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Keeping the Needs for the Basics Ahead of the Wants for the Apples Bernanke Says: Sell the Apples and Buy the Basics
We vote for recession. Bernanke, however, opts for inflation. We shrug. So does Mr. Market. The Dow tumbles. Oil surges to a record $102.59. Gold jumps $15.50, to $970. Wheat, cotton, rice and corn follow suit. Before long, the dollar menu at McDonald’s will require a Jefferson, instead of a Washington: Meanwhile, Americans keep lining up for unemployment insurance. The Labor Department reported that new applications for unemployment insurance benefits rose 19,000, to 373,000, last week. ********************************** 25,498% in Just Six Months Jumper: n. — An unknown micro-cap stock that's destined for a transition to a major exchange after a period of steady — or explosive — growth in an overlooked segment of the market. We got ‘em right here… Check it out… ********************************** It gets worse. More than 405,000 homeowners lost their homes to foreclosure last year. The Pentagon strategically braces for $225 oil. Drivers are paying 19 cents more per gallon than they did just two weeks ago. Some experts think the price will go to $4 before the summer comes. “You’re adding an oil shock on top of a crunch on credit and a housing collapse,” said Nigel Gault, an economist at Global Insight. “Even the U.S. economy cannot withstand all of that at the same time.” So how will John Q. Public pay for a Happy Meal? We’re not sure. But the day of the American consumer keeps fading wistfully into the night. So what does that mean for you, dear reader? We believe investors should be very cautious of stocks reliant on American consumers. We suggest you take special note to exercise caution regarding companies like Apple, Starbucks or P.F. Chang’s China Bistro. We have no particular prejudice against any particular one. In fact, I work on an Apple, drink Starbucks and eat at P.F. Chang’s. Sometimes I do all three simultaneously. However, if John Q. Public lost his house and credit card, we imagine he’d use his last $20 to buy toilet paper, Folgers and a pack of smokes. He’s not going to make another dinner reservation on his 2008 iMac while sipping a $3 cup of joe. Furthermore, these companies aren’t cheap:
********************************** PAYBACK 99% of the time, new government regulations cost you money. But not today… Here’s the “1% scenario,” in which you get revenge… Click here to learn about two “redheaded” penny stocks that you’ll use to get your payback from Washington… ********************************** As for what to buy, ask yourself: Can a company raise prices? Think of things you need. Beer and cigarettes come to mind. Well, you may not need these items, but I’ll use them to illustrate a point. When’s the last time you actually looked at the price of one beer versus another? I’m not talking Heineken versus Pabst Blue Ribbon, mind you. I’m talking about Heineken versus Corona…or Bud Light versus Miller Lite. Customers in this sector buy on preference. And they buy a few more cases when the price is cheap. One could make the same case for shampoo and bandages. The point: When times are tight, we’ll still continue (hopefully) washing our hair and binding our wounds. You also want to ask yourself: Can a business control its basic costs? When 1.2 billion Chinese start demanding a protein diet, can P.F. Chang’s easily pass on its input costs (higher meat prices) to a cash-strapped consumer? Will margins suffer? In the case of a discretionary item like traditional Chinese cuisine, the switching costs are very low. In this business, consumers have many choices. Reprising the menu could easily suppress demand. That’s one reason we avoid the restaurant sector. Restaurants don’t possess a very good (if any) economic moat. That’s one reason we made the case for a Mexican cement producer in Free Market Investor. We believe it has been unfairly punished as a “housing sector” stock. First, the company’s revenue stream isn’t as dependent on American sales as sellers seem to think. It boasts operations in more than 50 countries across five continents —diversifying the income stream enough that a slowdown in any one particular country shouldn’t affect the company all that much. Furthermore, public construction — particularly infrastructure projects such as streets, highways and bridges — not housing, represented the most cement-intensive sector. Infrastructure accounted for 47% of total U.S. cement consumption in 2006. So when housing construction was at its peak, infrastructure still stole the show. We expect this trend to continue. Analysts estimate that worldwide infrastructure spending over the next 23 years will require $41 trillion — a figure roughly equal to the 2006 market capitalization of all shares held in all stock markets in the world. Our advice: Sell the Apples and buy the basic needs… Until next time, P.S.: You can get this company along with the rest of the Free Market Investor portfolio by checking out this report. It describes one recession proof steel maker that simply has nowhere to go but straight up. Check it out here… Editor’s Note: As always, send any questions or comments to jim@pennysleuth.com. |
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| Christopher has spent the last two years doing investment research primarily focused on emerging markets, specifically China and Hong Kong. <click here for full bio> |
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