Bausch and Lomb is a modern corporate parable of mismanagement and outright fraud that has destroyed profits and actually injured thousands of customers. The company made just $14.9 million dollars in 2006 on total revenues of $2.29 billion. Yet the company's iconic products continue to sell briskly across the country.
As is so often the case, fraud at the top of a corporation signals a broader sickness within the company. In 2002, CEO Ronald Zarella was caught lying about graduating from business school. Just a few months earlier, the company lost a lawsuit with Novartis alleging patent infringement on the PureVision product. What did Zarella do? He planned to move production overseas to Ireland when a federal judge ordered him to stop production of PureVision. It took more than 2 years for Zarella to negotiate a royalty with Novartis that will enable the company to continue production.
But Bausch and Lomb's troubles aren't limited to patent infringement and a lying CEO. In 2006, the Centers for Disease Control found that the company's flagship product ReNu causes fungal keratitis. Eye infections are always serious, but when a product whose chief use is cosmetic potentially causes customers to go blind the company is in real trouble. Bausch and Lomb faces two class action lawsuits and Zarella doesn't look up to the challenge this time either.
Friday, June 29, 2007
Capital Trust, Inc.
Capital Trust, Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 8.75 times next year’s projected earnings. With a recent ticker price of $33.95, Capital Trust, Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 65.91%. This results in an annual operating cash flow of $68.4M.
Capital Trust, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.67, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Capital Trust, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Capital Trust, Inc.’s total market capitalization of $592.7M is ample proof of such liquidity.
Capital Trust, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.67, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Capital Trust, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Capital Trust, Inc.’s total market capitalization of $592.7M is ample proof of such liquidity.
Anthracite Capital, Inc.
Anthracite Capital, Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 8.83 times next year’s projected earnings. With a recent ticker price of $11.67, Anthracite Capital, Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 69.18%. This results in an annual operating cash flow of $240.8M.
Anthracite Capital, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.10, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Anthracite Capital, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Anthracite Capital, Inc.’s total market capitalization of $681.2M is ample proof of such liquidity.
Anthracite Capital, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.10, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Anthracite Capital, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Anthracite Capital, Inc.’s total market capitalization of $681.2M is ample proof of such liquidity.
Citadel Broadcasting Corporation
Citadel Broadcasting Corporation is a high-yielding company with a forward-looking price to earnings ratio of just 14.63 times next year’s projected earnings. With a recent ticker price of $6.34, Citadel Broadcasting Corporation is ready for significant appreciation. The company’s operating profit margin is an impressive 32.63%. This results in an annual operating cash flow of $134.5M.
Citadel Broadcasting Corporation is a cash cow that has a reasonably attractive valuation. With a beta of 0.62, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Citadel Broadcasting Corporation reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Citadel Broadcasting Corporation’s total market capitalization of $710.9M is ample proof of such liquidity.
Citadel Broadcasting Corporation is a cash cow that has a reasonably attractive valuation. With a beta of 0.62, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Citadel Broadcasting Corporation reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Citadel Broadcasting Corporation’s total market capitalization of $710.9M is ample proof of such liquidity.
Gramercy Capital Corp.
Gramercy Capital Corp. is a high-yielding company with a forward-looking price to earnings ratio of just 10.66 times next year’s projected earnings. With a recent ticker price of $28.00, Gramercy Capital Corp. is ready for significant appreciation. The company’s operating profit margin is an impressive 60.02%. This results in an annual operating cash flow of $256.3M.
Gramercy Capital Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.51, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Gramercy Capital Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Gramercy Capital Corp.’s total market capitalization of $729.4M is ample proof of such liquidity.
Gramercy Capital Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.51, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Gramercy Capital Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Gramercy Capital Corp.’s total market capitalization of $729.4M is ample proof of such liquidity.
NorthStar Realty Finance Corp.
NorthStar Realty Finance Corp. is a high-yielding company with a forward-looking price to earnings ratio of just 11.65 times next year’s projected earnings. With a recent ticker price of $12.27, NorthStar Realty Finance Corp. is ready for significant appreciation. The company’s operating profit margin is an impressive 35.67%. This results in an annual operating cash flow of $57.1M.
NorthStar Realty Finance Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.51, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of NorthStar Realty Finance Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and NorthStar Realty Finance Corp.’s total market capitalization of $752.7M is ample proof of such liquidity.
NorthStar Realty Finance Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.51, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of NorthStar Realty Finance Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and NorthStar Realty Finance Corp.’s total market capitalization of $752.7M is ample proof of such liquidity.
Eagle Bulk Shipping Inc.
Eagle Bulk Shipping Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 13.47 times next year’s projected earnings. With a recent ticker price of $22.48, Eagle Bulk Shipping Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 37.51%. This results in an annual operating cash flow of $73.6M.
Eagle Bulk Shipping Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.60, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Eagle Bulk Shipping Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Eagle Bulk Shipping Inc.’s total market capitalization of $937.7M is ample proof of such liquidity.
Eagle Bulk Shipping Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.60, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Eagle Bulk Shipping Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Eagle Bulk Shipping Inc.’s total market capitalization of $937.7M is ample proof of such liquidity.
Redwood Trust Inc.
Redwood Trust Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 8.43 times next year’s projected earnings. With a recent ticker price of $49.02, Redwood Trust Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 68.29%. This results in an annual operating cash flow of $38.8M.
Redwood Trust Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.07, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Redwood Trust Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Redwood Trust Inc.’s total market capitalization of $1.341B is ample proof of such liquidity.
Redwood Trust Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.07, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Redwood Trust Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Redwood Trust Inc.’s total market capitalization of $1.341B is ample proof of such liquidity.
Newcastle Investment Corp.
Newcastle Investment Corp. is a high-yielding company with a forward-looking price to earnings ratio of just 8.03 times next year’s projected earnings. With a recent ticker price of $25.78, Newcastle Investment Corp. is ready for significant appreciation. The company’s operating profit margin is an impressive 82.39%. This results in an annual operating cash flow of $484.5M.
Newcastle Investment Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.24, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Newcastle Investment Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Newcastle Investment Corp.’s total market capitalization of $1.360B is ample proof of such liquidity.
Newcastle Investment Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.24, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Newcastle Investment Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Newcastle Investment Corp.’s total market capitalization of $1.360B is ample proof of such liquidity.
Citizens Republic Bancorp, Inc
Citizens Republic Bancorp, Inc is a high-yielding company with a forward-looking price to earnings ratio of just 9.03 times next year’s projected earnings. With a recent ticker price of $18.51, Citizens Republic Bancorp, Inc is ready for significant appreciation. The company’s operating profit margin is an impressive 38.74%. This results in an annual operating cash flow of $115.8M.
Citizens Republic Bancorp, Inc is a cash cow that has a reasonably attractive valuation. With a beta of 0.67, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Citizens Republic Bancorp, Inc reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Citizens Republic Bancorp, Inc’s total market capitalization of $1.401B is ample proof of such liquidity.
Citizens Republic Bancorp, Inc is a cash cow that has a reasonably attractive valuation. With a beta of 0.67, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Citizens Republic Bancorp, Inc reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Citizens Republic Bancorp, Inc’s total market capitalization of $1.401B is ample proof of such liquidity.
Avery Dennison Corporation
Avery Dennison is an office services and supplies company that makes a wide variety of products. While the labels and binders used in offices across the nation are certainly not the sexiest products ever sold, they are surprisingly profitable. The company has been a leader in advancing RFID technology through its retail information services segment. RFID tags, which use radio frequency technology to tell computers where they are, represent the next big change for the retail industry.
Wal-Mart is using its tremendous market strength to mandate RFID tracking throughout the supply chain. As a consequence, most of America's retailers will soon be following suit. Bar coding was a revolution in the way business is conducted that also made Avery Dennison a lot of money. RFID technology is the next wave.
Wal-Mart is using its tremendous market strength to mandate RFID tracking throughout the supply chain. As a consequence, most of America's retailers will soon be following suit. Bar coding was a revolution in the way business is conducted that also made Avery Dennison a lot of money. RFID technology is the next wave.
Ashford Hospitality Trust Inc.
Ashford Hospitality Trust Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 10.17 times next year’s projected earnings. With a recent ticker price of $11.79, Ashford Hospitality Trust Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 16.15%. This results in an annual operating cash flow of $125.0M.
Ashford Hospitality Trust Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.60, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Ashford Hospitality Trust Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Ashford Hospitality Trust Inc.’s total market capitalization of $1.445B is ample proof of such liquidity.
Ashford Hospitality Trust Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.60, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Ashford Hospitality Trust Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Ashford Hospitality Trust Inc.’s total market capitalization of $1.445B is ample proof of such liquidity.
RAIT Financial Trust
RAIT Financial Trust is a high-yielding company with a forward-looking price to earnings ratio of just 6.21 times next year’s projected earnings. With a recent ticker price of $26.37, RAIT Financial Trust is ready for significant appreciation. The company’s operating profit margin is an impressive 54.73%. This results in an annual operating cash flow of $109.6M.
RAIT Financial Trust is a cash cow that has a reasonably attractive valuation. With a beta of 1.08, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of RAIT Financial Trust reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and RAIT Financial Trust’s total market capitalization of $1.679B is ample proof of such liquidity.
RAIT Financial Trust is a cash cow that has a reasonably attractive valuation. With a beta of 1.08, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of RAIT Financial Trust reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and RAIT Financial Trust’s total market capitalization of $1.679B is ample proof of such liquidity.
Colonial Properties Trust
Colonial Properties Trust is a high-yielding company with a forward-looking price to earnings ratio of just 11.61 times next year’s projected earnings. With a recent ticker price of $36.70, Colonial Properties Trust is ready for significant appreciation. The company’s operating profit margin is an impressive 21.99%. This results in an annual operating cash flow of $157.4M.
Colonial Properties Trust is a cash cow that has a reasonably attractive valuation. With a beta of 1.06, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Colonial Properties Trust reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Colonial Properties Trust’s total market capitalization of $1.706B is ample proof of such liquidity.
Colonial Properties Trust is a cash cow that has a reasonably attractive valuation. With a beta of 1.06, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Colonial Properties Trust reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Colonial Properties Trust’s total market capitalization of $1.706B is ample proof of such liquidity.
FirstMerit Corp.
FirstMerit Corp. is a high-yielding company with a forward-looking price to earnings ratio of just 13.40 times next year’s projected earnings. With a recent ticker price of $21.25, FirstMerit Corp. is ready for significant appreciation. The company’s operating profit margin is an impressive 47.47%. This results in an annual operating cash flow of $203.0M.
FirstMerit Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.11, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of FirstMerit Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and FirstMerit Corp.’s total market capitalization of $1.710B is ample proof of such liquidity.
FirstMerit Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 1.11, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of FirstMerit Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and FirstMerit Corp.’s total market capitalization of $1.710B is ample proof of such liquidity.
Apollo Investment Corporation
Apollo Investment Corporation is a high-yielding company with a forward-looking price to earnings ratio of just 11.22 times next year’s projected earnings. With a recent ticker price of $21.89, Apollo Investment Corporation is ready for significant appreciation. The company’s operating profit margin is an impressive 60.01%. This results in an annual operating cash flow of $1.510B.
Apollo Investment Corporation is a cash cow that has a reasonably attractive valuation. With a beta of 0.22, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Apollo Investment Corporation reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Apollo Investment Corporation’s total market capitalization of $2.266B is ample proof of such liquidity.
Apollo Investment Corporation is a cash cow that has a reasonably attractive valuation. With a beta of 0.22, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Apollo Investment Corporation reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Apollo Investment Corporation’s total market capitalization of $2.266B is ample proof of such liquidity.
Thornburg Mortgage Inc.
Thornburg Mortgage Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 9.91 times next year’s projected earnings. With a recent ticker price of $26.91, Thornburg Mortgage Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 75.43%. This results in an annual operating cash flow of $242.5M.
Thornburg Mortgage Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.67, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Thornburg Mortgage Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Thornburg Mortgage Inc.’s total market capitalization of $3.252B is ample proof of such liquidity.
Thornburg Mortgage Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.67, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Thornburg Mortgage Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Thornburg Mortgage Inc.’s total market capitalization of $3.252B is ample proof of such liquidity.
Annaly Capital Management, Inc.
Annaly Capital Management, Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 10.01 times next year’s projected earnings. With a recent ticker price of $14.38, Annaly Capital Management, Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 77.79%. This results in an annual operating cash flow of $219.7M.
Annaly Capital Management, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.74, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Annaly Capital Management, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Annaly Capital Management, Inc.’s total market capitalization of $3.780B is ample proof of such liquidity.
Annaly Capital Management, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.74, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Annaly Capital Management, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Annaly Capital Management, Inc.’s total market capitalization of $3.780B is ample proof of such liquidity.
Amgen Inc.
Amgen is a biotechnology powerhouse with more than 16,000 employees. The company's impressive business model is built around developing and marketing new pharmaceutical products. The process of drug discovery is notoriously fickle, and there is no such thing as a sure winner. Amgen has distinguished itself by making an unprecedented commitment to research and development. More than half of the company's total costs in any given year are research and development combined with capital spending.
A relatively young company, some of Amgen's early successes are still under patent protection. This gives the company a large lift in the competitive race to develop new treatments. Margins in the biopharmaceuticals niche are high, with $12.4 billion in revenue leading to more than $3.6 billion in net income.
Amgen is a highly profitable company that works every day for the betterment of mankind. And the company's commitment to investment dramatically increases the odds that Amgen will score big again soon. Stocks purchased on the hope of FDA approval for new drugs amount entirely to speculation. Yet the odds favor companies with many drugs under development to eventually find a winner. And Amgen knows how to play those odds.
A relatively young company, some of Amgen's early successes are still under patent protection. This gives the company a large lift in the competitive race to develop new treatments. Margins in the biopharmaceuticals niche are high, with $12.4 billion in revenue leading to more than $3.6 billion in net income.
Amgen is a highly profitable company that works every day for the betterment of mankind. And the company's commitment to investment dramatically increases the odds that Amgen will score big again soon. Stocks purchased on the hope of FDA approval for new drugs amount entirely to speculation. Yet the odds favor companies with many drugs under development to eventually find a winner. And Amgen knows how to play those odds.
Pinnacle West Capital Corp.
