As recently as September 2008, realtors could claim that no one had lost money in the Dubai property market. That’s no longer true. In fact, now the market has too much of just about every property type. One headline story noted how 32,000 homes are about to come on the market next year, which is a big number to choke down in any city. Dubai had a huge property boom and now must suffer the flip side.

The hotels, too, are pretty empty. I’m staying at the new Address Hotel downtown, which has been open for only 25 days, we are told. I’m the first person to stay in my room. It still has that new carpet smell.

I wandered down for breakfast and was alone in a cavernous dining room. The hotel is brand-spanking new and everything looks wonderful. It’s just mostly empty. I think there are more hotel workers than there are guests.

In Dubai, revenue per room is down 35% from a year ago. Yet there is still an expansion going on. Next year, estimates call for a 15% increase in the number of rooms. This would mean a 40% increase in two years.

Over breakfast, I perused my complimentary copy of The National. One of the things I like to do in a foreign city is to read the local newspapers. I’m kind of a newspaper junkie anyway — I get three dailies delivered to my doorstep at home. In any event, I always find interesting nuggets from a perspective you might not get if all you read is The Wall Street Journal or Financial Times.

Today’s business page carried an array of tales… There was the arrival in Doha of a new LNG tanker, fresh from Seoul’s shipbuilding docks. There was a story about how UAE consumer confidence is up. Also, notes on bond issues in the Gulf, the latest figures on money supply in Kuwait (it’s rising at a frighteningly quick pace of 18.7%), the price of villas in Dubai and more. All sorts of little odds and ends that help paint the picture.

There was also a lot of chatter about infrastructure, which I found particularly interesting. Abu Dhabi, the capital of the UAE, which I will visit on this trip, is looking to raise $100 billion for infrastructure projects. From The National: “The emirate needs to fund new transport, electricity and telecommunications schemes…”

Dubai itself also has ambitious infrastructure spending plans. Last night, as we made our way to our hotel, we could see the new Dubai Metro stops along the way, which, lit up as they were in soft blue and white twinkling lights, looked like something out of the future.

Incredibly, the Dubai government last year spent about 45% of its budget on infrastructure projects — mostly on the roads and ports. But there is a lot more on tap, as The National reports:

“Dubai could invest as much as $20 billion in desalination projects in the next decade alone as it increases its water output by 2.72 billion liters a day… [There are also] plans to add 14,405 megawatts by 2017… Construction costs for those new plants amount to $11.6 billion, while infrastructure costs, including substations and transmission lines, will be about $11.6 billion.”

Sincerely,
Chris Mayer

October 6, 2009

Dubai’s Infrastructure Opportunity was originally featured in the Penny Sleuth.

Others view this recent quarter’s profits as outrageous. This group sees the greed and misuse of government funds to prop share prices and executive compensation at the banks.

While this debate enters its frenzy stage, another story is developing slightly below the radar. Surprisingly, no one seems to be talking about another earnings announcement at one of the most important companies in the U.S.: Caterpillar.

CAT announced a second-quarter profit of 60 cents per share. Analysts expected just 22 cents per share — just a third of what the company actually produced. Of course, 60 cents is miniscule compared to just last year. The company’s Q2 2008 EPS was $1.74. But you need to look at the wider view…

Caterpillar is the crown jewel of American industry. It represents the engine of the blue-collar world – at least in the U.S. CAT makes everything from bulldozers – needed for nearly every road and construction project in the country – to turbines – needed to keep the lights on in the U.S.

The company’s customer base reaches from Canada to Indonesia… from China to Chile. There’s almost no developed or even developing country in the world that doesn’t show Caterpillar some business.

So what does this quarter’s profits mean for CAT, the U.S., and the rest of the world? It means, that either the stimulus plans worldwide are starting to work or we are turning a corning on this recession… or both.

We’re not calling for the recovery to start now, and we certainly aren’t calling for the bottom of the market. But we are pointing out the number one indicator. We’ll know when the economy is back on track, when Caterpillar starts performing like years past.

For us small-cap investors, profiting from CAT’s story is even easier. You see, CAT may be the world’s largest industrial machine manufacturer. But it’s not the only one. There are plenty of smaller, but just as lucrative, companies that make plenty of money in this field.

The first one that you should keep an eye on is Manitowoc Co. (NYSE: MTW). Until this recession, Manitowoc was on a very impressive pace. The company, which also manufactures machinery like lifts and cranes, brought in nearly $66 million in 2005, $166 million in 2006, and a whopping $337 million in 2007.

Then the economy went sour. Projects were locked up because of funding. Customers quit building — therefore eliminating the need for Manitowoc’s products. Shares fell from almost $50 at the end of 2007 to just $5.60 as we write.

