL, at $1.11 billion in free cash flow for the year (1.47x net-income) and they seem to be in a great spot for further M&A activity in 2008.

One of their chief growth ventures has been the “Linguist program,” a support services contract initially lost to Global Linguistic Solutions LLC (NYSE: GLS). LLL has protested this to the point that they have a major share in the project and are continuing to expand their funding in the project, meaning a huge potential catalyst in 2008. Even without this, their backlog saw another record level (now $9.6 billion) and despite the fact that they are trading at a premium… growth continues onward and upward. Bottom line: take the skeptics views and factor them into your purchasing price, try to buy this one on the dip. My point: L-3 is a winner and justifies a premium share price.

Telecom Services – Telefonica (NYSE: TEF)
Telefonica is an international telecommunications value play in the market. I actually favor them over competitor America Movil (NYSE: AMX) because they are trading at nearly a 2:1 discount (10.5x versus 20.5x). But not only does TEF have a strong position in core domestic markets (main source of cash flow), but they offer the speculative growth opportunities through ongoing international investments. Standard and Poor’s ranks their growth portfolio best-in-class, and I agree with them because of their strength in margins (EBITDA 40%+) and consistent sales.

We’ve kind of seen “roller coaster” growth from Telefonica over the years, but it all trends upwards and that’s what we care about. Finding value in TEF, we see an attractive price to get in right now in the mid-to-low $80s. The Latin American markets account for most of the revenue for Telefonica, but only 10% of the EBITDA growth. There is without at doubt very high risk to competition, but I see Telefonica as beating its peers in the long-term, maintaining its great margins and expansion capacity. Noting their apparent risky-business, they actually are not too risky with a PEG of 0.58 and Beta at 0.88. You can count on this international powerhouse for continued growth in 2008, despite all of the lurking naysayers.

The Telecom sector is a great opportunity for investors, and is often missed when viewing the stock market’s relative strengths and weaknesses. The truth is, a strong trend toward mobile technology calls for diversification into the telecommunications sector in order to ride the bull. AT&T, Millicom, L-3 and Telefonica are all stellar performers that should add great value to any portfolio.

-Jimvesting

Related posts:

1. Stock Market 2008: Energy
2. Stock Market 2008: Industrials Sector
3. Stock Market 2008: Utilities

Solar Semiconductor – Jimvesting picks First Solar (NYSE: FSLR)
After doubting the extreme-growth behind solar technology in January 2008, it seems high time we apologized to powerhouse gainers like First Solar. ThinkEquity Partners gave this great stock a one-word classification, “debottlenecking.” After smashing earnings estimates of 53 cents a share with an astonishing 77 cent gain, they appreciated 30% on the day after increasing 2008 guidance. Don’t let this buy-athon scare you away. We thought the solar industry run-up was finished, and were clearly proven wrong. The year-over-year revenue growth of 280% and strength in EPS suggests stronger future earnings power.

Operating efficiency is one of the primary benefits I see from operation in 2008. Costs per watt ($1.12) averages were down 6% on the year, and a negative currency impact from the Euro was almost entirely overshadowed by economical operations in First Solar’s Malaysia plant. Spots for improvement have been identified, and most analysts feel they can bring home the gold. Most notably, the first and second quarter 2008 should prove to show continued growth on track with 2007 appreciation. Solar companies are all trading at attractive premiums when considering growth. With oil on the move upward, it seems that momentum for green energy will remain strong. Investors should return to the solar arena with strong earnings and demand in mind.

The Malaysian plant’s revamp may have a negative impact on First Solar’s first quarter earnings in 2008. On the other side of the coin, we expect an increase in production and see operating margins supporting at 30%+ levels. I wouldn’t be surprised at all to see more good news in guidance. We expect their PE and PEG ratios to come more in line with the industry, as the current premium they appear to be trading at is a result of explosive growth over the past year. Execution was flawless in 2007, and with nothing but green lights thus far… First Solar makes for a great long-term growth play.

Infrastructure Tech. – Jimvesting picks Akamai (NYSE: AKAM)
Akamai is alive and well in 2008. After considering them earlier in 2007, they have continued to display strength in their industry. In a recession-trending market, there is a bit of safety surrounding an internet-based firm. There is VERY strong entertainment and media demand across the internet, and Akamai is just the company to deliver the goods. AKAM posted a big jump in profits during the fourth quarter earnings call, which handily beat analyst estimates. After increasing guidance into 2008 with continued streaming media demand on the net, it is becoming hard to spin this company negatively.

Akamai Technologies has had an amazing run up over the years. Frustrating the bears once again on their last earnings conference, AKAM got a boost off of their 52-week lows. They’ve now extended their streak of sequential revenue and profit growth to 20 consecutive quarters! What’s more, their balance sheet is as healthy as ever; they have once again increased free cash flow to $634m from $566m. With a leading role in a thriving content-delivery market, analysts such as Canaccord Adams suggest the potential revenue and earnings growth “in excess of 30% for the next several years.”