Pinnacle West Capital Corp. is a high-yielding company with a forward-looking price to earnings ratio of just 13.96 times next year’s projected earnings. With a recent ticker price of $39.97, Pinnacle West Capital Corp. is ready for significant appreciation. The company’s operating profit margin is an impressive 18.38%. This results in an annual operating cash flow of $605.0M.
Pinnacle West Capital Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 0.64, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Pinnacle West Capital Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Pinnacle West Capital Corp.’s total market capitalization of $4.006B is ample proof of such liquidity.
Pinnacle West Capital Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 0.64, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Pinnacle West Capital Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Pinnacle West Capital Corp.’s total market capitalization of $4.006B is ample proof of such liquidity.
CapitalSource Inc.
CapitalSource Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 8.28 times next year’s projected earnings. With a recent ticker price of $25.10, CapitalSource Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 58.69%. This results in an annual operating cash flow of $279.0M.
CapitalSource Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.33, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of CapitalSource Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and CapitalSource Inc.’s total market capitalization of $4.751B is ample proof of such liquidity.
CapitalSource Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.33, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of CapitalSource Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and CapitalSource Inc.’s total market capitalization of $4.751B is ample proof of such liquidity.
Ameriprise Financial, Inc.
Ameriprise Financial is a controversial financial advisor with more than 12,000 "employees". Most of the company's financial advisers are Certified Financial Planners, but the majority of them don't technically work for Ameriprise. Rather, these independent contractor franchisees merely use the company's infrastructure to collect a commission on various investment products sold to clients.
Ameriprise has been subject to millions of dollars in government fines since it was spun off from American Express in 2005. The company has repeatedly been investigated by the NASD and is widely recognized throughout the investment world as a company whose business plan requires it to breach its fiduciary duty to clients. The company charges a flat rate for a "financial plan" and then accepts various kickbacks and commissions on the products that clients purchase in order to utilize the "plan". The company has been routinely investigated for pushing risky, high-fee products on financially ignorant retirees.
American Express was exceedingly wise to get rid of Ameriprise Financial. The company is little more than a glorified pyramid scheme that uses and abuses its clients. The stock market has been rising recently, so even retirees who get swindled by Ameriprise have probably been making money. But the lawsuits will come fast and furious when the market stalls and Ameriprise's tactics come to light as retirees wonder where all their money went.
Ameriprise has been subject to millions of dollars in government fines since it was spun off from American Express in 2005. The company has repeatedly been investigated by the NASD and is widely recognized throughout the investment world as a company whose business plan requires it to breach its fiduciary duty to clients. The company charges a flat rate for a "financial plan" and then accepts various kickbacks and commissions on the products that clients purchase in order to utilize the "plan". The company has been routinely investigated for pushing risky, high-fee products on financially ignorant retirees.
American Express was exceedingly wise to get rid of Ameriprise Financial. The company is little more than a glorified pyramid scheme that uses and abuses its clients. The stock market has been rising recently, so even retirees who get swindled by Ameriprise have probably been making money. But the lawsuits will come fast and furious when the market stalls and Ameriprise's tactics come to light as retirees wonder where all their money went.
Fidelity National Financial, Inc.
Fidelity National Financial, Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 12.71 times next year’s projected earnings. With a recent ticker price of $23.84, Fidelity National Financial, Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 12.04%. This results in an annual operating cash flow of $522.4M.
Fidelity National Financial, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.18, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Fidelity National Financial, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Fidelity National Financial, Inc.’s total market capitalization of $5.283B is ample proof of such liquidity.
Fidelity National Financial, Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.18, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Fidelity National Financial, Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Fidelity National Financial, Inc.’s total market capitalization of $5.283B is ample proof of such liquidity.
iStar Financial Inc.
iStar Financial Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 10.81 times next year’s projected earnings. With a recent ticker price of $45.01, iStar Financial Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 78.30%. This results in an annual operating cash flow of $495.0M.
iStar Financial Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.33, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of iStar Financial Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and iStar Financial Inc.’s total market capitalization of $5.769B is ample proof of such liquidity.
iStar Financial Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 1.33, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of iStar Financial Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and iStar Financial Inc.’s total market capitalization of $5.769B is ample proof of such liquidity.
American Capital Strategies, Ltd.
American Capital Strategies, Ltd. is a high-yielding company with a forward-looking price to earnings ratio of just 12.21 times next year’s projected earnings. With a recent ticker price of $42.81, American Capital Strategies, Ltd. is ready for significant appreciation. The company’s operating profit margin is an impressive 71.28%. This results in an annual operating cash flow of $460.8M.
American Capital Strategies, Ltd. is a cash cow that has a reasonably attractive valuation. With a beta of 1.03, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of American Capital Strategies, Ltd. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and American Capital Strategies, Ltd.’s total market capitalization of $6.916B is ample proof of such liquidity.
American Capital Strategies, Ltd. is a cash cow that has a reasonably attractive valuation. With a beta of 1.03, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of American Capital Strategies, Ltd. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and American Capital Strategies, Ltd.’s total market capitalization of $6.916B is ample proof of such liquidity.
Allegheny Technologies, Inc.
Allegheny Technologies specializes in exotic metal alloys and stainless steel. Still headquartered in Pittsburgh long after many of the other major steel manufacturers left town, the company has a proud history stretching back to Revolutionary times.
While centered in Pittsburgh, the company has recognized the realities of globalized production of steel and has opened plants in China and Europe. The corporate concentration on more exotic metals is intended to partially shield the company from international competition, but rapidly developing international competitors with significant government backing are a fact of life in the industry.
Allegheny Technologies is in the awkward position of asking for large government subsidies or protection from international competition in order to make its business more tenable. While a Democratic Congress will quite certainly be more amenable to worker-friendly trade restrictions, labor unions have reached their nadir in recent years. Without political favoritism, big steel may simply no longer be economically feasible in an environment of significantly higher labor costs.
While centered in Pittsburgh, the company has recognized the realities of globalized production of steel and has opened plants in China and Europe. The corporate concentration on more exotic metals is intended to partially shield the company from international competition, but rapidly developing international competitors with significant government backing are a fact of life in the industry.
Allegheny Technologies is in the awkward position of asking for large government subsidies or protection from international competition in order to make its business more tenable. While a Democratic Congress will quite certainly be more amenable to worker-friendly trade restrictions, labor unions have reached their nadir in recent years. Without political favoritism, big steel may simply no longer be economically feasible in an environment of significantly higher labor costs.
Ameren Corp.
Ameren Corp. is a high-yielding company with a forward-looking price to earnings ratio of just 13.35 times next year’s projected earnings. With a recent ticker price of $49.07, Ameren Corp. is ready for significant appreciation. The company’s operating profit margin is an impressive 18.24%. This results in an annual operating cash flow of $1.350B.
Ameren Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 0.29, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Ameren Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Ameren Corp.’s total market capitalization of $10.159B is ample proof of such liquidity.
Ameren Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 0.29, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Ameren Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Ameren Corp.’s total market capitalization of $10.159B is ample proof of such liquidity.
Consolidated Edison Inc.
Consolidated Edison Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 13.88 times next year’s projected earnings. With a recent ticker price of $45.16, Consolidated Edison Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 14.62%. This results in an annual operating cash flow of $1.250B.
Consolidated Edison Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.05, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Consolidated Edison Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Consolidated Edison Inc.’s total market capitalization of $11.717B is ample proof of such liquidity.
Consolidated Edison Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.05, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Consolidated Edison Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Consolidated Edison Inc.’s total market capitalization of $11.717B is ample proof of such liquidity.
Aflac Incorporated
Aflac is in the business of selling insurance designed to meet needs that most insurance companies ignore. Most Americans are used to seeing a deduction from their paycheck each month that is used to provide health and life insurance coverage. But the rest of the insurance industry has largely neglected the hidden costs of sickness. When people can't work, they almost never still get paid. And many types of work such as sales that operate on a commission basis lose their luster quickly if not enough time can be devoted to keeping up.
Aflac's main differentiation with the rest of the industry is its focus on supplemental insurance policies that pay cash that can be used to cover incidental costs. Given the inherent difficulty of differentiation in the insurance industry, where all policies are essentially the same except for their price, it is astonishing that Aflac has been able to set itself apart.
The secret to Aflac's successful branding efforts has been a major advertising campaign starring an angry duck. The iconic commercials and related line of plush toys have earned a clear space in the nation's cultural consciousness. Unfortunately, Aflac's success will prove difficult to replicate overseas. Aflac's Japanese duck is friendly, reassuring and far less successful. If Aflac's success is the result of a unique cultural connection with its customers, the company is quite secure in the United States but vulnerable everywhere else.
Aflac's main differentiation with the rest of the industry is its focus on supplemental insurance policies that pay cash that can be used to cover incidental costs. Given the inherent difficulty of differentiation in the insurance industry, where all policies are essentially the same except for their price, it is astonishing that Aflac has been able to set itself apart.
The secret to Aflac's successful branding efforts has been a major advertising campaign starring an angry duck. The iconic commercials and related line of plush toys have earned a clear space in the nation's cultural consciousness. Unfortunately, Aflac's success will prove difficult to replicate overseas. Aflac's Japanese duck is friendly, reassuring and far less successful. If Aflac's success is the result of a unique cultural connection with its customers, the company is quite secure in the United States but vulnerable everywhere else.
Progress Energy Inc.
Progress Energy Inc. is a high-yielding company with a forward-looking price to earnings ratio of just 14.96 times next year’s projected earnings. With a recent ticker price of $45.54, Progress Energy Inc. is ready for significant appreciation. The company’s operating profit margin is an impressive 15.48%. This results in an annual operating cash flow of $1.819B.
Progress Energy Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.56, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Progress Energy Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Progress Energy Inc.’s total market capitalization of $11.743B is ample proof of such liquidity.
Progress Energy Inc. is a cash cow that has a reasonably attractive valuation. With a beta of 0.56, the company is less risky than the stock market as a whole. This information is useful, but a more careful analysis of Progress Energy Inc. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Progress Energy Inc.’s total market capitalization of $11.743B is ample proof of such liquidity.
Southern Copper Corp.
Southern Copper Corp. is a high-yielding company with a forward-looking price to earnings ratio of just 10.51 times next year’s projected earnings. With a recent ticker price of $94.05, Southern Copper Corp. is ready for significant appreciation. The company’s operating profit margin is an impressive 56.33%. This results in an annual operating cash flow of $2.170B.
Southern Copper Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 2.70, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Southern Copper Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Southern Copper Corp.’s total market capitalization of $27.694B is ample proof of such liquidity.
Southern Copper Corp. is a cash cow that has a reasonably attractive valuation. With a beta of 2.70, the company is more risky than the stock market as a whole. This information is useful, but a more careful analysis of Southern Copper Corp. reveals that the company’s risk profile is not as volatile as many of its competitors. It’s important to invest in a sufficiently liquid stock that money can be taken out of the position on every trading day and Southern Copper Corp.’s total market capitalization of $27.694B is ample proof of such liquidity.
Aetna, Inc.
Aetna is one of the largest diversified health care benefits companies in the world with more than 14 million covered by its most popular policies. More than 400,000 doctors and over 4200 hospitals provide care for Aetna's policy holders. Net income of about $1.7 billion on total revenues of $25 billion isn't tremendously profitable, but the company's over 27,000 employees will be well taken care of.
The principal risk to private health insurers in the United States is that the federal government will step in to either directly limit the industry's profits or otherwise regulate the total cost of health care lower by taking it out on the middle men. While the enormous lobbying power of the insurance industry has already been working on this problem for years, a very real possibility these days is that the federal government will allow private insurers to continue to operate but will sponsor a chosen proxy that will invariably dominate the market.
Government certainly isn't synonymous with efficiency, but the entire health care industry is ripe for serious reform. In a very real sense, Aetna's current size is a powerful hedge against its interests being ignored when Congress finally addresses the issue after the next election.
The principal risk to private health insurers in the United States is that the federal government will step in to either directly limit the industry's profits or otherwise regulate the total cost of health care lower by taking it out on the middle men. While the enormous lobbying power of the insurance industry has already been working on this problem for years, a very real possibility these days is that the federal government will allow private insurers to continue to operate but will sponsor a chosen proxy that will invariably dominate the market.
Government certainly isn't synonymous with efficiency, but the entire health care industry is ripe for serious reform. In a very real sense, Aetna's current size is a powerful hedge against its interests being ignored when Congress finally addresses the issue after the next election.
Abbott Laboratories
Abbott Laboratories markets diversified pharmaceuticals and medical devices. The company's more than 60,000 employees create over $1.7 billion in net income on revenue of more than $22.4 billion. While Abbott's net profit margin doesn't seem very large by industry standards, the company isn't a pure play pharma stock. Rather, the company has a profitable but much lower margin business selling nutritional supplements like Ensure, a flavored shake with more medicinal marketing than Slimfast that is nonetheless substantially the same product.
Abbott Labs has been particularly vulnerable to an industry-wide trend toward class-action lawsuits centering around drugs that the FDA allows on the market but later finds to be toxic or somehow unsafe. Cancer drug Humira, weight loss drug Meridia, and painkiller OxyContin are all prominent examples of drugs that already have or will cost Abbott hundreds of millions of dollars to settle lawsuits.
Abbott Laboratories has spent hundreds of millions of dollars on basic research and development, clinical trials, and other expenses related to bringing new medications to market. The fact that many of the drugs that ultimately blew up in Abbott's face passed FDA review suggests that just getting medications onto the market may not be enough to guarantee massive profits. Abbott Laboratories might be the canary in the coal mine, or not, but investors considering the pharma sector should pay careful attention.
Abbott Labs has been particularly vulnerable to an industry-wide trend toward class-action lawsuits centering around drugs that the FDA allows on the market but later finds to be toxic or somehow unsafe. Cancer drug Humira, weight loss drug Meridia, and painkiller OxyContin are all prominent examples of drugs that already have or will cost Abbott hundreds of millions of dollars to settle lawsuits.
Abbott Laboratories has spent hundreds of millions of dollars on basic research and development, clinical trials, and other expenses related to bringing new medications to market. The fact that many of the drugs that ultimately blew up in Abbott's face passed FDA review suggests that just getting medications onto the market may not be enough to guarantee massive profits. Abbott Laboratories might be the canary in the coal mine, or not, but investors considering the pharma sector should pay careful attention.
