Time for a little investing

I've been looking at doing some investing lately as I think the market is headed up for awhile at least. I mentioned I had about 25% of my portfolio in cash currently and I've been reading some of the analysts and market pundits that I trust - ones who have been right in the past and put their own money in there too - for some ideas. I think I have found a couple of good ones.

One of my problems is working in the financial services industy. You might wonder why that is a problem but I think too often when you are too close to something, you fail to see the forest for all the trees. Being exposed to all the information all of the time leads to a kind of "paralysis of analysis" where you see too much and try to include too many factors in your decision making process. This is where the trusted writers come in. Reading them gives me the ability to pull back and look at things from more of a distance.

Here is what I believe based on my readings:

1. The domestic economy is improving. You have to ignore the nightly news reports and weekly job figures etc because each day or week you get conflicting figures. But if you look at the general tone of information coming from different companies when they do their earnings conferences you see that many of these companies are reporting some of their best figures in many years. Even though the US is not a manufacturing economy anymore, what manufacturing we still do is reporting major demand improvements and greater backlogs than ever before. This is generally a sign that hiring is improving across all lines as such companies as AT&T, CSX, Norfolk Southern, Quest Diagnostics, and Union Pacific are all reporting increases in hiring. Most of the companies reflect the growth of business in general as they would support greater needs in transportation and communications. Pier One says their traffic has increased greatly. ADP reports the number of large companies planning on increased hiring has risen from 50% to 65-70% in the last quarter. That's a very large jump over the span of a quarter and bodes very well when you consider we have just completed the holiday season. Gray, Challenger & Christmas which is one of the nation's largest outplacement firms announced that January job cuts are the lowest number of job cuts for any January on record. All of this points to a greatly improving economy no matter what the Fed says and does. And don't get me started on that.

2. Car sales have improved dramatically over the past 2 years even accounting for the cash for clunkers program. Not only cars but trucks as well. Cummins who makes most large truck engines and Paccar who builds light and heavy trucks are both reporting huge sales. A lot of truckers delayed buying rigs in 2008 and 2009 and now all that pent up demand is catching up. Not only that, Cummins reported great increases in sales to Brazil, China, India, etc. Boeing has a huge back log of orders, not just for the new Dreamliner they have yet to deliver but also for 737s, 747s, 757s etc. They are projecting to build 485-500 planes this year and the production run is already completely sold out. They expect to begin delivering the Dreamliner in the 3rd quarter of this year (at the rate they're going, 1 on September 30th is how they will achieve this) and once that kicks in, they are going to go great guns for a good while since they have orders for at least 800 right now and once they do start delivering and Airbus remains as screwed up as they have been, they will get more orders from carriers who cancel their Airbus orders. Watch and see if Wabtec (WAB) who supplies a lot of parts to the rail industry, doesn't beat their numbers substantially this quarter.

3. Prices for commodities are still rising - in the case of copper and molybdenum - or have recovered and are rising again like gold and silver. Just about all food prices are back on the rise as well. Both of these seem to be long term trends unless the world tries to implode again (not as far fetched as it seems though I give it a few more years at least) though you may see some short term ups and downs.

So how do we want to play this? Well first off lets take a look at the rest of the world. India, China and Brazil who are the 3 largest and fastest growing emerging economies and a source of much of the best growth for the past decade are having some problems, namely inflation. Both India and Brazil are taking concrete steps to fight it by raising interest rates and that is impacting their economies and depressing many of their stocks. China has taken some steps but these seem to be more of the cosmetic rather than concrete steps at least so far. All of these countries are experiencing major price increases for food. Here in the US that matters but not like it does to the emerging economies. If you think the recent turmoil in Egypt and Tunisia is unrelated to this issue, consider this. When you're trying to get by on $2 a day, higher food prices are a huge impact in your life. You can stand a bit of totalitarianism if you have stability but when you're not sure if you can afford to live, someone has to pay and that someone is usually the guy in charge. China is trying to walk a very fine line to avoid slowing down their economy as growth is such a big part of it, but for many in China who do not live in the cities, food inflation is a major problem. Unfortunately jacking up the rates enough to stop inflation or at least slow it substantially, would impact all of these people who now live in the cities and would lose jobs if the economy slowed a great deal. Tough choices for them to make. India and Brazil with their freer market places and elections can afford to slow down the economies and take a harder line on inflation

To me this means the best returns for the near future are probably going to come from US companies. In the long term however I believe the emerging economies are still the way to go so I'm not going to ignore them completely, but I'm not going to make them a primary focus right now. The good thing is, if Brazil takes a big hit in the near future it probably opens up some very very good companies at very good prices. And opportunities are what we are looking for. Now if manufacturing is taking off and food and commodity prices are rising, we may have missed our best opportunities to get a cheap manufacturer or miner already. But that doesn't mean we haven't missed all of our opportunities. What about the companies that supply the manufacturers and miners? Some of them have admittedly risen quite a bit. I am kicking myself for getting out of two stocks too early, Caterpillar and Freeport McMoran. I made a nice profit on both of them but if I had stayed in I would have tripled my money on CAT and quadrupled it or more in FCX. Stupid me. I had a fair amount of cash tied up in both of them and got a little worried and decided to take my profits. 35% is nothing to sneeze at but 200% is a shitload better. And I'm not so young that I can afford to take that big a risk without taking some money off the table. As Cramer has always said, "Bulls make money, bears make money, but hogs get slaughtered." You don't want to be the one still standing when the music stops. So when I can I take some profits. It costs me a chance at bigger profits but it also lets me get out and play with the house's money if I have a big enough position. I have done that on Cal-Maine Foods, New York Community Bank, and Yamana Gold. I hope to do that on some more too.

