Back to archive
The Money Map Advantage
Thursday, September 1, 2005
By Horacio Marquez
#7
** A High-Growth – High-Margin Global Leader… at a Value Price
While we are doing well with our Austria ETF (EWO), which is at an all-time high and moving up as I expected, my heart and prayers go out to all those effected by the hurricane Katrina. At this time of loss, I have little doubt that the American enterprising spirit will rebuild the damaged areas and the local economy better and stronger, as I witnessed it with Andrew in South Florida in 1992. Andrew’s wall passed less than a mile from my Key Biscayne condominium, and today, Key Biscayne and the rest of South Florida – are much better than they ever were.
Katrina surprised the markets and forecasters alike, since the most likely outcome was for Katrina to hit southern Florida pretty lightly and dissolve with no further ado. Having locked in nice short-term profits, I recommended you to stay out of energy for the time being, looking for a lower reentry point. The storm propped up prices temporarily and we can see a correction with its most likely benign outcome, as well as other forces weighing on commodities growth and energy, especially the Fed’s tightening bias.
However, the storm surprisingly veered south and gathered strength over the gulf, causing one of the most devastating natural disasters in U.S. history, with a short-term squeeze on gasoline and some disruption to oil production and transportation. The hurricane has changed the landscape of economic growth, prices and probable Fed actions dramatically:
o Temporary gasoline and natural gas price sticker shocks will slow down consumer spending, especially in the lower income brackets, in effect, doing some of the tightening for the Fed;
o New Orleans and vicinity immediate GDP loss for a few months, also, will depress output and reduce the need for Fed tightening; and
o Later on, massive reconstruction work financed by insurance claims, and new capital taking advantage of the opportunity, will increase GDP in the fourth quarter and beyond.
Therefore, in the face of this exogenous shock, it is very likely that the Fed will pause in its tightening in order to evaluate how the economy responds to this disruption, only to resume later on. The Fed would be overly zealous on inflation and risk sending the U.S. into a more marked slowdown if they kept tightening here. On the other hand, as much as rebuilding hands would prefer, the Fed would not be prudent if they indeed eased monetary policy by reducing rates, because they would risk inflation that would be even more disruptive.
This pause in tightening is very bullish for global stocks and in particular for the long-commodities, long emerging markets, and long energy trade. So, we are going to jump back on board and add a company that is likely to outperform both short and long term.
Tenaris (NYSE: TS): This global leader in the production of seamless pipes for the global oil and gas industry is literally printing money with rapid growth in both sales and profits. With a return on equity of almost 50% and a bottom line of 20%, they are one of the prime beneficiaries of the need to drill more holes for oil and gas in the world. Sales increased by about 70% in the second quarter of 2005, in comparison to the second quarter of 2004, and profits were some 160% higher in similar comparison.
We know that growing oil demand has not been matched by additional supply since 1985. Creating additional supply means more exploration and extraction, which results in more seamless tubes. In addition, the fact that about twenty rigs sunk or were destroyed by Katrina just adds immediate demand to this dynamic of expanding sales and margins. This well-managed company, diversified in production and global sales, is trading at barely 12 times earnings and a PEG ratio of less than 1 (price/earnings to growth ratio). Compare this to a Schlumberger (different animal in the same industry) that trades at 31 times earnings and a PEG of almost 2.
Those of you who attended the Vancouver meeting heard me talk about this company as a potential candidate. I had been waiting for some pullback in order to jump in and I cannot keep doing so. With respect to some of your questions on Petrochina (PTR): I love energy long term and China specifically. Short term, however, I expect PTR to keep appreciating a bit less than its other integrated oil and gas global competitors, since the Chinese government, in its zeal to contain inflationary pressures created by its undervalued currency, is keeping local prices of gasoline fixed artificially low, and this squeezes Petrochina’s downstream margins. When China deregulates its local gasoline prices, expect to Petrochina (PTR) to fly. We will be exploring this situation, as well as other potentially explosive profit opportunities, in detail in our exclusive tour of China: Hong Kong, Beijing, Shanghai, and Hangzhou, November 8-20.
**Action to Take**
Buy Tenaris (NYSE: TS) at the market. And place a sell stop at $95 for protection. The shares closed at $119.40 today. For the aggressive investors, buy the October $115 calls (TS JC) at no more than $9.50.
Enjoy and profit,
Horacio Marquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com , or Mt. Vernon Publishing at 888.384.8339 or 410.230.1200.
For information about the tour to China, go to: http://www.agoraimages.com/promos/china/ . To reserve your space, or with questions regarding your flight, accommodations, insurance or other travel needs please contact: Karoline Olcott at AESU Travel. Telephone: Toll-Free 800.638.7640 or +1.410.366.5494 ext. 116, fax +1.410.366.6999 or e-mail karoline@aesu.com .
Stock
Current Price
Comments
Tenaris (NYSE: TS)
New
Buy. Place a sell stop at $95.
MSCI Austria Fund (AMEX: EWO)
$27.27
Buy. Sell stop is $20.90.
Copyright – 2005 Mount Vernon Publishing. Mount Vernon Publishing does not act as an investment advisor or advocate the purchase or sale of any security or investment. Mount Vernon Publishing expressly forbids its writers from having a financial interest in any security recommended to its readers. All of our employees and agents must wait 24 hours after an Internet publication prior to following an initial recommendation. And for hard-copy-only publications, 72 hours after the publication is mailed. Investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Mount Vernon Publishing provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to recommendations are proud of the reputation Mount Vernon Publishing has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to global investors today. The recommendations and analysis presented to members is for the exclusive use of members. Copying or disseminating any information published by Mount Vernon Publishing, electronic or otherwise is strictly prohibited. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:11AM 3/26/2009
Attention Money Map Subscribers!
Money Map Report,
New China Trader
& Money Moves Alert
are now found at www.moneymappress.com