Tuesday, June 26, 2007
Gilead Sciences
Gilead Sciences is a biopharmaceutical company that takes drugs from the idea stage all the way to comprehensive treatments with a focus on the care of patients suffering from life-threatening diseases, principally HIV, hepatitis B and influenza. The company has a research focus on anti-infectives. The company's more than 2,500 employees operate on three continents.
Gilead has 11 products on the market, all tackling potentially life-threatening diseases.
By far the most recognizable, Tamiflu is the world's premier treatment for influenza and in 2005 President Bush asked Congress to spend $1 billion to stockpile Tamiflu in order to hedge against the risk of an outbreak of avian flu.
Almost all of Gilead's drugs target diseases that are extremely life-threatening. Despite a number of current drugs focusing on HIV and AIDS, the company's acquisition of Corus in 2006 points the way to cystic fibrosis as the growth market of the future. In an environment where established companies struggle to replace mature drugs with new treatments as their patents run out, Gilead has succeeded in creating exciting new products.
Gilead has 11 products on the market, all tackling potentially life-threatening diseases.
By far the most recognizable, Tamiflu is the world's premier treatment for influenza and in 2005 President Bush asked Congress to spend $1 billion to stockpile Tamiflu in order to hedge against the risk of an outbreak of avian flu.
Almost all of Gilead's drugs target diseases that are extremely life-threatening. Despite a number of current drugs focusing on HIV and AIDS, the company's acquisition of Corus in 2006 points the way to cystic fibrosis as the growth market of the future. In an environment where established companies struggle to replace mature drugs with new treatments as their patents run out, Gilead has succeeded in creating exciting new products.
International Flavors and Fragrances
International Flavors and Fragrances is the world's most recognizable producer of flavors and fragrances with sales of nearly $2 billion in 2005. While the company is not alone in its niche, no other firm can match its combination of expertise and reputation.
On Wall Street, International Flavors and Fragrances is perhaps best known for a nearly unprecedented history of 39 straight years of uninterrupted dividend increases between 1956 and 2005. While the company disappointed investors who had come to believe in its infallibility, the unexpected bump in the road gain patient investors a good buying opportunity.
Flavorings and Fragrances are typically a very dull business, but consistent profits are a virtue that any investor can come to appreciate. While the company is not a bargain at any price, the safety of the company's revenue stream ensures that any downturn is the sign to buy more rather than the occasion to get out.
On Wall Street, International Flavors and Fragrances is perhaps best known for a nearly unprecedented history of 39 straight years of uninterrupted dividend increases between 1956 and 2005. While the company disappointed investors who had come to believe in its infallibility, the unexpected bump in the road gain patient investors a good buying opportunity.
Flavorings and Fragrances are typically a very dull business, but consistent profits are a virtue that any investor can come to appreciate. While the company is not a bargain at any price, the safety of the company's revenue stream ensures that any downturn is the sign to buy more rather than the occasion to get out.
Fluor Corporation
Fluor surely ranks among the largest publicly owned corporations in the business of providing engineering, procurement, construction, and maintenance services for its clients. Fluor is one of the world's safest contractors and is routinely awarded for its unique expertise. Fluor is located in Irving, Texas, but operates as a truly international company employing some 30,000 international employees in over 25 countries.
Fluor's net income of approximately $260 million on just over $14 billion in revenues might not seem terribly impressive, but the company's core clients tend to be governments and major international corporations that offer low, fixed profits with the possibility of a significant bonus for completing the project on time.
Fluor's extensive operations insulate the company from a downturn in any one industry. Because of its exposure to petrochemicals, power, telecommunications, and transportation the company is poised to grow along with an expanding global economy. Infrastructure investments are critical to any developing economy, so many emerging global powers will be requiring Fluor's services in the coming years.
Fluor's net income of approximately $260 million on just over $14 billion in revenues might not seem terribly impressive, but the company's core clients tend to be governments and major international corporations that offer low, fixed profits with the possibility of a significant bonus for completing the project on time.
Fluor's extensive operations insulate the company from a downturn in any one industry. Because of its exposure to petrochemicals, power, telecommunications, and transportation the company is poised to grow along with an expanding global economy. Infrastructure investments are critical to any developing economy, so many emerging global powers will be requiring Fluor's services in the coming years.
FedEx Corporation
FedEx offers overnight courier, ground, heavy freight, document copying and logistics services. Founded in 1971, FedEx is an improbable success because of the unique position of the United States Postal Service. Because Congress mandates that the postal service must offer flat rate coverage to every zip code in the country, private companies are forbidden from competing in the USPS's core business. But FedEx and its competitor UPS have demonstrated that private companies can compete alongside the USPS without being able to offer a full range of services.
In 2000, FedEx and the United States Postal Service initially signed a 7-year contract to carry all the USPS overnight and high-priority mail throughout the FedEx system; the postal contract has been extended until 2012. Given this contract, the rationale behind the special status afforded the postal service has been called into serious question.
FedEx pioneered using jet aircraft to deliver sensitive packages very quickly. This space has been filling up with competitors, but FedEx has a significant infrastructure in place that will give its business an excellent chance to grow.
In 2000, FedEx and the United States Postal Service initially signed a 7-year contract to carry all the USPS overnight and high-priority mail throughout the FedEx system; the postal contract has been extended until 2012. Given this contract, the rationale behind the special status afforded the postal service has been called into serious question.
FedEx pioneered using jet aircraft to deliver sensitive packages very quickly. This space has been filling up with competitors, but FedEx has a significant infrastructure in place that will give its business an excellent chance to grow.
Fannie Mae
The Federal National Mortgage Association, or Fannie Mae, is a government sponsored enterprise that is authorized to make loans and loan guarantees. The company is not funded by the U.S. government, but the capital markets routinely treat the company as if the government has an understood obligation to back the company in the event of disaster.
Fannie Mae is critical to the secondary mortgage market which helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases. Because of the federal government's substantial political interest in home ownership, the company is quite likely to benefit from government support if the business somehow collapses.
As a result of its special status, Fannie Mae has looser restrictions than normal financial institutions. Following the subprime mortgage crisis, its ability to sell mortgage-backed securities with half the capital backing them up than is required by other financial institutions has come into question.
The company ran aground in late 2006 when regulators filed charges against the chief executive and his key aides for manipulating financial statements in order to inflate their personal bonuses. The corporate culture cannot be excised overnight, but the underlying company is still quite the thoroughbred.
Fannie Mae is critical to the secondary mortgage market which helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases. Because of the federal government's substantial political interest in home ownership, the company is quite likely to benefit from government support if the business somehow collapses.
As a result of its special status, Fannie Mae has looser restrictions than normal financial institutions. Following the subprime mortgage crisis, its ability to sell mortgage-backed securities with half the capital backing them up than is required by other financial institutions has come into question.
The company ran aground in late 2006 when regulators filed charges against the chief executive and his key aides for manipulating financial statements in order to inflate their personal bonuses. The corporate culture cannot be excised overnight, but the underlying company is still quite the thoroughbred.
Equifax, Inc.
Equifax one of the "big three" credit agencies that along with Experian and TransUnion provides businesses and consumers the information needed to make modern credit markets function. With information on over 400 million credit holders worldwide, the Atlanta, Georgia based firm is a global service provider employs more than 5,000 people on 3 continents in order to generate revenues of over $1.5 billion.
The credit reporting industry was once primarily concerned with business-to-business transactions, but the growth of an enormous consumer credit industry has opened up new opportunities in products designed to aid consumers. By helping people understand and monitor their credit, the company has opened up whole new vistas of profit potential in the credit monitoring and fraud prevention business.
Identity theft is the growth crime of the 21st century and companies like Equifax are going to find a place fighting this new menace. Due to the enormous barriers to entry in its core market and oligopolistic market structure, Equifax is due to profit nicely in the coming years.
The credit reporting industry was once primarily concerned with business-to-business transactions, but the growth of an enormous consumer credit industry has opened up new opportunities in products designed to aid consumers. By helping people understand and monitor their credit, the company has opened up whole new vistas of profit potential in the credit monitoring and fraud prevention business.
Identity theft is the growth crime of the 21st century and companies like Equifax are going to find a place fighting this new menace. Due to the enormous barriers to entry in its core market and oligopolistic market structure, Equifax is due to profit nicely in the coming years.
Eaton Corporation
Eaton Corporation is a $12.4 billion goliath, with 61,000 employees and customers in more than 125 countries. Eaton is a global industry leader in numerous sectors such as electrical systems and components, fluid power systems and services, and specialized components for increased fuel efficiency.
Eaton bought the Westinghouse Distribution and Controls Business Unit in 1994. The acquisition included all of the Westinghouse electrical distribution and control product business and sole access to the valuable brand.
Eaton's expertise stretches across many related industries, but the company knows to pay attention to its core skills. The company spun off its semiconductor equipment in 2000 as Axcelis.
The global growth of the automotive industry and increasing air travel in Asia and the Middle East bode well for Eaton's prospects. The company can be expected to continue to grow along with its extensive client base.
Eaton bought the Westinghouse Distribution and Controls Business Unit in 1994. The acquisition included all of the Westinghouse electrical distribution and control product business and sole access to the valuable brand.
Eaton's expertise stretches across many related industries, but the company knows to pay attention to its core skills. The company spun off its semiconductor equipment in 2000 as Axcelis.
The global growth of the automotive industry and increasing air travel in Asia and the Middle East bode well for Eaton's prospects. The company can be expected to continue to grow along with its extensive client base.
DirecTV Group Inc.
DirecTV is a company built on a dream of television programming delivered via satellite. In some important respects, DirecTV has clearly fulfilled that vision, providing more channels of high-definition programming than the land-based competition. On the other hand, technological innovation in the field of fiber optics has enabled cable companies to offer effectively comparable service without the enormous upfront costs associated with launching satellites. At the same time, aeronautic innovations have not keep pace and the price of launching additional satellites remain high.
While DirecTV is effectively protected from competition by other satellite operators by these high fixed costs, the company still faces substantial competition. This is unfortunate, because the satellite distribution model works best when it is used the most. Cable companies don't have this same increasing return on their working capital, but they have prevented satellite television from reaching the critical mass it needs to dominate distribution.
Ultimately, most consumers are probably much worse off with significantly higher cable bills than they would if satellite television had been adopted by more people sooner. But that doesn't mean that DirecTV is going to be a good investment now or in the future.
While DirecTV is effectively protected from competition by other satellite operators by these high fixed costs, the company still faces substantial competition. This is unfortunate, because the satellite distribution model works best when it is used the most. Cable companies don't have this same increasing return on their working capital, but they have prevented satellite television from reaching the critical mass it needs to dominate distribution.
Ultimately, most consumers are probably much worse off with significantly higher cable bills than they would if satellite television had been adopted by more people sooner. But that doesn't mean that DirecTV is going to be a good investment now or in the future.
Clear Channel Communications
Clear Channel is the largest owner of radio stations in the United States. Following the company's acquisition by two private equity firms, most of the 1100 radio stations acquired by the company since the Telecommunications Act of 1996 have been put on the block.
Given the clear advantages to managing more than one radio station, it might seem like Clear Channel was ignoring basic economic logic. But many other factors may actually make many smaller radio stations more profitable than one large conglomerate. Clear Channel takes a great deal of public flack for being an "evil corporation" with ties to the Republican Party in general and the Bush administration in particular.
With the ascendancy of the Democratic Party across more and more of the nation, the radio business is facing a large threat to its profitability. This threat takes the form of the so-called "Fairness Doctrine". Because talk radio is effectively controlled by conservatives like Rush Limbaugh, the Fairness Doctrine would right this imbalance by mandating equal time for opposing viewpoints. Unfortunately, it is the received wisdom in the radio business that the Fairness Doctrine will spell the economic death of the industry because no one wants to listen to people who disagree with them.
Clear Channel as an economic force is entirely a result of government policy - the Telecommunications Act of 1996. Ironically, the company is likely to be undone by the long-delayed political backlash against more than a decade of Republican rule in Congress.
Given the clear advantages to managing more than one radio station, it might seem like Clear Channel was ignoring basic economic logic. But many other factors may actually make many smaller radio stations more profitable than one large conglomerate. Clear Channel takes a great deal of public flack for being an "evil corporation" with ties to the Republican Party in general and the Bush administration in particular.
With the ascendancy of the Democratic Party across more and more of the nation, the radio business is facing a large threat to its profitability. This threat takes the form of the so-called "Fairness Doctrine". Because talk radio is effectively controlled by conservatives like Rush Limbaugh, the Fairness Doctrine would right this imbalance by mandating equal time for opposing viewpoints. Unfortunately, it is the received wisdom in the radio business that the Fairness Doctrine will spell the economic death of the industry because no one wants to listen to people who disagree with them.
Clear Channel as an economic force is entirely a result of government policy - the Telecommunications Act of 1996. Ironically, the company is likely to be undone by the long-delayed political backlash against more than a decade of Republican rule in Congress.
Charles Schwab Corp.
Charles Schwab has profited primarily by riding the wave of financial innovation in the aftermath of the demise of traditional pensions. In a world where most workers need to save and invest independently in order to prepare for their retirement, Charles Schwab offers small investors the tools that just a few years ago were only available to the insiders.
The modern investing framework emphasizes independent financial advisers that provide objective advice that is then executed through an outside party in order to ensure that objectivity. While the emergence of the hedge fund industry has offered sophisticated investors an opportunity to trade aggressively, Charles Schwab provides all the tools that the average investor will ever need. Charles Schwab is the logical outside party to execute the average investor's trades and the company has seen impressive growth.
The discount broker business is at its heart a commodity business that aims to charge a low price for timely trades, yet many investors are willing to upgrade their services as they grow progressively more wealthy. Because of Charles Schwab's advertising presence, the company is particularly well placed to upgrade the accounts of its more than 7 million clients.
The modern investing framework emphasizes independent financial advisers that provide objective advice that is then executed through an outside party in order to ensure that objectivity. While the emergence of the hedge fund industry has offered sophisticated investors an opportunity to trade aggressively, Charles Schwab provides all the tools that the average investor will ever need. Charles Schwab is the logical outside party to execute the average investor's trades and the company has seen impressive growth.