The valuation of Akamai is contested often by analysts over whether they are cheap or in-line. I believe they are to the cheap side seeing as how the are off about 45% from their 52-week high and are trading with a PEG of 0.7x. I might be tempted to test the waters if they fall under $32. They are trading at a slight premium in price-to-earnings terms, but I feel this is more than merited as they seem to be a confident recession holding in information technology. With price sensitivity expected to fade along with lowering bandwidth costs, it would appear to be Akamai’s market to steer over the next few years.

That’s it for information technology. There are certainly some great stocks to be found in the sector, despite the notion that tech is always more volatile and dangerous than financials, conglomerates and the like. While February is a historically poor season for IT, I wouldn’t mind getting my march shopping done a bit early with a lot of negative sentiment unfairly dragging down perfectly healthy companies.

-Jimvesting

Related posts:

1. Stock Watch: Akamai (AKAM)
2. Stock Market 2008: Information Technology (Part 1)
3. Stock Market 2008: Telecommunications

Consumer Electronics – Jimvesting picks Apple (NYSE: AAPL)
Hey Mr. Market, why so down on Apple? The iPod business is fully matured. The iPhone is losing inventory to similar devices. MacWorld was missing its usual superstar prospect. I tell you what, take this news and know that Apple has historically done its best when sentiment is low. Steve Jobs & Co. is my favorite IT pick for 2008. The downside has opened up value in the stock, and I feel they have bottomed!

Looking further into the concerning issues. The iPhone was selling less because of Apple’s push into the new iPod Touch, the analysts at Needham noted that “Apple would have sold close to four million iPhones in its absence.” Add this to the fact that an estimated 25%-30% of iPhones were “unlocked” from AT&T, a number that actually benefits AAPL through the carrier’s headache. While iPod sales were slowed, I feel that the mp3 device is merely in a transitioning phase, and interesting opportunities are now raised in mobile technology.

I feel that AAPL may be a recession resistor. Mac business is healthier than ever, and single-handily offset losses in iPods. Investors are punishing high-end firms like Apple for any disappointments. The stock is 35% off its highs, trading at a premium 24-times-earnings compared to its peer’s 32x and has a PEG of 0.7x. They’ve got the free cash flow we love ($6.78/share est. 2008) and its business segments have never looked healthier. People are hating on this company for no reason. As Warren Buffet puts it: “Be fearful when others are greedy, and greedy only when others are fearful.”

Comm. Equipment – Jimvesting picks Corning (NYSE: GLW)
Corning is the company you want for LCD glass panels. This market is thriving with bigger and badder television sets coming out on the daily. Fourth quarter results showed that management feels the same due to continued investment in facilities and solid relationships with market leaders. 2008 outlook was VERY positive and new revenue streams should be found in an estimated 60%+ growth in LCD capital spending. GLW anticipates releasing a new flexible fiber glass material and should see appreciation from the coming adoption of mandated diesel filtration. No major catalyst is driving growth, which is definitely odd, but an attractive valuation recovers most of the risk.

Outside of LCD glass, Corning is still running the table. A new “Gorilla Glass” product that enabled touch-screen entry has become readily sold to handset manufacturers. Corning seems to understand the shift to mobile technology, and is really on the ball. With this in mind, Standard and Poors added: “sales acceleration to 17% growth in 2008, up from 13% in 2007, aided by currency benefits and more importantly due to higher demand for liquid crystal display (LCD) glass substrates from TV and computer manufacturers.” Everything is coming together for Corning, even Verizon is on board, a new buyer of GLW’s “ClearCurve” cable solutions. ClearCurve is the world’s most bendable fiber, 100x more bendable than regular fiber… which is apparently very important. This new technology could unlock huge potential with the support of an industry leader in FiOS.

Corning should be a core technology holding for every investor. They remain inexpensive with a PEG at 0.83x and a forward PE at 13x versus an estimated trading value closer to 20x. There are some risks presented by overcapacity in the LCD glass industry and potentially slowed IT spending. However, I feel as though retailers will continue to purchase the glass for bigger screens, and the fiber for faster internet. If they are overstocking and cannot sell, that is their problem… not Cornings. These guys beat earnings by a penny, and their outlook only improved. They are bulls across the board, and deserve to trade at a premium in my opinion.

I noticed how much I have to say about the Information Technology sector, with so many macro- and micro- factors coming into play for 2008. It is essential to not skip over details, so we are breaking the stock picks into two posts. Don’t worry, we’ve got two more killer stocks coming tomorrow… you won’t want to miss it!

-Jimvesting

Related posts:

1. Stock Market 2008: Information Technology (Part 2)
2. Stock Market 2008: Telecommunications
3. Stock Market 2008: Consumer Cyclical

Industrial Machinery – Harsco (NYSE: HSC)
I may be a sucker for fallen stocks, but Harsco’s drop off their highs was especially unwarranted. You want proof? How about beating fourth-quarter earnings estimates of $0.70 with $0.74 and increasing 2008 guidance. How about topping revenue expectations by $75 million. Harsco manufactures in mill services and gas technologies.. they are the top dogs in a boring market, and I’m loving it. A whopping 70% of their sales are international, and even in a slowing world economy, an unusually high rate of recurring service revenues gives me confidence in Harsco’s ability to maintain earnings momentum.