Another one that we’ve kept an eye on here at Penny Sleuth for quite awhile is Insteel Industries (NASDAQ: IIIN). Insteel makes reinforcement for roads, bridges and water/wastewater systems. It’s products represent the new way of building the world’s infrastructure.

As opposed to rebar, Insteel’s engineered structural mesh, or ESM, holds up longer and is just as inexpensive – if not cheaper. The best part about Insteel is its customer base. Around 90% of the company’s business comes from nonresidential projects, which could be very important if the housing market takes longer to recover than the rest of the economy.

This fact alone hasn’t done much to protect Insteel, however. Shares are down almost 50% over the past year.

While companies like these continue to take a bath in the market, smart investors should pay attention. Now is certainly not the time to buy. Remember, CAT is the indicator. Once that company tips its hand, and let’s us know when a recovery is truly starting, companies like Manitowoc and Insteel could be the backdoor play for us small cap investors to make big money.

Infrastructure is possibly the most important theme we’ll see in the recovery. The world’s roads and bridges are collapsing beneath us. Water and wastewater systems are beginning to hurt as many people as they help with all the corrosion and impurities they are creating while they crumble. Even the energy sector – with its trillions of dollars of backing – is comprised, in many cases, of decades old turbine technology. Many power plants around the world date back as far as the Second World War. That doesn’t even count the failing power grids that are overwhelmed by the massive and still-growing world population. And as more countries enter the rank of “developed,” these problems will only get worse.

These are problems that cannot go unsolved… and companies like Manitowoc and Insteel hold the key to profits. Once CAT starts to make its recovery, these smaller two could make a few smart investors extraordinarily rich. The only thing we need to do is wait for CAT’s signal.

Sincerely,
Jim Nelson

July 21, 2009

Finding Caterpillar’s Tell Could Lead to Astronomical Profits was originally featured in the Penny Sleuth.

It’s sometimes uncanny how history repeats. Historian Frederick Lewis Allen writes about the New Deal of the 1930s in his book The Big Change: “It rewrote a good many of the rules of the economic game as played in America.” The steps the government took resemble what’s happening now an awful lot.

“The New Deal,” Allen continues, “continued to prop up ailing corporations through Hoover’s RFC; made arrangements to prevent near-bankrupt firms from going broke; aided farm owners and homeowners in meeting their mortgage payments; underwrote the financing of new housing enterprises; insured bank deposits…” And on and on.

It also went into the business of stimulating the economy directly by “building dams, bridges, parkways and playgrounds on a grand scale.”

If FDR walked the Earth again, Obama’s stimulus would look familiar…

Over the past few weeks, we’ve gotten more details of Obama’s stimulus plan, which comes with a price tag of at least $820 billion (and climbing). Some of the projects of interest to us include:

• Renovate 10,000 schools
• Build more than 3,000 miles of new or modernized transmission lines and install 40 million “smart meters” in homes
• Weatherize at least two million homes and 75% of office buildings
• Launch 1,300 wastewater projects, 380 drinking water projects and 1,000 rural water and sewer system projects
• Repair and modernize thousands of miles of roadways.

“Shovel ready” is the hot new phrase in Washington these days. It means a project is all set to go as soon as the money arrives. The list of projects for Obama’s plan are shovel ready — so they say. As soon as Congress approves the deal, the money goes right to work, like a needle sticking into a vein.

The water pipe business, in particular, ought to benefit from the slew of water projects in Obama’s stimulus plan. Whether the companies build, repair or install pipes, they’re in a great position to cash in on the growing list of projects coming out of Washington these days.

Sincerely,
Chris Mayer

February 3, 2009

Stimulus Stocks and Infrastructure Plays in 2009 was originally featured in the Penny Sleuth.

Poor India, the old stomping grounds of the great Hindu kings, the playground of the Mughal Empire, had a rough year in 2008. India has had such a good run – five years of nearly 9% economic growth and a booming stock market – that it had reason to feel it was Fate’s spoiled darling. But in a long and checkered life, a good many things come unstuck. And so India has.

In 2008, it stock market lost 60% of its value. The rupee lost 20% against the dollar. Foreign investors pulled out in record numbers. India’s best companies struggle. The global economic freeze walloped India hard.

So the question is should you buy India or forget it?

India is a place of staggering contradictions. On the one hand, there is “the Indian miracle.” There are the booming companies and spotless IT campuses. The many millionaires minted daily. Yet there is also awful poverty. The World Bank estimates some 420 million people live below the poverty line. That statistic doesn’t capture the awfulness of it at all.