The discount broker business is at its heart a commodity business that aims to charge a low price for timely trades, yet many investors are willing to upgrade their services as they grow progressively more wealthy. Because of Charles Schwab's advertising presence, the company is particularly well placed to upgrade the accounts of its more than 7 million clients.
Caterpillar, Inc.
Caterpillar is the world's greatest manufacturer of construction and mining equipment. The company's products, with their distinctive paint job, are the industry benchmark for reliability and dependability. With well over $40 billion in annual revenues, Caterpillar is an effective proxy for world economic growth. With the global economy poised to grow at more than 5% this year, Caterpillar is going to see tremendous business around the world.
Caterpillar has an ugly history of labor strikes and strife between the company's union and its management. In the early 1980s, labor strikes and an economic downturn nearly destroyed the company. The corporate response was to build new production in non-union towns and hire "permanent replacements" for striking workers. The strategy worked and the power of the union withered.
Today, Caterpillar is a promoter of the "6 Sigma" program which seeks to drive down costs and inefficiency by finding weaknesses in products and processes at the company.
Caterpillar does nearly half of its business outside the United States. Global economic activity outside the United States looks stronger than domestic activity in the near-term and Caterpillar is ready to take advantage of that to grow its business.
Caterpillar has an ugly history of labor strikes and strife between the company's union and its management. In the early 1980s, labor strikes and an economic downturn nearly destroyed the company. The corporate response was to build new production in non-union towns and hire "permanent replacements" for striking workers. The strategy worked and the power of the union withered.
Today, Caterpillar is a promoter of the "6 Sigma" program which seeks to drive down costs and inefficiency by finding weaknesses in products and processes at the company.
Caterpillar does nearly half of its business outside the United States. Global economic activity outside the United States looks stronger than domestic activity in the near-term and Caterpillar is ready to take advantage of that to grow its business.
Carnival Corporation
Carnival is the world's pre-eminent cruise operation with more than 80 ships and another dozen or so on order. With net income of more than $2.2 billion on revenues of under $12 billion, the company is in excellent financial shape. The company's unusual ownership structure and penchant for expansion into ancillary businesses like the ill-fated Carnival Air Lines suggests a management uncomfortable with the status quo.
The company has been dogged by allegations of crimes taking place on its cruises and the emerging phenomenon of the "sick ship" that somehow infects most of its passengers with exotic illnesses. Nonetheless, the leisure industry is poised to grow impressively as the worldwide middle class expands enormously.
Carnival is a family business, run by the son of the company's founder. Carnival Corporation's core business should see above trend growth, but the risk-taking aggressiveness that grew the company so quickly could easily backfire on a new, larger stage.
The company has been dogged by allegations of crimes taking place on its cruises and the emerging phenomenon of the "sick ship" that somehow infects most of its passengers with exotic illnesses. Nonetheless, the leisure industry is poised to grow impressively as the worldwide middle class expands enormously.
Carnival is a family business, run by the son of the company's founder. Carnival Corporation's core business should see above trend growth, but the risk-taking aggressiveness that grew the company so quickly could easily backfire on a new, larger stage.
Monday, June 25, 2007
The Kroger Co.
Kroger is the United States number one standalone grocery retailer. While the company is smaller than Wal-Mart's grocery division, more than $60 billion in annual sales is nothing to laugh at. The company's location in the South and Midwest occurred by no accident. The company has repeatedly tried to compete in western Pennsylvania but has been unsuccessful due to a series of management missteps, local competition, and labor difficulties.
Kroger runs a series of grocery stores that don't particularly attempt to compete on price. Rather, the company has succeeded in convincing numerous consumers to pay significantly more for cleaner stores with more employees.
Ironically, Kroger's strength in the Midwest is actually more of a liability than an asset in the near term due to continuing economic weakness there. Kroger's southern stores have been repeated out-competed by H-E-B, most notably in San Antonio, and Wal-Mart.
Kroger is not a particularly good value for its customers and investors should look elsewhere for profits in this sector. Wal-Mart is certainly more than a grocery store, but the rest of the company is a better bet for future growth than Kroger's stale, over-priced brands. If you're looking for a pure play on the grocery market, consider Whole Foods Markets. Impending strikes throughout California will give Whole Foods' labor-unfriendly business model a competitive advantage.
Kroger runs a series of grocery stores that don't particularly attempt to compete on price. Rather, the company has succeeded in convincing numerous consumers to pay significantly more for cleaner stores with more employees.
Ironically, Kroger's strength in the Midwest is actually more of a liability than an asset in the near term due to continuing economic weakness there. Kroger's southern stores have been repeated out-competed by H-E-B, most notably in San Antonio, and Wal-Mart.
Kroger is not a particularly good value for its customers and investors should look elsewhere for profits in this sector. Wal-Mart is certainly more than a grocery store, but the rest of the company is a better bet for future growth than Kroger's stale, over-priced brands. If you're looking for a pure play on the grocery market, consider Whole Foods Markets. Impending strikes throughout California will give Whole Foods' labor-unfriendly business model a competitive advantage.
JDS Uniphase
JDS Uniphase is perhaps most useful to current investors as an object lesson in what happens when a bubble gets wildly out of control. JDSU, as the company likes to refer to itself, lost more than $45 billion in market value in 2001 when the bubble popped. For a company that today has revenues of approximately $1.2 billion, JDS Uniphase represents the worst of the tech bubble.
Today, JDS Uniphase still retains technological leadership in a number of fiber optic research areas critical to the accepted future of telephone and Internet services. While Jim Cramer's recommendation could as easily be read as a red flag as a positive, JDSU is definitely going to benefit from a very real build-out of the nation's fiber optic infrastructure.
JDS Uniphase's best days are well behind it, but so are its worst. The stock is likely to see significant upside over the next decade, but its technology is ultimately going to be relegated to commodity status much like the computer hard drive manufacturers. Numerous telecom stocks are going to out-perform in the near term and the long-term is likely to be dominated by software companies. Hardware manufacturers have enormous fixed costs that simply have no parallel in the software business.
Today, JDS Uniphase still retains technological leadership in a number of fiber optic research areas critical to the accepted future of telephone and Internet services. While Jim Cramer's recommendation could as easily be read as a red flag as a positive, JDSU is definitely going to benefit from a very real build-out of the nation's fiber optic infrastructure.
JDS Uniphase's best days are well behind it, but so are its worst. The stock is likely to see significant upside over the next decade, but its technology is ultimately going to be relegated to commodity status much like the computer hard drive manufacturers. Numerous telecom stocks are going to out-perform in the near term and the long-term is likely to be dominated by software companies. Hardware manufacturers have enormous fixed costs that simply have no parallel in the software business.
Family Dollar
Family Dollar's market location at the very bottom of the retail food chain puts the company in what would seem to be an unenviable position. But in spite of spending the entirety of its existence in more or less direct competition with Wal-Mart, Family Dollar has found the means to not only survive but thrive.
Operating more than 6300 stores all across the United States, Family Dollar has more than doubled in size in just the last seven years. Since taking over in 2003, the son of the company's father has more than demonstrated his business acumen. This smooth transition indicates that the current management is going to be quite stable for the foreseeable future.
Family Dollar has demonstrated an ability to grow its core business no matter the prevailing business environment. If the economy booms, more people will shop in its stores. If the economy falters, many consumers will shift from more expensive retailers and continue to drive the company's bottom line.
Family Dollar is an excellent long-term investment, but the stock should not be purchased at any price. Pay close attention to the company's ability to drive same-store sales. The company has put many new stores in business very recently and will need to demonstrate an ability to continue to grow sales at these locations.
Operating more than 6300 stores all across the United States, Family Dollar has more than doubled in size in just the last seven years. Since taking over in 2003, the son of the company's father has more than demonstrated his business acumen. This smooth transition indicates that the current management is going to be quite stable for the foreseeable future.
Family Dollar has demonstrated an ability to grow its core business no matter the prevailing business environment. If the economy booms, more people will shop in its stores. If the economy falters, many consumers will shift from more expensive retailers and continue to drive the company's bottom line.
Family Dollar is an excellent long-term investment, but the stock should not be purchased at any price. Pay close attention to the company's ability to drive same-store sales. The company has put many new stores in business very recently and will need to demonstrate an ability to continue to grow sales at these locations.
Exxon Mobil Corporation
Exxon Mobil is the world's most valuable corporation. With more than $40 billion a year in profits, it is also the most profitable business in history. It would probably surprise most casual observers that Exxon Mobil owes almost all of the attention paid to the company to its tremendous scale. With annual revenues surpassing $400 billion, the company's sub-10% profit margin is hardly awe-inspiring. Even within the context of the global oil business, Exxon Mobil is just a bit player. The company contributes just 3% of the world's oil and 2% of its total energy. Several state petroleum producers are significantly larger than Exxon Mobil. But Exxon Mobil stands alone as the largest American multi-national.
Consequently, Exxon Mobil takes extreme heat in the press for its shady foreign business practices and dodgy human rights record. The Exxon Valdez oil spill still makes headlines years after the US Supreme Court left the company on the hook for $5 billion in punitive damages. Even Exxon Mobil's funding of global warming skeptics needs to be seen in light of the companies American heritage. The state oil monopolies in Saudi Arabia or Venezuela don't need to spend money to alter public opinion, Russia's Gazprom just cuts right through government red tape to open huge new projects. In contrast, Exxon Mobil must fight aggressively just to stay in business.
Yet Exxon Mobil enjoys countervailing advantages that far outweigh these disadvantages. The legal framework in the United States may make doing business difficult, but it also makes it virtually impossible to expropriate profits. For all the concern about a windfall profits tax, Exxon Mobil faces no threat even close to the danger it faces doing business in numerous autocratic nations around the world. Russia and Venezuela simply seize foreign assets at will. At least in the United States, property rights are accorded much more protection.
Exxon Mobil is the world's largest publicly traded oil company. The entire energy sector has been experiencing tremendous growth in recent years and the same regulatory structure that once nearly strangled the industry has now given rise to enormous barriers to increased production. In an ironic twist of fate, current production is now immensely more profitable without any significant increase in the cost of doing business. And regulatory hurdles to new production have made the industry completely impregnable to new competition.
Exxon Mobil is a risky energy play. If any company is going to be held back due to political pressure, that company will surely be Exxon Mobil. Nonetheless, the company stands to profit more than any other company on the planet if current trends continue. Stock symbol XOM is a definite buy. Any investments of fresh capital should be balanced by other investments without significant energy exposure.
Consequently, Exxon Mobil takes extreme heat in the press for its shady foreign business practices and dodgy human rights record. The Exxon Valdez oil spill still makes headlines years after the US Supreme Court left the company on the hook for $5 billion in punitive damages. Even Exxon Mobil's funding of global warming skeptics needs to be seen in light of the companies American heritage. The state oil monopolies in Saudi Arabia or Venezuela don't need to spend money to alter public opinion, Russia's Gazprom just cuts right through government red tape to open huge new projects. In contrast, Exxon Mobil must fight aggressively just to stay in business.
Yet Exxon Mobil enjoys countervailing advantages that far outweigh these disadvantages. The legal framework in the United States may make doing business difficult, but it also makes it virtually impossible to expropriate profits. For all the concern about a windfall profits tax, Exxon Mobil faces no threat even close to the danger it faces doing business in numerous autocratic nations around the world. Russia and Venezuela simply seize foreign assets at will. At least in the United States, property rights are accorded much more protection.
Exxon Mobil is the world's largest publicly traded oil company. The entire energy sector has been experiencing tremendous growth in recent years and the same regulatory structure that once nearly strangled the industry has now given rise to enormous barriers to increased production. In an ironic twist of fate, current production is now immensely more profitable without any significant increase in the cost of doing business. And regulatory hurdles to new production have made the industry completely impregnable to new competition.
Exxon Mobil is a risky energy play. If any company is going to be held back due to political pressure, that company will surely be Exxon Mobil. Nonetheless, the company stands to profit more than any other company on the planet if current trends continue. Stock symbol XOM is a definite buy. Any investments of fresh capital should be balanced by other investments without significant energy exposure.
Dow Chemical Company
A chemical companies' chemical company, most of Dow Chemical's sales are intermediate products that other companies integrate into their own products rather than consumer goods. As a consequence, Dow Chemical has been able to effectively inoculate itself against the rising costs of industrial inputs.
Only BASF is a larger manufacturer of chemicals. But Dow Chemical is very heavily invested in hydrocarbons. Deriving approximately 50% of its sales from basic and performance plastics, the company needs access to enormous quantities of petroleum products even though its Hydrocarbons and Energy segment only accounts for 13% of sales.
Dow Chemical tends not to make large capital investments on its own. Rather, the company leverages its extensive intellectual capital to make joint projects work using someone else's capital. Dow Chemical is effectively moving from the restrictive operating environment in Western Europe and the United States and making increasing investments in the Middle East and Asia.
Dow Chemical faces significant downside risks coming from increasing environmental regulation, litigation relating to past environmental pollution, and geopolitical risk that its Middle Eastern and Asian operations could be either confiscated or otherwise rendered unprofitable by autocratic governments.
Dow Chemical's downside risks are more than balanced by the continuing strength of its core plastics business as well as a strong history of technological innovation. While Dow Chemical is more tightly integrated with the risk of petrochemical supply disruption, it is also better positioned to benefit from sustained higher prices. Dow Chemical is a strong buy, but its obvious dependence on the global oil industry needs to be considered when constructing any portfolio. Don't buy lots of energy industry stocks and expect Dow Chemical to provide any significant diversification.
Only BASF is a larger manufacturer of chemicals. But Dow Chemical is very heavily invested in hydrocarbons. Deriving approximately 50% of its sales from basic and performance plastics, the company needs access to enormous quantities of petroleum products even though its Hydrocarbons and Energy segment only accounts for 13% of sales.
Dow Chemical tends not to make large capital investments on its own. Rather, the company leverages its extensive intellectual capital to make joint projects work using someone else's capital. Dow Chemical is effectively moving from the restrictive operating environment in Western Europe and the United States and making increasing investments in the Middle East and Asia.
Dow Chemical faces significant downside risks coming from increasing environmental regulation, litigation relating to past environmental pollution, and geopolitical risk that its Middle Eastern and Asian operations could be either confiscated or otherwise rendered unprofitable by autocratic governments.