So what am I looking at? Here is where I am and what I am want to do. First off, I own stocks in 2 gold miners in my IRA, Yamana (AUY) and Gammon Gold (GRS). I have done well in Yamana already and recently bought into Gammon as I thought they were a good buy with a lot of upside in the near future. As high as gold has gotten I really think it will go higher. I also believe there will be a good bit of merging in the mining sector and Gammon may also have a lot of upside there as a buyout candidate. Unfortunately I don't own any more manufacturers like Caterpillar and I don't want to buy it at 99 bucks a pop. I like Ford but they are expensive enough as well and I will NOT buy GM stock no matter how cheap it is. And it's not cheap. On a sidelight I did read a good article that GM is kicking the crap out of Toyota in China. Somewhat surprising that is.

**** Rant Time - Either way, I am not buying Government Motors just like I'm not buying Goldman Slachs. I don't like what they stand for and I don't like what they've done. If that means I miss out on some profits, there are plenty of other stocks out there. I don't have to support companies like these 2 and I won't no matter how many Boo Yahs Cramer gives either of them. I do hold grudges. I also won't buy a GM vehicle either nor ever use Goldman as my broker or buy a product or IPO they are involved with. End of Rant *****

I do think Boeing is still a decent buy but that's because so much of their earnings are still in the future and a lot depends on them getting the Dreamliner out reasonably soon. I think it's safe to bet that Airbus still won't get their act together on their new widebody jet which means even better profits in the future for BA. It's definitely a possibility but I think I can do better. Not to mention maybe a bad report comes out from BA and the stock goes down a bit more. Then I think I do buy. Another place to look is to the companies that supply manufacturers like the car companies, Boeing, Caterpillar or Cummins. A very good choice there is Johnson Controls (JCI). JCI makes stuff like automotive interiors, hybrid batteries and a number of other things car manufacturers use and they supply to a lot of companies here and abroad. I have been watching that stock for a little while and I think I will pull the trigger there as they've recently pulled back about 10%. Another one I like is Gerdau Steel SA, a Brazilian Steel producer which is down and maybe will fall a bit more. They gotta make the cars out of something after all. Of course you could also look at American producers like US Steel (X), Nucor (NUE) or Steel Dynamics (STLD). Of the 3 I like STLD best I think but all of them are up near their 52 week highs. I think GGB is the better buy though.

Since food is a good long term trend, I am looking to get into there as well. I have one food stock right now in Cal-Maine foods (CALM) but I don't think it's the right one. I like it long term and have done well in it so far but I think it's time to sell and take the rest of my profits. 2 stocks I like instead are Cosan Ltd, a Brazilian sugar and ethanol producer and Con Agra Foods (CAG) here in the US. I think I can wait on Cosan a little figuring the Brazilian markets will be down a bit in the near future but I like them a lot and I think they are a fine long term play. I hope I'm not wrong and it shoots up before I can get it. Not only that they just started paying a dividend which is an ok 2%. Con Agra is better in the near term I think and pays a nicer dividend at over 4%. Monsanto is also a very good play and should go up some but it is rather pricey for my tastes. I do want to get back into CALM after awhile. CALM is the nations largest egg producer but they are facing rising feed costs and I'm not sure how much of that they can pass on through higher prices. If they do it well, then I may regret selling them but if they can have a couple of bad quarters, I will be able to get back into them cheaply again. I think they are well managed and unlike just about every other US company, they have a floating dividend policy. One third of all profits go to dividends so a great quarter means a great dividend but a bad quarter means nothing.

I'm also still looking at miners though not gold or copper miners. I am specifically looking at Thompson Creek Metals (TC) who produces molybdenum. They are the biggest pure molybdenum miner in the world - I think Freeport McMoran produces more than they do right now but FCX is primarily a gold and copper miner who also takes out molybdenum. Molybdenum is used to make stainless steel and as an anti corrosive in pipes and stuff. More cars, trucks, oil pipes etc means more molybdenum. The price fell from around $34 to $8 in 2008 to 2009 but has come back to $16 now. If the recovery continues in manufacturing there is every chance it will double again.

Well that's all for me right now. I'm sure I've bored you enough. Hopefully I'm making some good investment decisions here. One other area to look at is energy as it is gonna keep increasing over time as well. Solar may be one good part of energy that's relatively cheap as well but I need to do more research there. Gotta get ready for some poker tonight. There's another tourney to win (I hope) and maybe a high hand for me instead of my wife. Though I don't mind if she gets another. I did have a good run online last night but finished 5th when my AK lost to A6. Until I come back, stay lucky you nuts, in poker and in life.