Charts: Correlation between individual stocks has plunged in the past couple months from 80% to 15%. For the first time in years it is a stock pickers market. Support for the S&P 500 is at 1308 and resistance is at 1320. We want the index to bounce between these levels and consolidate. If that happens, then it will remain a stock pickers market.
Wabtec (WAB): This company makes locomotives, brakes for rail cars, and about 100 other rail products. It makes a computerized safety system linked to GPS satellites that can make rail accidents virtually impossible. American law mandates that this system will become universal here. Other countries will probably do the same. Competition will emerge in time, but WAB holds the lead in automated rail safety for now. It competes with Caterpillar in rebuilding rail cars. Essentially WAB is the arms merchant to the rail industry.
Komatsu (KMTUY) and Caterpillar (CAT): These two make expensive mining and construction equipment. Their stuff costs more but last longer and doesn't break down. As mineral deposits become harder to access mining projects will get bigger and more expensive, shutting out small miners who tend to buy cheap gear. Komatsu is taking market share away from Caterpillar in China. KMTUY leads in robotic ore hauling trucks. This is the wave of the future. CAT, however has its own advantages with a superior dealer network and the ability to rebuild equipment.
Coach (COH): In a way Coach is similar to the two companies above. It makes women's hand bags that have heavier stitching and last longer than higher end stuff from Italy. Coach patiently took ten years to conquer the Japanese market, creating new styles that were specific to Japan. Now it is conquering China. It is moving into men's hand bags in Asia. In America there is a cultural prejudice about men carrying purses, not so in Asia.
Lincoln Electric (LECO): Obama says he wants to spend new money on infrastructure. At some point local, state or federal governments are going to have to address real infrastructure needs and stop all this nonsense about high speed rail, solar power, and magic unicorns that sprinkle moon dust on congested highways to clear traffic jams. Most American bridges were built using conventional welding techniques and welding rod material. They should have been built using high impact welds that can withstand constant pounding. This is why bridges are collapsing. Since this does not involve unicorns and moon dust, politicians don't like rewelding almost every bridge in America, but necessity will some day force this to happen. LECO has the lion's share of the gear and material needed to make this happen.
Lululemon (LULU): This company makes expensive yoga attire. I ask moderate income women in my yoga class how they can afford this pricey stuff. When they practice yoga at home old sweats are fine, but when they go to class they have to look awesome. Therefore, they sacrifice somewhere else to buy this stuff. And LULU clothes are very flattering. This is a Canadian company and in its native land LULU clothes are no longer just for yoga, but for everyday wear as well. It is now expanding into America and Australia, where the culture is the same as Canada, so they don't have to change their business model or culture. If it does as well in its new turf as it did in the great white north, then LULU will expand 10 fold.
Monsanto (MON): For a while the number one seed company in the world had trouble with its triple staxx concept, where it stuffed more genetically engineered material into seeds than its competitors. It could create more traits than anybody else but yields went down as the genome of the plants in question cried in protest over this gross manipulation. But recently we have learned that Doctor Frankenstein (MON) is building better monsters. It has a drought resistant corn seed that should sweep Africa by storm.
A French court just said certain laws against GMO seeds are illegal. MON says it won't sell these seeds in France even if it is now legal. I was impressed. Stick to the emerging world where nobody cares about Frankenfood.
Dupont (DD): This is MON's main competitor. It is moving away from the industrial chemical business and into ag products. Often when large cap companies transform themselves like this they steadily go up and for a long time.
Phillip Morris International (PM): When I was in Indonesia I researched PM and learned first hand that it is clobbering local cigarette makers. What if people stop smoking? PM has more research on anti-smoking technology than anybody. It will get the whole world (except the US) hooked on ciggies and then sell them the stuff that will cure their addiction. Brilliant.
Wednesday, January 25, 2012
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