Dow Chemical's downside risks are more than balanced by the continuing strength of its core plastics business as well as a strong history of technological innovation. While Dow Chemical is more tightly integrated with the risk of petrochemical supply disruption, it is also better positioned to benefit from sustained higher prices. Dow Chemical is a strong buy, but its obvious dependence on the global oil industry needs to be considered when constructing any portfolio. Don't buy lots of energy industry stocks and expect Dow Chemical to provide any significant diversification.
Duke Energy
Duke Energy's power plants provide electricity to North Carolina, South Carolina, Kentucky, Ohio, and Indiana. The company also has assets in Canada and Latin America, but it is Duke Energy's ability to leverage its nuclear, coal-based, and hydroelectric generating plants that sets the company apart.
In April 2007, the company lost a long-running lawsuit with the Environmental Protection Agency over compliance with the Clean Air Act. The unanimous verdict struck a severe blow to the company's carbon emitting coal power plants, but Duke Energy's experience running a number of nuclear power stations puts the company in an excellent position going forward.
Since March of 2006, Duke Energy has been working on a new nuclear power plant in Cherokee County. In recent years, nuclear power has appeared to be a dying technology. Aggressive environmental regulations have effectively killed any proposed nuclear power plants for the last thirty years. But now that increased awareness of the threat posed by global warming has turned nuclear power into a new "green" alternative.
Electric power generating utilities are heavily regulated by the government. Profits tend to be limited by a popular unwillingness to pay high rates for electricity. Yet the government effectively guarantees a reasonable level of profit to generators.
Electricity demand has been rising for years and Duke Energy is well-positioned to make effective new investments in nuclear power plants. The entire energy sector is in the midst of a tremendous cyclic boom and while utilities aren't going to be able to access the windfall profits that oil refiners and drillers will earn, the industry is immune to downward volatility and Duke Energy's conventional alternatives to oil and gas will benefit from increased government interest. Duke Energy is a long-term buy, but fresh investment capital could likely be invested more profitably elsewhere in the energy sector.
In April 2007, the company lost a long-running lawsuit with the Environmental Protection Agency over compliance with the Clean Air Act. The unanimous verdict struck a severe blow to the company's carbon emitting coal power plants, but Duke Energy's experience running a number of nuclear power stations puts the company in an excellent position going forward.
Since March of 2006, Duke Energy has been working on a new nuclear power plant in Cherokee County. In recent years, nuclear power has appeared to be a dying technology. Aggressive environmental regulations have effectively killed any proposed nuclear power plants for the last thirty years. But now that increased awareness of the threat posed by global warming has turned nuclear power into a new "green" alternative.
Electric power generating utilities are heavily regulated by the government. Profits tend to be limited by a popular unwillingness to pay high rates for electricity. Yet the government effectively guarantees a reasonable level of profit to generators.
Electricity demand has been rising for years and Duke Energy is well-positioned to make effective new investments in nuclear power plants. The entire energy sector is in the midst of a tremendous cyclic boom and while utilities aren't going to be able to access the windfall profits that oil refiners and drillers will earn, the industry is immune to downward volatility and Duke Energy's conventional alternatives to oil and gas will benefit from increased government interest. Duke Energy is a long-term buy, but fresh investment capital could likely be invested more profitably elsewhere in the energy sector.
Embarq Corporation
Ever since the government-imposed breakup of Ma Bell, the proliferation of geographically dispersed companies that have spawned and re-spawned in the intervening period have confused and infuriated customers. Prices have certainly fallen for all manner of data and telephony services, but it remains unclear whether or not the breakup played any significant part in that.
Embarq Corporation is the largest independent local phone service provider in the nation. It has customers in 18 states, although its largest customer base is in Las Vegas, Nevada. Embarq's balance sheet is weighed down by the more than $6 billion in debt that was transferred from Sprint Nextel when Embarq was spun off from the parent company. On a company with revenues of only $6 billion, the debt burden is quite significant.
Embarq faces highly limited competition in its core markets. While cable companies and new entrants like Vonage have sought to get into the highly lucrative local phone service market, any weakness from increased competition is easily overcome by the introduction of new high-speed data and wireless services. Almost all customers have much higher combined phone bills today than just a few years ago, and even though they consume much more services, Embarq is also making much more money.
Embarq Corporation is one of the larger local exchange carriers, but the company is heavily weighed down by debt. Telecommunications is finally coming around after years of lethargy, and Embarq will certainly ride that wave. Nonetheless, high debt keeps stock symbol EQ a hold in even the best of circumstances. Most portfolios should underweight Embarq in favor of the larger Baby Bells or wireless and cellular communications providers.
Embarq Corporation is the largest independent local phone service provider in the nation. It has customers in 18 states, although its largest customer base is in Las Vegas, Nevada. Embarq's balance sheet is weighed down by the more than $6 billion in debt that was transferred from Sprint Nextel when Embarq was spun off from the parent company. On a company with revenues of only $6 billion, the debt burden is quite significant.
Embarq faces highly limited competition in its core markets. While cable companies and new entrants like Vonage have sought to get into the highly lucrative local phone service market, any weakness from increased competition is easily overcome by the introduction of new high-speed data and wireless services. Almost all customers have much higher combined phone bills today than just a few years ago, and even though they consume much more services, Embarq is also making much more money.
Embarq Corporation is one of the larger local exchange carriers, but the company is heavily weighed down by debt. Telecommunications is finally coming around after years of lethargy, and Embarq will certainly ride that wave. Nonetheless, high debt keeps stock symbol EQ a hold in even the best of circumstances. Most portfolios should underweight Embarq in favor of the larger Baby Bells or wireless and cellular communications providers.
Costco
The membership warehouse club business has high volume and low profit margins. Costco's five hundred plus warehouses have a combined annual revenue of over $60 billion, but only a little over $1 billion in profits. Now $1 billion is nothing to sneeze at, but 132,000 employees could be expected to create many multiples of that in almost any other business.
For a company founded in 1983, the business has demonstrated a history of phenomenal growth. Yet after an industry shakeout that bolstered Costco at the expense of its primary competitor Sam's Club, the current environment doesn't appear to offer Costco another reprieve.
Costco's business model is built on fewer warehouses operated by much more highly paid employees moving truly prodigious amounts of product in order to beat back Sam's Club and its major trump - Wal-Mart's accumulated relationships and business acumen. Costco is much more labor friendly than Wal-Mart and that actually translates into a significant competitive advantage in Blue America. Unfortunately, Wal-Mart's size and unprecedented competitive drive ensure razor-thin margins.
Costco has created tremendous wealth in the relatively short time it has been in business, and no particular trend aside from a wholesale economic downturn is likely to drag the company under. Unfortunately, Wal-Mart is better positioned to use its greater size to extract greater profits and squeeze its smaller competitors. Costco is a fine business on its own, but stock symbol COST is only worth holding on to. Any new capital should be invested in either industry leader Wal-Mart or an industry with greater profit margins.
For a company founded in 1983, the business has demonstrated a history of phenomenal growth. Yet after an industry shakeout that bolstered Costco at the expense of its primary competitor Sam's Club, the current environment doesn't appear to offer Costco another reprieve.
Costco's business model is built on fewer warehouses operated by much more highly paid employees moving truly prodigious amounts of product in order to beat back Sam's Club and its major trump - Wal-Mart's accumulated relationships and business acumen. Costco is much more labor friendly than Wal-Mart and that actually translates into a significant competitive advantage in Blue America. Unfortunately, Wal-Mart's size and unprecedented competitive drive ensure razor-thin margins.
Costco has created tremendous wealth in the relatively short time it has been in business, and no particular trend aside from a wholesale economic downturn is likely to drag the company under. Unfortunately, Wal-Mart is better positioned to use its greater size to extract greater profits and squeeze its smaller competitors. Costco is a fine business on its own, but stock symbol COST is only worth holding on to. Any new capital should be invested in either industry leader Wal-Mart or an industry with greater profit margins.
Corning Inc.
Corning has come a long way from its historical roots in the glass business. The secret has been a revolutionary sustained focus on research and development. The company's immensely profitable fiber optic cable business had its roots in research the company conducted in 1970. Despite the collapse of fiber optic cabling after the Dot Bomb, the company's attention to research yielded technologies that have made Corning the world's pre-eminent manufacturer of glass for liquid crystal displays.
Now that the dust has finally settled after the last great technology bust up, the next great infrastructure build out is finally getting under way. With the advent of new mass-market technologies that really use up the bandwidth, Corning is poised to see renewed growth.
Even if Corning's technology business were to evaporate, the corporation's legacy glassware division also has substantial value.
Corning is ready to take advantage of the growth of Internet 2.0, but not completely dependent on any specific technology taking off. Wireless Internet access is a long-term threat, but ultimately the inherent insecurity of anything other than a physical cable used to transmit communications ensures Corning's eventual profit. Stock symbol GLW is worthy of the allocation of fresh money. Even investors already holding the stock should consider increasing their investment.
Now that the dust has finally settled after the last great technology bust up, the next great infrastructure build out is finally getting under way. With the advent of new mass-market technologies that really use up the bandwidth, Corning is poised to see renewed growth.
Even if Corning's technology business were to evaporate, the corporation's legacy glassware division also has substantial value.
Corning is ready to take advantage of the growth of Internet 2.0, but not completely dependent on any specific technology taking off. Wireless Internet access is a long-term threat, but ultimately the inherent insecurity of anything other than a physical cable used to transmit communications ensures Corning's eventual profit. Stock symbol GLW is worthy of the allocation of fresh money. Even investors already holding the stock should consider increasing their investment.
ConocoPhillips
ConocoPhillips, a Houston, Texas based energy titan, is the second largest oil refiner in the United States. The company's concentration in the United States combined with its worldwide reach makes ConocoPhillips uniquely suited to profit in the coming years.
Yet ConocoPhillips' strengths are by no means a complete assurance of increasing profits. Competition from industry leader Exxon Mobil is unlikely to take the form that most observers are used to. None of the major oil producers has demonstrated any particular ability to influence the price of fuel by anything less drastic than accidentally destroying their facilities. As a consequence, in an environment of constantly increasing demand for energy, all of the major oil companies see their profits curtailed only by their inability to increase production. Unfortunately for the industry as a whole, however, political pressure to reduce gas prices has put most politicians in the position of aggressively opposing large profits for oil companies.
The current situation in the oil industry is one of practically guaranteed profits on a scale previously unimaginable. Unfortunately for American multinationals, there is a substantial risk that the winner of the 2008 Presidential election is going to endorse imposing a windfall profits tax on the industry that effectively destroys the profit potential of the industry.
ConocoPhillips is not the largest oil company in the world, but it is one of the largest. The company is particularly well placed to make substantial refining profits. While ConocoPhillips is perhaps not as favored as industry leader Exxon Mobil, stock symbol COP is a definite hold and a possible buy.
Yet ConocoPhillips' strengths are by no means a complete assurance of increasing profits. Competition from industry leader Exxon Mobil is unlikely to take the form that most observers are used to. None of the major oil producers has demonstrated any particular ability to influence the price of fuel by anything less drastic than accidentally destroying their facilities. As a consequence, in an environment of constantly increasing demand for energy, all of the major oil companies see their profits curtailed only by their inability to increase production. Unfortunately for the industry as a whole, however, political pressure to reduce gas prices has put most politicians in the position of aggressively opposing large profits for oil companies.
The current situation in the oil industry is one of practically guaranteed profits on a scale previously unimaginable. Unfortunately for American multinationals, there is a substantial risk that the winner of the 2008 Presidential election is going to endorse imposing a windfall profits tax on the industry that effectively destroys the profit potential of the industry.
ConocoPhillips is not the largest oil company in the world, but it is one of the largest. The company is particularly well placed to make substantial refining profits. While ConocoPhillips is perhaps not as favored as industry leader Exxon Mobil, stock symbol COP is a definite hold and a possible buy.
ConAgra Foods, Inc.
ConAgra is one of the pillars of American agribusiness. And it reflects the broader strengths and weaknesses of its industry perhaps more than any other major industry player. Despite its humble headquarters in Omaha, Nebraska, ConAgra is a titan that stands astride the supermarket aisles of the nation. Popular brands like Peter Pan peanut butter and Hebrew National hot dogs are a critical part of quintessential Americana.
Yet the peanut butter recall that brought Peter Pan to its knees is part of a larger, uglier tradition at ConAgra. In 2001, a Colorado turkey processing plant was found by the US Department of Agriculture to have the highest rate of salmonella contamination in the country. More than half of the turkeys processed were contaminated.
ConAgra became a behemoth by going on a buying spree that lasted more than two decades. But at no time did the company consider moving outside of its primary competency in the food industry. Frozen food, packaged meat, and cake mix are all different businesses, but they all are subject to similar risks.
Food doesn't seem like it should be a highly cyclical business, but that is precisely what history has revealed it to be. Ironically, food is entering a very strong part of its long-term cycle and looks poised to see substantial growth in the coming years.
ConAgra represents everything that is good and bad about modern agribusiness, and these days that makes stock symbol CAG a good buy.
Yet the peanut butter recall that brought Peter Pan to its knees is part of a larger, uglier tradition at ConAgra. In 2001, a Colorado turkey processing plant was found by the US Department of Agriculture to have the highest rate of salmonella contamination in the country. More than half of the turkeys processed were contaminated.
ConAgra became a behemoth by going on a buying spree that lasted more than two decades. But at no time did the company consider moving outside of its primary competency in the food industry. Frozen food, packaged meat, and cake mix are all different businesses, but they all are subject to similar risks.
Food doesn't seem like it should be a highly cyclical business, but that is precisely what history has revealed it to be. Ironically, food is entering a very strong part of its long-term cycle and looks poised to see substantial growth in the coming years.
ConAgra represents everything that is good and bad about modern agribusiness, and these days that makes stock symbol CAG a good buy.
Wednesday, June 20, 2007
Insurance
Deciding whether to purchase life insurance and if so how much is a potentially life-changing decision. And not just for those you leave behind. The decision to insure oneself ultimately must be left up to each individual. It may not make sense to spend a large sum each month in order to enrich a distant relative upon your demise. And you can almost certainly invest any money saved on insurance premiums at a higher rate than the insurance company gives you credit for.
