Despite the market setback today, and despite what might happen through the end of this year with the markets, now is the time to stuff your portfolio stocking with some undervalued assets that will prove profitable in the next year
What we are seeing in the markets this week is an irrational response to a mixed bag of news about the U.S. economy and, specifically, bad news coming out of Europe. The result is a flight to the dollar, a flight from gold, oil, and U.S. equities. Although not a player in the commodities realm, I do see oil as a potential windfall for those who do play the commodities market. Given the reality that the U.S. and other powerhouse global economies are in a nascent economic recovery, who doesn’t believe that global oil consumption will increase dramatically in 2010? C’mon, raise your hand.
If you raised your hand, I challenge you to explain why you think oil consumption will not increase globally in 2010. Is it because hybrid-car sales are on the rise? Is it because electric cars will be affordable and on the market in 2010. Is it because we are just now beginning to create alternatives to oil for our global energy needs? Or is it because the whole “Green Movement” is hot and getting hotter? Well, all of these are good things, and it pleases me to see them all finally get going, but the fact is that to make oil drop in the hierarchy of energy creators, we need time, and lots of it. This means 2010 is a year of transition, and energy production will be a part of that transition, but it won’t have major impact on oil usage in 2010, at least not in the early and middle part of 2010. Just ask T. Boone Pickens, if you don’t believe me. I see oil stocks in 2010 as a portfolio stocking stuffer.
So what else should you be stuffing in your portfolio stocking? One of my favorites is GE at 15 plus per share. Yes, currently the company is experiencing year-over-year negative revenue growth, big-debt issues (who isn’t), and yes it is losing control of NBC, and yes, its shares are highly diluted (10.65 billion), but some things are happening that will change all of this to the better, and the stock price will rise, and rise dramatically in the next year.
For example, its revenue is 160 billion plus annually, it has almost 62 billion in cash, operating cash flow of 34 billion, and 84 billion in levered, free-cash flow. As well, the short ratio is 1.3, and as a percent of float the short ratio is .90 percent. Not bad for a $40 stock trading between 15 and 16 dollars.
Beyond even those plusses, GE is working to change its revenue flow …
“Based on GE Capital’s loss profile through 3Q 09, we believe that both Commercial and Consumer losses could come in lower than expected driving down the provision for loss peak in 2010 to $11.2 billion and subsequently trending down to lower provisions in 2011 ($6.4 billion) and 2012 ($4.8 billion).”
GE is changing its business model …
“To fully complete the deal, Comcast needs to buy the 49 percent of NBC that is still in G.E.’s hands. And if NBC’s core cable businesses continue growing, the conglomerate’s remaining stake could be worth some $20 billion by the time Mr. Roberts can buy it.”
And most importantly, GE will benefit directly from the movement to change our dependence on oil. …
“Last week General Electric won a $1.4 billion contract to supply turbines and services to what will be the largest wind farm in the U.S. GE received a price target increase to $20 from $18 at Goldman Sachs yesterday, and to $22 from $20 at Barclays this morning.”
There is more to this unfolding story about both oil and GE, but now is the time to give yourself the gift of a successful investment. Check out GE and the near-term future of oil consumption, and if you don’t agree that as 2010 comes to a close one year from now, the price of oil will be substantially higher and GE’s stock price will be substantially higher, than find different investments to stuff in your portfolio stocking. If you do agree with me, after checking it out, then get in now while the getting is good.
