Ralph
02.02.2001, 23:28
Time To Cycle?
By Bob Howard (02/02/01)
It would appear that we are heading into a recession. Yet there are some things going on that would argue against that.
Look at new home sales.
These figures have stayed surprisingly strong. In December, new home sales jumped more than 13%, the largest monthly gain in seven years! New home sales for 2000 were 898,000, only 9,000 short of the all-time high in 1997. Home-building stocks continue to show up on the new high's list day after day.
Another puzzle is the Transportation index, which is close to making a new 52-week high. This is another good argument against a full-blown recession.
This week we have seen Burlington Northern (NYSE: BNI - Quotes, News, Boards), Canadian Pacific (NYSE: CP - Quotes, News, Boards), Canadian National (NYSE: CNI - Quotes, News, Boards), Kansas City Southern (NYSE: KSU - Quotes, News, Boards), and CSX Transportation (NYSE: CSX - Quotes, News, Boards) all make new highs.
Another one that is interesting is Union Pacific (NYSE: UNP - Quotes, News, Boards), which has reported nothing but bad news recently, yet the stock ignores those facts and is also making new highs.
As an investor, you might be saying: "Railroad stocks…get with it Charley."
Our argument to that is railroad stocks have been dead money for a long time; so this is a new emerging uptrend. That is often a good time to buy these stocks as they are coming out of flat bases.
Railroad stocks might be a good place to ride a 12- or 16-month cycle to the upside that now appears to be underway.
To add an extra note from our last column about the Canadian railroad stocks, it was announced on Wednesday that Canadian National is going to buy Wisconsin Central Railways (Nasdaq: WCLX - Quotes, News, Boards) for $800 million.
What is important about this is how Canadian National's stock reacted when this news was announced; the stock made new highs.
What you might want to do is build a little railroad stock-sector fund within your current portfolio and buy three or four railroad stocks in the hopes that they will outperform over the next 12 to 16 months.
Our personal favorite here is Kansas City Southern.
Kansas City Southern is a unique railroad in that the rail-net runs North and South. All major rail-nets run mostly East-West.
The North American Free Trade Agreement (NAFTA) has intensified trade between the U.S. and Mexico and also between Canada and our neighbor to the south.
Kansas City Southern's stock has been inching up quietly without fanfare and has doubled since the spin-off of Stilwell (NYSE: SV - Quotes, News, Boards).
As time goes by, Kansas City Southern will see more and more of its profits come from Mexico, where it has significant operations. Revenues from this sector may grow at a 30% or better clip for the next few years.
Remember, Mexico has nothing close to the national highway system that we have in the U.S. The railroad business has a big edge over trucking in Mexico that looks to be decisive.
The takeover moratorium declared by Uncle Sam in the railroad business expires in June. Kansas City Southern is a promising takeover candidate. It would probably take at least a 75% premium to its current price ($12.68) to take Kansas City Southern out, and there would likely be multiple bidders.
Even without the take-over story, we think Kansas City Southern has an excellent chance of beating the numbers. Zack's consensus for 2001 is $0.74 per share.
Another area right now that seems to be drawing new institutional support is the defense sector, another cyclical industry.
A stock we like that looks very interesting for a trade is Alliant Technology (NYSEhttp://www.stock-channel.net/Board/smilies/smilewinkgrin.gifTK - Quotes, News, Boards). Alliant operates in the aerospace-weapons field and is a significant subcontractor to the usual suspects, Boeing (NYSE: BA - Quotes, News, Boards), Raytheon (NYSE: RTN.a - Quotes, News, Boards), etc.
Alliant was spun-out from Honeywell (NYSE: HON - Quotes, News, Boards) more than 10 years ago. Since then, Alliant has done a good job of growing profits during a period of declining opportunities and flat revenues. With the new administration in place, that picture may now be improving.
Raytheon made a new high on Wednesday -- one piece of evidence that things are improving in this sector.
Alliant announced on Wednesday that it will purchase Thiokol Propulsion from Alcoa (NYSE: AA - Quotes, News, Boards) for $685 million. On this news Alliant has moved above $70, a new all-time high. Both Alliant and Thiokol have important operations in rocket propulsion and missiles.
The best friend both of these companies may have in the next 12 months is Secretary of Defense, Donald Rumsfeld (who, we might add, is probably the best-prepared Bush cabinet member in Washington when it comes to getting things done).
Alliant and Thiokol together should yield good cost savings. After all, these guys are rocket scientists.
Bottom Line:
You and I cannot make stocks rise; rather, we must listen to the message of the markets. We think the message right now is that you may see some nice returns in the next 12 to 16 months in some cyclical stocks such as railroads and defense. That may be preferable (and safer) to the back-and-forth slugfest currently underway between the bulls and the bears in the former "hero" stocks.