But for many people with dependents, life insurance remains a moral imperative. Still, the decision of how much insurance to purchase matters a great deal. Most people can afford to significantly upgrade their insurance coverage without breaking the bank, especially if their employer subsidizes their purchase. But any money spent on premiums is essentially money down the drain.
Many insurance companies advertise plans that build cash value over time and one recent innovation is to return the entire premium value at the end of a predetermined period. This provides a savings mechanism for people otherwise too easily parted from their money, but the investment returns are really sub-par. Even investing in a savings account can earn more interest than buying life insurance.
The best path is clear. Don't buy insurance you don't need and save the rest. If you're young and lack children, it probably doesn't make sense to buy life insurance. But when you do buy insurance, just buy a straightforward term policy. Don't get tricked by a gimmick into poor investment vehicles. And look both ways before you cross the street.
But for many people with dependents, life insurance remains a moral imperative. Still, the decision of how much insurance to purchase matters a great deal. Most people can afford to significantly upgrade their insurance coverage without breaking the bank, especially if their employer subsidizes their purchase. But any money spent on premiums is essentially money down the drain.
Many insurance companies advertise plans that build cash value over time and one recent innovation is to return the entire premium value at the end of a predetermined period. This provides a savings mechanism for people otherwise too easily parted from their money, but the investment returns are really sub-par. Even investing in a savings account can earn more interest than buying life insurance.
The best path is clear. Don't buy insurance you don't need and save the rest. If you're young and lack children, it probably doesn't make sense to buy life insurance. But when you do buy insurance, just buy a straightforward term policy. Don't get tricked by a gimmick into poor investment vehicles. And look both ways before you cross the street.
Best Buy
The mass-market electronics business is a notoriously difficult nut to crack. Aggressive competition from players like Circuit City is only half the battle. Discounters like Wal-Mart and slightly more upscale venues like Target are eager to gain a piece of the market. And when traditional powerhouses like Radio Shack enter the mix, consumers have enormous options and retailers have significant competition.
The entire business model has changed significantly due to all this competition. What once would have been blockbuster models are transformed into loss leaders. Best Buy can't undercut competition from Wal-Mart when Wal-Mart cuts prices on game systems so low that droves of customers literally crush each other in a mad stampede to get the hottest new product.
Yet the rewards for winning the competition for this sector of retail are especially rich. Best Buy can afford to heavily saturate its stores with sales personnel. While Wal-Mart's customers are left to their own devices, customers at Best Buy need to fight past waves of employees just to reach the merchandise. And in a complicated field like electronics, many customers really appreciate this approach.
While competitors like Circuit City have repeatedly disrespected and underpaid their employees, Best Buy has created an employment paradise. And consumers ultimately benefit.
The entire business model has changed significantly due to all this competition. What once would have been blockbuster models are transformed into loss leaders. Best Buy can't undercut competition from Wal-Mart when Wal-Mart cuts prices on game systems so low that droves of customers literally crush each other in a mad stampede to get the hottest new product.
Yet the rewards for winning the competition for this sector of retail are especially rich. Best Buy can afford to heavily saturate its stores with sales personnel. While Wal-Mart's customers are left to their own devices, customers at Best Buy need to fight past waves of employees just to reach the merchandise. And in a complicated field like electronics, many customers really appreciate this approach.
While competitors like Circuit City have repeatedly disrespected and underpaid their employees, Best Buy has created an employment paradise. And consumers ultimately benefit.
Merck
Ever since the Vioxx scare caused Merck's stock to collapse, one of America's pre-eminent pharmaceutical giants has been on a tear. The companies legal strategy - to fight thousands of individual lawsuits instead of settling - has proven to be a stunning success. New product development in the pharma sphere is notoriously fraught with risk, yet Merck's history of aggressive internal research and development combined with a willingness to join in strategic partnerships puts the company on sure footing.
With a company of Merck's size, the ability of any single product to significantly shift the bottom line is minimized. Yet, some risks to the company's long-run growth do have that potential. In particular, any universal health care proposal put forward in the coming election cycle is likely to put a big brake on earnings growth. It's easy to underestimate health care costs in a society where nearly 50 million people forgo any form of health insurance. No more people will get sick or injured as a result of changed payment mechanisms, but sticker shock is going to set in quickly when many people move to take advantage of mid-tier services for the first time.
With a company of Merck's size, the ability of any single product to significantly shift the bottom line is minimized. Yet, some risks to the company's long-run growth do have that potential. In particular, any universal health care proposal put forward in the coming election cycle is likely to put a big brake on earnings growth. It's easy to underestimate health care costs in a society where nearly 50 million people forgo any form of health insurance. No more people will get sick or injured as a result of changed payment mechanisms, but sticker shock is going to set in quickly when many people move to take advantage of mid-tier services for the first time.
Yahoo
Yahoo's core business has been essentially flat ever since Google rose up to dominate its niche. Given the performance of most of Yahoo's competitors from the 1990s, Yahoo is an unabashed success story, but compared with Google, Yahoo is just another also ran.
Yahoo's board of directors seems to have finally figured out that something big needs to happen and it has undertaken a reorganization at the very top of the business. But the company's scatter-shot approach to the release of this information to the media and the absence of anything more than idle speculation lends credence to a reserved take on the situation.
Yahoo's new advertising platform has generated a great deal of attention on Wall Street, but Internet marketers know that Google has a stranglehold on this market. Without the ability to leverage search dominance in the same way that Google does, many analysts have suggested that Yahoo just outsource search to Google and concentrate its resources on a more profitable niche. Even a combination with MySpace is unlikely to give Yahoo the ability to beat back the behemoth.
Yahoo's board of directors seems to have finally figured out that something big needs to happen and it has undertaken a reorganization at the very top of the business. But the company's scatter-shot approach to the release of this information to the media and the absence of anything more than idle speculation lends credence to a reserved take on the situation.
Yahoo's new advertising platform has generated a great deal of attention on Wall Street, but Internet marketers know that Google has a stranglehold on this market. Without the ability to leverage search dominance in the same way that Google does, many analysts have suggested that Yahoo just outsource search to Google and concentrate its resources on a more profitable niche. Even a combination with MySpace is unlikely to give Yahoo the ability to beat back the behemoth.
Auto Insurance
Financial instruments like auto insurance are absolutely identical no matter who sells them. Yet companies like Geico saturate the airwaves with competing offers for auto insurance that vary by hundreds of dollars. How is it that Geico can advertise so much more than State Farm and still consistently undercut its rival on price?
Price discrimination is a key component of affordable insurance, yet it simultaneously reduces the rewards for the people most likely to need coverage. This results in enormous headaches for everyone when some people opt to forgo any coverage in spite of laws to the contrary. Your auto insurance rates bounce around so much because different companies look at different aspects of your insurability. Women drivers are better than men, yet age and accident history are bigger determinants of future claims.
Constantly comparing competing premiums may not seem like much of a good time, and that's probably why most people don't do it. Yet if you haven't checked your rates in the last six months, you could probably find a better deal somewhere. Many people feel a great deal of loyalty toward their local agent or a company that treated them well in the past, but the simple truth is that this loyalty may have a direct monetary cost of hundreds of dollars.
Price discrimination is a key component of affordable insurance, yet it simultaneously reduces the rewards for the people most likely to need coverage. This results in enormous headaches for everyone when some people opt to forgo any coverage in spite of laws to the contrary. Your auto insurance rates bounce around so much because different companies look at different aspects of your insurability. Women drivers are better than men, yet age and accident history are bigger determinants of future claims.
Constantly comparing competing premiums may not seem like much of a good time, and that's probably why most people don't do it. Yet if you haven't checked your rates in the last six months, you could probably find a better deal somewhere. Many people feel a great deal of loyalty toward their local agent or a company that treated them well in the past, but the simple truth is that this loyalty may have a direct monetary cost of hundreds of dollars.
Tuesday, June 19, 2007
Silver
The price of silver has risen along with the rest of the major precious metals to great heights in recent months. Because it is often lumped together with gold and platinum, silver is often purchased by investors interested in long-term wealth protection. Yet silver has a number of unique characteristics that significantly differentiate it from these metals.
While gold and platinum are extremely useful in electronics and industrial processes, their comparatively high price ensures that their use in anything far removed from jewelry will be quite limited. Silver, on the other hand, is a working man's precious metal. Because silver is used industrially and consumed on a massive scale, silver's price is somewhat insulated from speculative nose-dives.
Many of the same companies that mine gold and other sundry minerals are the world's primary producers of silver. While these companies provide an opportunity to make money on a continuing silver rush, buying the commodity directly represents a better opportunity to make a so-called "pure play".
One potential benefit of purchasing silver directly is that once an investor has the silver in his or her hands, the government effectively loses track of the metal. Unscrupulous investors can then directly sell their silver at any time without paying taxes. If undertaken on too large a scale, this scheme is sure to be revealed. But juicing returns by a minimum of 15% may be worth the risk to some. Of course, the eventual costs of dealing with the IRS will eventually outweigh the benefits in most circumstances.
While gold and platinum are extremely useful in electronics and industrial processes, their comparatively high price ensures that their use in anything far removed from jewelry will be quite limited. Silver, on the other hand, is a working man's precious metal. Because silver is used industrially and consumed on a massive scale, silver's price is somewhat insulated from speculative nose-dives.
Many of the same companies that mine gold and other sundry minerals are the world's primary producers of silver. While these companies provide an opportunity to make money on a continuing silver rush, buying the commodity directly represents a better opportunity to make a so-called "pure play".
One potential benefit of purchasing silver directly is that once an investor has the silver in his or her hands, the government effectively loses track of the metal. Unscrupulous investors can then directly sell their silver at any time without paying taxes. If undertaken on too large a scale, this scheme is sure to be revealed. But juicing returns by a minimum of 15% may be worth the risk to some. Of course, the eventual costs of dealing with the IRS will eventually outweigh the benefits in most circumstances.
Investment Opportunities in Precious Metals
The prices of gold, silver, platinum, and palladium have been on a tear for the past few years. The big profits for "gold bugs" have easily out-paced the rest of the market. How do you get in on the excitement without losing your shirt? Consider investing in a precious metals mutual fund or an ETF. While the usual warnings about avoiding hefty expense ratios still apply, the big risk with investing in gold and silver is insufficient diversification.
It makes plenty of sense to diversify your investment exposure across a wide array of positions. You need to understand that gold and other precious metals are almost completely unlikely to beat the broader market over any long period. This is because the long-term price potential that these commodities can rise to are strictly limited.
Gold and silver are famous for their use in ancient coins, but these days most gold and silver goes for industrial purposes. Precious metals are important components in computers and other electronics. These industries are enormously price sensitive. If the price of gold somehow rose to $1800 an ounce, manufacturers would use other materials. This would drive the demand for gold through the floor, making investors who foolishly bought at the peak big losers.
Commodities in general have been hot for several years now, but the long-term trend is actually downward. Improving technologies and increased competition have made it easier to extract more gold more quickly.
The reason gold is so expensive is its tremendous scarcity. All of the gold ever refined anywhere on Earth would form a giant cube just 66 feet on a side. That may seem like a lot, but compare that with millions of tons of other industrial metals like iron that are refined every year.
Production of precious metals and gold in particular is highly localized. Nearly 80% of the world's gold production since 1900 has come from South Africa. Even within a large, diverse country like the United States, almost all production has come from just 3 states.
Mutual funds and ETFs are clearly the way to go if the commodities boom continues to take precious metals higher. Just don't make the mistake of investing too much in gold or silver. These lustrous metals look shiny, but in twenty years their cumulative returns will be anything but stellar.
It makes plenty of sense to diversify your investment exposure across a wide array of positions. You need to understand that gold and other precious metals are almost completely unlikely to beat the broader market over any long period. This is because the long-term price potential that these commodities can rise to are strictly limited.
Gold and silver are famous for their use in ancient coins, but these days most gold and silver goes for industrial purposes. Precious metals are important components in computers and other electronics. These industries are enormously price sensitive. If the price of gold somehow rose to $1800 an ounce, manufacturers would use other materials. This would drive the demand for gold through the floor, making investors who foolishly bought at the peak big losers.
Commodities in general have been hot for several years now, but the long-term trend is actually downward. Improving technologies and increased competition have made it easier to extract more gold more quickly.
The reason gold is so expensive is its tremendous scarcity. All of the gold ever refined anywhere on Earth would form a giant cube just 66 feet on a side. That may seem like a lot, but compare that with millions of tons of other industrial metals like iron that are refined every year.
Production of precious metals and gold in particular is highly localized. Nearly 80% of the world's gold production since 1900 has come from South Africa. Even within a large, diverse country like the United States, almost all production has come from just 3 states.
Mutual funds and ETFs are clearly the way to go if the commodities boom continues to take precious metals higher. Just don't make the mistake of investing too much in gold or silver. These lustrous metals look shiny, but in twenty years their cumulative returns will be anything but stellar.
Gold
The relentless advertisements from companies eager to sell precious metals do a great job creating interest in the market for gold, but there are many considerations before any commodity should be purchased. Investors need to consider their objectives and willingness to take on risk.
Gold and other commodities are quite distinct from many of the stocks and bonds that should make up the lion's share of most portfolios. While stocks can lose all their value if the underlying company goes bankrupt and bonds go into default every day, gold will never be worth nothing. At the same time, price run-ups in excess of 300-400% simply will not happen in the lifetime of someone purchasing today. This is wildly different from stocks which can consistently rise 10% a year with no appreciable harm to its inexhaustible long-term potential. If gold is trading at historically high levels, it may certainly rise to a new plateau, but it will not turn a pauper into a prince.
Gold is primarily valuable as a hedge against inflation. Unfortunately, just as gold is sure not to lose as much value as other investments might, gold will probably not create substantial wealth over the long term.
Many investors worry that the stock market does not always rise. There have been ten year periods in recent American history when the stock market did not rise at all. But gold isn't immune to this sort of risk. In 1980, at its all-time high, gold sold for $850 an ounce. Nineteen years later, gold traded for under $253 an ounce. Luckily for recent investors, gold has since rebounded back up into the vicinity of $700 an ounce. It's generally not fair to use data from market highs to demonstrate that if you have exceptionally bad timing, you can lose money in any market, but the general point with gold is that it will not make you rich.
