The Financial Futurist-Fall 2011 Preview

(A free preview for readers of the newsletter available on Amazon Kindle.)

There will soon come a point in the gyrations of world markets when greed again overwhelms fear. Sure the Euro is still in trouble and I would not recommend Greek debt or French banks, but when everyone is running for the door, the bottom is near. The time is about right to deploy that cash you’ve been hoarding.

What looks good?

Small and mid-caps with no exposure to Europe is where I am looking. I like the small gold, rare earths and lithium miners, some tech, some energy and REITs with holdings in rental properties.

REE (Rare Element Resources) has found gold and rare earths in Nevada and unlike the management mega-hogs at (MCP) Molycorp, they did not feast on the speculation boomlet a few months ago by diluting the stock for insider gain. Rather than selling their shares, REE directors and officers are buying their stock big-time. These two stocks still move together for now, though their differences are significant. Moly will probably rise, but REE will double in a couple years or sooner.

China has tried to manipulate the rare earth’s markets they currently dominate, but the more they meddle, the more incentive the West has to assure their supply of these strategic metals. Despite their name, rare earths are not that rare, just capital intensive to produce. REE has the find and the financing it needs. If your time frame for profits is even longer, you might want to join me in digging a few other small miners with big partners. (ICMTF) Intercitic Minerals is still in the development stage, but has China’s largest miner as a partner. (NUSMF) Nautilus Minerals believes mining is going to be much better down where it’s wetter under the sea and has well-heeled partners as well. Wild (WLCDF) Western Lithium is unloved by the market, but the reserve they are mining is proven, their management, not so much. Nibble.

Every institutional investor holds (AAPL) Apple and that is not a bad place to be, but if it moves from $400 to $500, how interesting is that? That’s like a $4 stock moving to $5. Apple already has a market value as high as Exxon and they have a ton of non-productive cash on hand. Buy something. Steve Jobs is gone and Tim Cook has yet to prove he can bake. There are better opportunities in Tech. I still like (ADBE) Adobe (despite the recent flame-out of Flash).

The whole world of creative types has been waiting for the economy to show signs of life before upgrading to their terrific Creative Suite applications, many video editors are switching from Final Cut to Premiere and Adobe owns PDF and flash, still the most important means for transferring text and video content. If (AMZN) Amazon would split their stock to become more attractive to retail buyers, I would be a buyer again. These sky-high stock prices for Google, Amazon and Apple are designed to limit speculation by retail buyers but retail customers buy and hold their stocks. All of them should split. I’m not ga-ga for Google.

What else looks good in tech? If you bought (WPRT) Westport when I recommended it a year ago (and while Cramer was still calling it “too speculative” before climbing on the Westport bandwagon) you are smiling as your stock has more than doubled. Westport is the leader in natural gas engines for vehicles and still a buy. I have held (SU) Suncor for three years and the Canadian tar sands play is still looking good. The pipeline will be approved and Alberta is a lot closer and friendlier place to get oil than from the Middle East. All the oil giants are getting in on the party but Suncor is still the only pure play. Buy it.

It’s more like an entertainment play than a tech play but makers of slot machines have been waiting for a big payoff for a long time and this could be their lucky year. (IGT) International Gaming Technology, (BLY) Bally, (ARLUF) Aristocrat Leisure and (WMS) Williams are the main players and all have exciting new games the casinos need. The domestic casino resorts still have slots on the floor that have been around since the Rat Pack was in town.

Players are bored, the bleeding is over for Caesars and Sands, more jurisdiction are opening up casino play for a new source of local tax revenue and even the Chinese are slowly learning their entertainment yuans go farther playing long odds on slots than playing big money on baccarat. The novelty of losing a year’s worth of yuans in a day will be waning soon, so I would not bet on the casinos with exposure in Macau like (WYNN) and (LVS). They’ve had a long winning streak and are about played out for a while. I like Australia’s game maker (ARLUF) Aristocrat best in this segment for its proximity to Macau and their growth trends there.

REITTs have had a tough time of it for a couple months. The worry is that property values will continue downward and interest rates may go up. The question a REIT investor should ask himself is if the company is generating enough cash to continue delivering those juicy dividends. If the answer is “yes” as far as the eye can see, who cares if the stock price meanders? You bought the stock for income, not stock price appreciation. My favorites are still (NLY) Annaly Capital and (CIM) Cimeron Capital. The former is down a little from when I bought it and the latter is down a lot. I have been pocketing the dividends and, at these prices, I will probably buy some more CIM.

There are some good companies in a beaten down European market and I have done well with liquor giant (DEO) Diageo. I also like (PM) Philip Morris International. In good times, people drink and smoke and in bad times they drink and smoke more. Europe needs a drink and China is discovering good Scotch is even more fun than other western vices such as McDonalds, KFC and Coke (not that these companies won’t continue to do well in developing economies). So, buy stocks of what China is buying but avoid stocks of what China is selling, especially those selling debt.

Also, avoid momentum stocks. You know their names and because you do, their time is over. If you’ve heard people are excited about a stock, it’s time to sell.

I like the Israeli market long term and have held my positions in TEVA and RADA though they’ve gone nowhere recently. Peace may not be in sight but big profits from generic drugs and military high-tech are visible on the horizon for these companies.

The list of what not to buy is long but, in a nutshell, avoids financials. I have not owned them for years. Our banks are lost without their mortgage scams, proprietary gambling and high credit card fees and European and Chinese banks are sitting on mountains of debts that will never be repaid. Traders can play in this space since many on Wall Street think financials are due for a comeback. Investors should stir clear.

Here are my current holdings:

The complete report and many entertaining macro-economic essays are available at:

The Financial Futurist FAll 2011