Source: Individual Investor
Ralph
By Bob Howard (02/02/01)
It would appear that we are heading into a recession. Yet there are some things going on that would argue against that.
Look at new home sales.
These figures have stayed surprisingly strong. In December, new home sales jumped more than 13%, the largest monthly gain in seven years! New home sales for 2000 were 898,000, only 9,000 short of the all-time high in 1997. Home-building stocks continue to show up on the new high's list day after day.
Another puzzle is the Transportation index, which is close to making a new 52-week high. This is another good argument against a full-blown recession.
This week we have seen Burlington Northern (NYSE: BNI - Quotes, News, Boards), Canadian Pacific (NYSE: CP - Quotes, News, Boards), Canadian National (NYSE: CNI - Quotes, News, Boards), Kansas City Southern (NYSE: KSU - Quotes, News, Boards), and CSX Transportation (NYSE: CSX - Quotes, News, Boards) all make new highs.
Another one that is interesting is Union Pacific (NYSE: UNP - Quotes, News, Boards), which has reported nothing but bad news recently, yet the stock ignores those facts and is also making new highs.
As an investor, you might be saying: "Railroad stocks…get with it Charley."
Our argument to that is railroad stocks have been dead money for a long time; so this is a new emerging uptrend. That is often a good time to buy these stocks as they are coming out of flat bases.
Railroad stocks might be a good place to ride a 12- or 16-month cycle to the upside that now appears to be underway.
To add an extra note from our last column about the Canadian railroad stocks, it was announced on Wednesday that Canadian National is going to buy Wisconsin Central Railways (Nasdaq: WCLX - Quotes, News, Boards) for $800 million.
What is important about this is how Canadian National's stock reacted when this news was announced; the stock made new highs.
What you might want to do is build a little railroad stock-sector fund within your current portfolio and buy three or four railroad stocks in the hopes that they will outperform over the next 12 to 16 months.
Our personal favorite here is Kansas City Southern.
Kansas City Southern is a unique railroad in that the rail-net runs North and South. All major rail-nets run mostly East-West.
The North American Free Trade Agreement (NAFTA) has intensified trade between the U.S. and Mexico and also between Canada and our neighbor to the south.
Kansas City Southern's stock has been inching up quietly without fanfare and has doubled since the spin-off of Stilwell (NYSE: SV - Quotes, News, Boards).
As time goes by, Kansas City Southern will see more and more of its profits come from Mexico, where it has significant operations. Revenues from this sector may grow at a 30% or better clip for the next few years.
Remember, Mexico has nothing close to the national highway system that we have in the U.S. The railroad business has a big edge over trucking in Mexico that looks to be decisive.
The takeover moratorium declared by Uncle Sam in the railroad business expires in June. Kansas City Southern is a promising takeover candidate. It would probably take at least a 75% premium to its current price ($12.68) to take Kansas City Southern out, and there would likely be multiple bidders.
Even without the take-over story, we think Kansas City Southern has an excellent chance of beating the numbers. Zack's consensus for 2001 is $0.74 per share.
Another area right now that seems to be drawing new institutional support is the defense sector, another cyclical industry.
A stock we like that looks very interesting for a trade is Alliant Technology (NYSEhttp://www.stock-channel.net/Board/smilies/smilewinkgrin.gifTK - Quotes, News, Boards). Alliant operates in the aerospace-weapons field and is a significant subcontractor to the usual suspects, Boeing (NYSE: BA - Quotes, News, Boards), Raytheon (NYSE: RTN.a - Quotes, News, Boards), etc.
Alliant was spun-out from Honeywell (NYSE: HON - Quotes, News, Boards) more than 10 years ago. Since then, Alliant has done a good job of growing profits during a period of declining opportunities and flat revenues. With the new administration in place, that picture may now be improving.
Raytheon made a new high on Wednesday -- one piece of evidence that things are improving in this sector.
Alliant announced on Wednesday that it will purchase Thiokol Propulsion from Alcoa (NYSE: AA - Quotes, News, Boards) for $685 million. On this news Alliant has moved above $70, a new all-time high. Both Alliant and Thiokol have important operations in rocket propulsion and missiles.
The best friend both of these companies may have in the next 12 months is Secretary of Defense, Donald Rumsfeld (who, we might add, is probably the best-prepared Bush cabinet member in Washington when it comes to getting things done).
Alliant and Thiokol together should yield good cost savings. After all, these guys are rocket scientists.
Bottom Line:
You and I cannot make stocks rise; rather, we must listen to the message of the markets. We think the message right now is that you may see some nice returns in the next 12 to 16 months in some cyclical stocks such as railroads and defense. That may be preferable (and safer) to the back-and-forth slugfest currently underway between the bulls and the bears in the former "hero" stocks.
Source: Individual Investor
Ralph