If all that glittering gold still holds your interest, consider investing in the companies that mine for gold. Many of these companies use derivatives to reduce their exposure to losses caused by a decline in the value of gold, so they don't serve the same function as gold itself. Rather, these companies benefit from rising worldwide demand for gold in electronics and jewelry. Given gold's unique physical properties, even just the use of gold for electronics is likely to ensure the success of these companies. And the rise of a substantial middle class in India and China will spur tremendous demand for jewelry made of this precious metal.
Just be careful to disregard price to earnings ratios when evaluating mining stocks. Mining companies should be valued on the basis of how much gold is in the ground. Right before the deposit runs out, most mines are running at peak profitability. Make sure exploration continues or you could end up with an empty mine that made a great deal of money last year for someone else.
Gold and other commodities are quite distinct from many of the stocks and bonds that should make up the lion's share of most portfolios. While stocks can lose all their value if the underlying company goes bankrupt and bonds go into default every day, gold will never be worth nothing. At the same time, price run-ups in excess of 300-400% simply will not happen in the lifetime of someone purchasing today. This is wildly different from stocks which can consistently rise 10% a year with no appreciable harm to its inexhaustible long-term potential. If gold is trading at historically high levels, it may certainly rise to a new plateau, but it will not turn a pauper into a prince.
Gold is primarily valuable as a hedge against inflation. Unfortunately, just as gold is sure not to lose as much value as other investments might, gold will probably not create substantial wealth over the long term.
Many investors worry that the stock market does not always rise. There have been ten year periods in recent American history when the stock market did not rise at all. But gold isn't immune to this sort of risk. In 1980, at its all-time high, gold sold for $850 an ounce. Nineteen years later, gold traded for under $253 an ounce. Luckily for recent investors, gold has since rebounded back up into the vicinity of $700 an ounce. It's generally not fair to use data from market highs to demonstrate that if you have exceptionally bad timing, you can lose money in any market, but the general point with gold is that it will not make you rich.
If all that glittering gold still holds your interest, consider investing in the companies that mine for gold. Many of these companies use derivatives to reduce their exposure to losses caused by a decline in the value of gold, so they don't serve the same function as gold itself. Rather, these companies benefit from rising worldwide demand for gold in electronics and jewelry. Given gold's unique physical properties, even just the use of gold for electronics is likely to ensure the success of these companies. And the rise of a substantial middle class in India and China will spur tremendous demand for jewelry made of this precious metal.
Just be careful to disregard price to earnings ratios when evaluating mining stocks. Mining companies should be valued on the basis of how much gold is in the ground. Right before the deposit runs out, most mines are running at peak profitability. Make sure exploration continues or you could end up with an empty mine that made a great deal of money last year for someone else.
Harley-Davidson
Harley-Davidson is one of America's most iconic brands. It is also a financial powerhouse. This is not a coincidence. By tapping into a deeply patriotic consumer base and aggressively marketing to new market segments such as women and professionals, Harley-Davidson has adroitly avoided the pitfalls that have beset so much of American industry.
Harley-Davidson has taken a product that for much of the last quarter century had superior foreign competition and crafted a marketing strategy that effectively allowed the company to survive. Harley-Davidson has managed its business so that today the quality of the competition doesn't significantly effect its bottom line. The transformation from cult status to mass-market monster is most impressive because of the almost total absence of brand dilution.
It doesn't make sense that aging Boomers and young punks alike would all look to the same product to validate their existence, yet this is precisely what Harley-Davidson has managed. Sturgis has gone from a rough and tumble biker hangout to an enormous commercial pilgrimage, and none of the core customers seem to mind.
In an era of rising fuel prices and stagnant disposable income with an ever expanding array of competing ways to spend entertainment dollars, Harley-Davidson has convinced Americans of all stripes to throw thousands of dollars at a status symbol that increasingly signifies no particular status. Or maybe that classless sameness is really what Americans have been looking for all along.
Harley-Davidson has taken a product that for much of the last quarter century had superior foreign competition and crafted a marketing strategy that effectively allowed the company to survive. Harley-Davidson has managed its business so that today the quality of the competition doesn't significantly effect its bottom line. The transformation from cult status to mass-market monster is most impressive because of the almost total absence of brand dilution.
It doesn't make sense that aging Boomers and young punks alike would all look to the same product to validate their existence, yet this is precisely what Harley-Davidson has managed. Sturgis has gone from a rough and tumble biker hangout to an enormous commercial pilgrimage, and none of the core customers seem to mind.
In an era of rising fuel prices and stagnant disposable income with an ever expanding array of competing ways to spend entertainment dollars, Harley-Davidson has convinced Americans of all stripes to throw thousands of dollars at a status symbol that increasingly signifies no particular status. Or maybe that classless sameness is really what Americans have been looking for all along.
Southwest Airlines
Southwest Airlines is easily the most successful American airline in history. Until just a few years ago, Southwest Airlines had earned more corporate profits than every other American airline in history. But that doesn't necessarily say very much, no other airline was even in the black.
Southwest has been an industry leader in more than profitability. Southwest's historic fight with competing airlines for space at the Dallas airport is certainly one of the turning points in industry history. Thanks to Southwest's example, discount airlines like JetBlue have entered major markets and driven transportation costs down across the country.
But the other carriers haven't exactly followed Southwest's lead. Without assigned seating, passengers boarding a Southwest flight closely resemble stampeding cattle. And despite efforts to clean up their collective act, the other major carriers can't hope to match Southwest's friendly corporate culture. With friendly snack service and stewards with personality, Southwest gives its customers a number of reasons to keep coming back.
The incessant price wars that have driven most domestic airlines into unprofitability haven't stopped Southwest yet, but increasing foreign competition is changing industry dynamics. Despite intense regulation and government scrutiny, super-efficient, super-subservient Asian airlines are taking up a larger share of the world's air traffic over time. By mid-century, the Asia-Pacific region may take over the title of world's most trafficked airspace, and Southwest doesn't look able to compete.
While Southwest has a corporate history of bucking excessive regulation, the company may join the rest of the American industry in demanding new regulations to keep out superior foreign competition.
Southwest has been an industry leader in more than profitability. Southwest's historic fight with competing airlines for space at the Dallas airport is certainly one of the turning points in industry history. Thanks to Southwest's example, discount airlines like JetBlue have entered major markets and driven transportation costs down across the country.
But the other carriers haven't exactly followed Southwest's lead. Without assigned seating, passengers boarding a Southwest flight closely resemble stampeding cattle. And despite efforts to clean up their collective act, the other major carriers can't hope to match Southwest's friendly corporate culture. With friendly snack service and stewards with personality, Southwest gives its customers a number of reasons to keep coming back.
The incessant price wars that have driven most domestic airlines into unprofitability haven't stopped Southwest yet, but increasing foreign competition is changing industry dynamics. Despite intense regulation and government scrutiny, super-efficient, super-subservient Asian airlines are taking up a larger share of the world's air traffic over time. By mid-century, the Asia-Pacific region may take over the title of world's most trafficked airspace, and Southwest doesn't look able to compete.
While Southwest has a corporate history of bucking excessive regulation, the company may join the rest of the American industry in demanding new regulations to keep out superior foreign competition.
Coal
The fuel that powered the industrial revolution is not typically put forward as the likely successor to today's oil-based economy. But in an energy-intensive economy trying desperately to free itself from foreign supply disruptions, coal is poised to play a central role in near-term energy production.
Nuclear energy has been effectively hamstrung by excessive regulation and an aggressive environmental movement. Wind and solar don't even offer a competitive price and suffer from reliability issues. With world oil production prone to disruptions from inaccessible, unstable foreign nations, coal offers a compelling alternative.
While "clean coal" is still a slogan rather than a reality, the basic technology is proven and the environmental trade-offs well-understood, if unsavory. The United States has massive supplies of coal that provide substantial independence from foreign entanglements. Just as importantly, China is also home to enormous reserves. And while the United States is still hoping for a miracle energy source, China is moving forward with an ambitious building spree. Putting a new coal-powered plant into service every week, China has already decided that the energy supply of its future will be coal.
Technology companies are fond of advertising their ability to offer tomorrow's business solutions today, but British Petroleum may need to change its ad campaign. The company likes to imagine that BP stands for "beyond petroleum", but the implication is all wrong. Biofuels and other alternative energy make for good public relations, but the simple truth is that coal is the most likely successor to oil.
Nuclear energy has been effectively hamstrung by excessive regulation and an aggressive environmental movement. Wind and solar don't even offer a competitive price and suffer from reliability issues. With world oil production prone to disruptions from inaccessible, unstable foreign nations, coal offers a compelling alternative.
While "clean coal" is still a slogan rather than a reality, the basic technology is proven and the environmental trade-offs well-understood, if unsavory. The United States has massive supplies of coal that provide substantial independence from foreign entanglements. Just as importantly, China is also home to enormous reserves. And while the United States is still hoping for a miracle energy source, China is moving forward with an ambitious building spree. Putting a new coal-powered plant into service every week, China has already decided that the energy supply of its future will be coal.
Technology companies are fond of advertising their ability to offer tomorrow's business solutions today, but British Petroleum may need to change its ad campaign. The company likes to imagine that BP stands for "beyond petroleum", but the implication is all wrong. Biofuels and other alternative energy make for good public relations, but the simple truth is that coal is the most likely successor to oil.
Peak-Load Pricing
Electric utilities rightly view price discrimination as critical to the success of their business. Residential customers may be dismayed to discover that the electric company routinely charges industrial users of electricity significantly lower prices. In some circumstances their may be a countervailing benefit when residential customers are prioritized when the lights go out. But if you're unlucky enough to live miles away from the nearest company executive, your lights may stay out for more than a week at a time in the event of a disruption.
Electric utilities produce a more or less constant supply of power all day long. At the peak of daily energy usage, when air conditioners are drawing maximum energy all over town, the electric utility is ideally using almost all of its capacity. But at night, a similar amount of power is available. And making that electricity available, whether it is used or not, costs the utility money.
Electric utilities that use peak-load pricing seek to encourage their consumers to shift the time of their electricity usage away from the heat of the day. Savvy industrial users that can shift to nighttime production might see big cost savings, but the average residential user isn't likely to turn off the air conditioner when it gets hot. Resources are better spent on additional insulation and other energy saving technologies than on additional power plants.
If the electric company can avoid building a new power plant, then all of its customers are likely to see a big price break. Yet in practice, peak-load pricing has come to be associated mostly with higher electric rates just when you most want to run the power.
Peak-load pricing has been embraced in other areas that electric power generation. Congestion pricing of the sort that has been imposed in London and proposed for New York City follows similar logic. Just think of it this way: If Mayor Bloomberg loves peak-load pricing, shouldn't you?
Electric utilities produce a more or less constant supply of power all day long. At the peak of daily energy usage, when air conditioners are drawing maximum energy all over town, the electric utility is ideally using almost all of its capacity. But at night, a similar amount of power is available. And making that electricity available, whether it is used or not, costs the utility money.
Electric utilities that use peak-load pricing seek to encourage their consumers to shift the time of their electricity usage away from the heat of the day. Savvy industrial users that can shift to nighttime production might see big cost savings, but the average residential user isn't likely to turn off the air conditioner when it gets hot. Resources are better spent on additional insulation and other energy saving technologies than on additional power plants.
If the electric company can avoid building a new power plant, then all of its customers are likely to see a big price break. Yet in practice, peak-load pricing has come to be associated mostly with higher electric rates just when you most want to run the power.
Peak-load pricing has been embraced in other areas that electric power generation. Congestion pricing of the sort that has been imposed in London and proposed for New York City follows similar logic. Just think of it this way: If Mayor Bloomberg loves peak-load pricing, shouldn't you?
Cambodia and the Oil Curse
The IHT reports that Cambodia is struggling to balance the historical legacy of the Khmer Rouge and the country's new ambitions as it moves into the future. The entire transformation of the nation is perhaps almost totally encapsulated in the government's upcoming decisions regarding the massive oil deposits Chevron found off its southern coast.
On one hand, off-shore deposits, while initially more expensive to develop, are a godsend for international markets that don't want to be influenced by domestic unrest and governments that don't have complete control over their people. Only 28 years after the Khmer Rouge was ousted, Cambodia is desperately trying to avoid the example set by Nigeria and Chad. Despite massive oil revenues, the average people of Nigeria and Chad have actually gotten worse off due to corruption and economic dislocation.
Unfortunately for the people of Cambodia, the only solution that has ever succeeded in the presence of an oil bonanza - strong, yet market-sensitive government institutions - is woefully absent. Standard oil industry practice is to make "signature payments" to countries at the time oil contracts are signed, but Cambodia's government won't disclose how much money it received or what happened to the revenue. The money machine is just getting started, and the government is already mismanaging things.
Cambodia has a history of failing to exploit its natural resources. Already much of Cambodia's natural bounty of gems and timber has disappeared without substantial benefit to the people. And even the monies generated by tourism at the national treasure of Angkor Wat go into private hands.
Cambodia's record doesn't inspire much hope of lifting the oil curse, but in a country where 35 percent of the population lives on less than 50 cents a day the situation ever more bleak.
On one hand, off-shore deposits, while initially more expensive to develop, are a godsend for international markets that don't want to be influenced by domestic unrest and governments that don't have complete control over their people. Only 28 years after the Khmer Rouge was ousted, Cambodia is desperately trying to avoid the example set by Nigeria and Chad. Despite massive oil revenues, the average people of Nigeria and Chad have actually gotten worse off due to corruption and economic dislocation.
Unfortunately for the people of Cambodia, the only solution that has ever succeeded in the presence of an oil bonanza - strong, yet market-sensitive government institutions - is woefully absent. Standard oil industry practice is to make "signature payments" to countries at the time oil contracts are signed, but Cambodia's government won't disclose how much money it received or what happened to the revenue. The money machine is just getting started, and the government is already mismanaging things.
Cambodia has a history of failing to exploit its natural resources. Already much of Cambodia's natural bounty of gems and timber has disappeared without substantial benefit to the people. And even the monies generated by tourism at the national treasure of Angkor Wat go into private hands.