Don’t be concerned with rising costs and problems in home construction, Harsco’s end markets such as global steel production and non-residential construction are expected to remain firm in 2008. Despite slight challenges in Mill Services in the most recent quarter, Harsco outperformed with strong gains in Rail & Mineral Technologies. I see nothing but upside in growth for 2008, and with a key acquisition possibility, Harsco could completely out-do themselves. Access Services has a nice hedge against a possible falling non-residential construction since about 25% of their industrial maintenance business is recurring. Very protected from a slow-down, and undervalued at $55 versus a target of $75… I put a purchase price at under $54 for Harsco.

Conglomerates – 3M (NYSE: MMM)
3M is big-time diversified, offering everything from scotch tape to respirator devices. After raising 2008 guidance, multiple firms have issued BUY upgrades from HOLD in January. Investment research firm Stern Agee believes that 10% EPS growth in 2008 appears done deal under virtually any scenario.” This kind up build-in security net from a further economic downturn is just what we want. 3M right now is the kind of excellent company that investors are a bit antsy about buying back into after a fall-off from previous highs of $95 to $75. I affirm that there is no problem here; get in now before the big movers start to buy the shares back up.

We love international growth in a bloated US market, and 3M has 65% growth overseas… 30% of that in high-growth emerging markets. They are the “no magic required” investment we want in 08′. None of their business segments should have ANY problem creating the level of growth built into current valuations, and Reuters has downside estimated at 5% compared to a 15%-17% upside. There certainly aren’t any bells and whistles about 3M, but their global footprint in emerging markets positions them well to benefit from steady business ventures with relatively low risk. With a target price at $95, and an appropriate purchase price at $77-$79, I feel that this conglomerate juggernaut is a winner.

Industrial Engineering – Jacobs Engineering Group (NYSE: JEC)
In their most recent earnings release (January 21, 2008), management at Jacobs Engineering Group hinted toward strength in key end markets, such as energy, which leads me to believe they will be at least matching their 15% year-over-year growth initiative. Also in this call, they beat earnings estimates by a few cents and increased 2008 guidance, citing a favorable pricing environment among other factors. This positive outlook “includes variance in the U.S. Economy.” But what I like most about Jacobs is their visibility. Operating margins fared better than expected in a challenging environment, and backlogs increased to nearly $15 billion, yes billion. Granted, this stellar growth may be more of a challenge for the year, but I feel that they can at least produce strong gains in the second quarter. If guidance remains positive at this point, the sky is the limit.

JEC is undervalued in my opinion, and their continued performance hasn’t missed a beat. When the market turns, Jacobs should be ready to ride the bull. On top of a strong free cash flow position, they have virtually no debt. They operate in four sectors: oil & gas, chemicals, national government and infrastructure, each with plenty of potential. Energy seems to be their most anticipated gainer in 2008, suggesting that clients offer a “commitment to spending” amid low volatility incurred by oil prices. Add this in with a steady pipeline of products, and we see oil & gas well leveraged in the market. I target Jacobs at a one-year $96 tag, and feel an appropriate purchase price should be from $70-$73.

Ag. Machinery and Construction – Manitowoc (NYSE: MTW)
I have been a fan of Manitowoc cranes for the past few quarters, now we finally have the market underpricing this company like we want. Manitowoc competes with Terex (NYSE: TEX), an excellent company by all marks with high growth potential. However, I feel that most analysts miss on the fact that Terex’s cranes are low quality… workers want Manitowoc! They have already capitalized on international demand, and smashed earnings estimates of 68 cents with 74 cents. Earnings reports also yielded that continuing operations performance rose 119% year-over-year and sales of cranes jumped 56%. Manitowoc’s management confirmed that despite worries about the housing construction market, MTW’s operations were indeed minimally exposed to the pain. There is no reason for this trend to slow in 2008, and trading under $40 is just not fair.

We all know that the agriculture market has been surging as of late. Manitowoc has a hand in producing related equipment, and is also a major player in the emerging Asian markets… where non-residential construction is constant. Management believes they can maintain strong growth by focusing on new product introductions, market share increases (achieved by cross-selling through its expanded distribution network), and improved penetration in Asia. Prior to the sell-off in late-2007/early-2008, the crane industry was seen as “in the middle of a multi-year up-cycle” in demand and production. I expect this trend to continue now that shares of Manitowoc have unprecedentedly been crushed off their highs. I can see them hitting $54 a share, with an appropriate purchase price just under $39 for optimal value.

There are plenty of places to look for growth in 2008 out of the industrials sector. While I did not find any defense & aerospace companies particularly appetizing, I am bullish on the industry and would suggest looks at United Technologies (NYSE: UTX), Northrop Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT). Agriculture giants like Deere & Co. (NYSE: DE) may make viable investments as well, but you must be wary of the premium you often need to shell out for shares of stock. Please feel free to email me any stock questions you may have.

-Jimvesting

Related posts:

1. Stock Market 2008: Information Technology (Part 2)
2. Stock Market 2008: Utilities
3. Stock Market 2008: Telecommunications