Cambodia's record doesn't inspire much hope of lifting the oil curse, but in a country where 35 percent of the population lives on less than 50 cents a day the situation ever more bleak.
Are Hedge Funds Growing Out of Control?
The number of hedge funds and the amount of capital they control has been growing at an incredible rate recently. Yet the out-sized returns promised by hedge fund managers have failed to materialize for most investors. While most hedge funds are closely held entities that only the super-wealthy can invest in, the presence of major pensions and university endowments sheds a meaningful amount of light on the industry.
Given the limited data available, hedge funds in aggregate have not been beating the market at all. A very few funds have had well-publicized returns in excess of 300%, but the enormous expense ratios associated with these funds mean that only the managers are getting truly wealthy. An annualized return well in excess of 100% after all expenses seems to be well worth the limited investor control, but the risks that were undertaken to achieve these returns are essentially unknowns.
One Houston-based hedge fund made headlines when it lost billions of dollars in investor cash due to natural gas options. The market moved unpredictably and the smart money got burned. Or did it? Another Houston-based hedge fund made billions taking the opposite position on natural gas during this same period. In essence, one group of smart guys ended up taking all the money that used to belong to the not-so smart guys. The only question investors need to ask themselves is if they can tell the difference between the winners and the losers.
The real trouble with the growth of hedge funds, however, is that their returns are starting to correlate much more closely with the rest of the market. As hedge funds grow in size, it becomes difficult to aggressively invest without coming to resemble a very expensive mutual fund.
Given the limited data available, hedge funds in aggregate have not been beating the market at all. A very few funds have had well-publicized returns in excess of 300%, but the enormous expense ratios associated with these funds mean that only the managers are getting truly wealthy. An annualized return well in excess of 100% after all expenses seems to be well worth the limited investor control, but the risks that were undertaken to achieve these returns are essentially unknowns.
One Houston-based hedge fund made headlines when it lost billions of dollars in investor cash due to natural gas options. The market moved unpredictably and the smart money got burned. Or did it? Another Houston-based hedge fund made billions taking the opposite position on natural gas during this same period. In essence, one group of smart guys ended up taking all the money that used to belong to the not-so smart guys. The only question investors need to ask themselves is if they can tell the difference between the winners and the losers.
The real trouble with the growth of hedge funds, however, is that their returns are starting to correlate much more closely with the rest of the market. As hedge funds grow in size, it becomes difficult to aggressively invest without coming to resemble a very expensive mutual fund.
Wednesday, June 13, 2007
Ag Policy and the Great Ethanol Swindle
The agriculture lobby has an out-sized influence on the political process in the United States because of its history of aggressive lobbying, an accident of the electoral system, and a palatable storyline for the masses.
Agriculture is the ultimate commodity business. It has to be. Only the market for air is more biased against producers. If the supply of food ever falls below demand, or even stays particularly close to equilibrium, the country is in crisis. The government has a vested interest in making sure that farmers don't go out of business, but if food grows too expensive that's nearly as big of a political problem.
Farmers have a long history of organizing in order to secure government bailouts to protect them from drought and pestilence. And government has an equally long history of scoring political points by giving in.
Agriculture also benefits from the out-sized voice of rural states in the US Senate. But even in rural states like Nebraska, a surprisingly small portion of the population is actually involved in agriculture. The mascot at the football game may be a "Cornhusker", but the fans in the stadium have mostly desk jobs. Yet a winner takes all political system that is heavily dependent on monetary donations plays right into the hands of a highly organized lobby.
But perhaps agriculture's most effective resource is its storyline. The small American family farmer is a complete anachronism. Most of the country's food has been produced by corporations for years now, but the farm lobby has entrenched a poverty stricken farmer in America's collective consciousness.
The problem with ethanol is not that it takes more energy to produce ethanol than ethanol gives off when it is burned. Despite impossibly biased studies to the contrary, this contention has been substantially rebutted. Rather, ethanol is simply produced in the most inefficient manner possible.
Ethanol in the United States is made from corn. Nobody else in the world uses corn ethanol because sugar ethanol is much more efficient. Depending on how that difference is calculated, sugar ethanol can be eight times as effective. But the sugar lobby doesn't to make ethanol. That's because sugar from sugar cane is much better for ethanol than sugar from sugar beets. And sugar cane is subject to enormous import restrictions to protect domestic sugar production. So why do we make ethanol from corn instead of imported sugar cane? Because the corn lobby is one of the most powerful voices in Washington.
Corn and sugar growers don't always see eye to eye, but you can thank America's unique system for determining ag policy for the great ethanol swindle.
Just don't think ethanol can be saved by rationalizing our production. Brazil is the world's ethanol success story. Brazil makes ethanol from sugar cane and has a much better infrastructure for using ethanol that the United States. But Brazil's energy independence is owed to gigantic oil fields rather than humble farmers. Brazil won't be fazing out oil anytime soon, because it can't. Ethanol is interesting, but it's not a panacea.
Agriculture is the ultimate commodity business. It has to be. Only the market for air is more biased against producers. If the supply of food ever falls below demand, or even stays particularly close to equilibrium, the country is in crisis. The government has a vested interest in making sure that farmers don't go out of business, but if food grows too expensive that's nearly as big of a political problem.
Farmers have a long history of organizing in order to secure government bailouts to protect them from drought and pestilence. And government has an equally long history of scoring political points by giving in.
Agriculture also benefits from the out-sized voice of rural states in the US Senate. But even in rural states like Nebraska, a surprisingly small portion of the population is actually involved in agriculture. The mascot at the football game may be a "Cornhusker", but the fans in the stadium have mostly desk jobs. Yet a winner takes all political system that is heavily dependent on monetary donations plays right into the hands of a highly organized lobby.
But perhaps agriculture's most effective resource is its storyline. The small American family farmer is a complete anachronism. Most of the country's food has been produced by corporations for years now, but the farm lobby has entrenched a poverty stricken farmer in America's collective consciousness.
The problem with ethanol is not that it takes more energy to produce ethanol than ethanol gives off when it is burned. Despite impossibly biased studies to the contrary, this contention has been substantially rebutted. Rather, ethanol is simply produced in the most inefficient manner possible.
Ethanol in the United States is made from corn. Nobody else in the world uses corn ethanol because sugar ethanol is much more efficient. Depending on how that difference is calculated, sugar ethanol can be eight times as effective. But the sugar lobby doesn't to make ethanol. That's because sugar from sugar cane is much better for ethanol than sugar from sugar beets. And sugar cane is subject to enormous import restrictions to protect domestic sugar production. So why do we make ethanol from corn instead of imported sugar cane? Because the corn lobby is one of the most powerful voices in Washington.
Corn and sugar growers don't always see eye to eye, but you can thank America's unique system for determining ag policy for the great ethanol swindle.
Just don't think ethanol can be saved by rationalizing our production. Brazil is the world's ethanol success story. Brazil makes ethanol from sugar cane and has a much better infrastructure for using ethanol that the United States. But Brazil's energy independence is owed to gigantic oil fields rather than humble farmers. Brazil won't be fazing out oil anytime soon, because it can't. Ethanol is interesting, but it's not a panacea.
Tuesday, June 12, 2007
Why Foreign Aid Fails
The history of foreign aid is littered with good intentions and bad outcomes. Even the world's hyperpower was unable to take advantage of substantial foreign aid in the aftermath of Hurricane Katrina. Granted, it is not moral quibbling to question taking charity from poorer nations, but the United States allowed donations to be ruined by the elements while needy people went without.
Given the failure of the United States to effectively harness foreign aid, it is unsurprising that most poor countries don't use it well either. But after decades of experience in the post-WW2 period, wealthy donor countries haven't figured out how to make the system work. Foreign aid doesn't even result in warm feelings these days. Developing countries have a highly developed sense of sometimes justified exploitation, and just as understandably, many rich nations don't feel like giving billions to help the less fortunate if all they receive in return is a public relations black eye.
Foreign aid fails because one-time donations aren't used to invest in the future. It's not surprising to economists that behavior doesn't change when the underlying incentive structure doesn't alter one bit. Yet one-time gifts are unlikely to change incentives because they only influence the present. Tying future gifts to specific goals being reached is the economic prescription, but the political reality is that rich countries won't want to give to countries that are getting along fine on their own, and poor countries can't get big projects going without substantial start-up capital.
Giving foreign aid from a long-term perspective is the only way to actually leverage change, but long-term foreign aid is not particularly desired by anyone.
Ironically, only an iron-fisted dictatorship that is capable of forcing unpalatable changes down the throats of unwilling poor people is likely to make good use of foreign aid. Of course, depending on the good will of dictators is a losing strategy as well.
The only reliable course to economic growth is for a country to help itself. Sadly, the sorts of changes required will be sufficiently unpopular that poor people are almost always going to be unable to help themselves.
Given the failure of the United States to effectively harness foreign aid, it is unsurprising that most poor countries don't use it well either. But after decades of experience in the post-WW2 period, wealthy donor countries haven't figured out how to make the system work. Foreign aid doesn't even result in warm feelings these days. Developing countries have a highly developed sense of sometimes justified exploitation, and just as understandably, many rich nations don't feel like giving billions to help the less fortunate if all they receive in return is a public relations black eye.
Foreign aid fails because one-time donations aren't used to invest in the future. It's not surprising to economists that behavior doesn't change when the underlying incentive structure doesn't alter one bit. Yet one-time gifts are unlikely to change incentives because they only influence the present. Tying future gifts to specific goals being reached is the economic prescription, but the political reality is that rich countries won't want to give to countries that are getting along fine on their own, and poor countries can't get big projects going without substantial start-up capital.
Giving foreign aid from a long-term perspective is the only way to actually leverage change, but long-term foreign aid is not particularly desired by anyone.
Ironically, only an iron-fisted dictatorship that is capable of forcing unpalatable changes down the throats of unwilling poor people is likely to make good use of foreign aid. Of course, depending on the good will of dictators is a losing strategy as well.
The only reliable course to economic growth is for a country to help itself. Sadly, the sorts of changes required will be sufficiently unpopular that poor people are almost always going to be unable to help themselves.
Monday, June 11, 2007
Crime Rate Statistics and Lies
Violent crime has risen again. The year 2006 was a much better year than 2005 in many respects, but slightly more people per 100,000 were the victims of violent crime. It might seem like a meaningless clarification, but there are always many people eager to demonstrate their knowledge of America's rising population by pointing out that absolute crime numbers are almost guaranteed to rise along with the population.
The total rise in violent crime wasn't very large, only on the order of 1-2%. But the situation in individual locales can be much different. For example, throughout the state of Texas crime rates are down pretty uniformly. But the city of Houston is a highly notable exception. In the aftermath of Hurricane Katrina, a huge mass of the city of New Orleans relocated to Houston, and many are probably going to stay permanently. The city of New Orleans had a great deal in common with a cesspool long before broken dikes literally made the comparison true. New Orleans' diaspora has completely remade the distribution of crime throughout the South. In particular, the drug trade was significantly altered by supply disruptions. What could have been a boon for law enforcement turned into a debacle as small scale dealers moved to Houston and shared best practices with their regional suppliers. After an immediate outburst of shootings that had all the hallmarks of outright warfare, the organized crime movements in the city retrenched and forged a newer, stronger drug corridor to the rest of the nation's interior.
Houston's problem is a chronic shortage of police officers. At a time when Houston's aging police force suffered attrition through simple retirement, the city continued to grow. Even today, the city of Houston is probably 25% below the accepted number of officers per thousand. Houston's problem is that police officers in general have become harder to find. Young police officers get the most dangerous beats and insufficient backup these days. And the war in Iraq stripped many young men and women who otherwise would have become police officers out of the system.
The real failure of crime rate statistics is that they provide an easy way for politicians and police chiefs around the country to hide the obvious: the only real way to lower crime is to put more officers on the street. Rudy Giuliani's lauded "broken window" crime fighting tactic is ultimately a red herring. There have been countless fads and new techniques in law enforcement over the past few years, but the only solution that generalizes to every community is adding more police officers.
The real question is why so many politicians waste their time on gimmicks and refuse to put more officers on the streets. No politician has ever been voted out of office for being to tough on criminals, yet countless appeasers get tossed out of office every year. Don't let the statistics lie to you, crime rates are caused by a multitude of interacting forces that can't be controlled easily. Except by hiring more police officers.
The total rise in violent crime wasn't very large, only on the order of 1-2%. But the situation in individual locales can be much different. For example, throughout the state of Texas crime rates are down pretty uniformly. But the city of Houston is a highly notable exception. In the aftermath of Hurricane Katrina, a huge mass of the city of New Orleans relocated to Houston, and many are probably going to stay permanently. The city of New Orleans had a great deal in common with a cesspool long before broken dikes literally made the comparison true. New Orleans' diaspora has completely remade the distribution of crime throughout the South. In particular, the drug trade was significantly altered by supply disruptions. What could have been a boon for law enforcement turned into a debacle as small scale dealers moved to Houston and shared best practices with their regional suppliers. After an immediate outburst of shootings that had all the hallmarks of outright warfare, the organized crime movements in the city retrenched and forged a newer, stronger drug corridor to the rest of the nation's interior.
Houston's problem is a chronic shortage of police officers. At a time when Houston's aging police force suffered attrition through simple retirement, the city continued to grow. Even today, the city of Houston is probably 25% below the accepted number of officers per thousand. Houston's problem is that police officers in general have become harder to find. Young police officers get the most dangerous beats and insufficient backup these days. And the war in Iraq stripped many young men and women who otherwise would have become police officers out of the system.
The real failure of crime rate statistics is that they provide an easy way for politicians and police chiefs around the country to hide the obvious: the only real way to lower crime is to put more officers on the street. Rudy Giuliani's lauded "broken window" crime fighting tactic is ultimately a red herring. There have been countless fads and new techniques in law enforcement over the past few years, but the only solution that generalizes to every community is adding more police officers.
The real question is why so many politicians waste their time on gimmicks and refuse to put more officers on the streets. No politician has ever been voted out of office for being to tough on criminals, yet countless appeasers get tossed out of office every year. Don't let the statistics lie to you, crime rates are caused by a multitude of interacting forces that can't be controlled easily. Except by hiring more police officers.
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