I’ll never forget the train station in Agra. The mass of poor people lying on the ground in blankets, the beggars and human misery in that place. Yet it has been this way for eons. Mark Twain wrote about the squatters in Following the Equator (1897), about the crowds with their “humble bundles and baskets and small household gear.” Twain would probably still recognize the place.

In India, you’ll see a man in a suit chatting away on a cell phone and on the ground next to him a snake charmer. You’ll see elephants pottering down roads in Rajasthan alongside buses and scooters and hand-pulled carts. You’ll see beautiful buildings right next to absolute squalor.

In Paul Theroux’s new book Ghost Train to the Eastern Star, he retraces a route he took 33 years ago, when he was 33 years old. Part of that trip goes through India. And so Theroux, now 67, is in a good position to judge the changes in India. He is mostly unimpressed. “We drove through the streets of Mumbai, past the slums, the sidewalk sleepers, the lame and the halt. Was the miracle, I wonder, just an illusion?”

Theroux writes about the constant presence of the poor. “Unlike the poor in Europe or America or even China, the poor in India are a constant presence. Where else do people put up with plastic huts on the sidewalk of a main road – not one or two, but an entire subdivision of humpies and pup tents? They inhabit train stations, sleep in doorways, crouch under bridges and railway trestles.”

The biggest slum in all of Asia, Dharavi, lies right in the heart of India’s Manhattan, Bombay. Over some 520 acres live 600,000 people, with one public toilet per 800 people. It is a place of unbelievable filth.

Yet many people in India seem to ignore such slums. I remember sitting in a presentation in which some official from Bangalore showed us slides of new buildings and smooth, functioning roads – a modern city – as he talked up the investment potential of his rapidly changing city. Yet right outside was a completely contrary view: dusty, uneven roads; derelict buildings; and extreme poverty.

Yet there is a lot of good in India. These episodes recount how much more there is to do.

It doesn’t neglect all the progress. And the promise of India, even now, is still enormous.

Consider that even as growth forecasts come down from 9% to 5%, India is still one of the world’s fastest-growing economies. Its people are young and hungry for a better life, unlikely to unbutton the old waistcoat and put their feet up. Half of India’s population is under 25 years old. There are many English speakers. The savings rate is near China’s lofty levels. “The crowning reason for optimism,” opines The Economist “is the savings rate.” Unlike the U.S., India is a nation of savers.

What to Buy in India

And there are many needs and opportunities. India’s road network is the world’s second largest, but in need of further upgrades. Power outages are common in Indian cities, too. India plans to spend nearly $500 billion on infrastructure over the next five years. Power generation alone should increase 14% annually over that span.

There are good companies here available on the cheap. The economic deepfreeze won’t last forever. If you can sit on Indian investments for a few years, my guess is you will be amply rewarded.

If you believe in the long-term growth of India, as I do, then now is not the time to overlook it. The sun dipped behind some clouds in 2008. It won’t always look so dark. Stick with the survivors, build low-cost positions and be patient.

Sincerely,
Chris Mayer

January 21, 2009

Investing in India in 2009 was originally featured in the Penny Sleuth.

The force of the water – going at 12-15 miles per hour – pushed cars around like so much debris. Firefighters had to rescue people from their cars as freezing cold water swirled around them. They had to use a helicopter to pull some out of the more sticky situations.

This was a big deal where I live. My kids came home early as the county closed schools over concerns about water supply. It hit home, too, because I’ve been writing about the dangers of this exact thing for at least two years. So I have cause to revisit one of my favorite investment themes – water. When water pipes get old, they break.

The pipe that broke was 44 years old. The Washington Suburban Sanitary Commission, the local water utility, has nearly 5,500 miles of pipeline. Of these, 1,380 miles of water mains are more than 50 years old.

Another 2,000 miles are between 30-50 years old. Many of these pipes are near the end of their engineered life spans. The WSSC replaces 27 miles of pipe per year. At that pace, the WSSC will replace a pipe, on average, no sooner than once every 200 years.

It’s a simple matter of math to see that’s untenable. This was the third major water main break in the last six months. In June, one break led to the widest disruption of service in more than 20 years. Restaurants closed and residents were under a boil-water advisory. From Jan. 1 through November of 2008, the WSSC repaired 1,357 breaks and leaks – or about four per day.

The previous general manager at the WSSC, a former Navy engineer, raised the alarms in February 2008. "In my view, the public will no longer be able to trust the system that delivers water to residents," he said. Unfortunately, this is a problem that is widespread in our country. Water pipes are aging and need replacement.

The Great Water Build Out

Globally, too, the demand for new water infrastructure is also strong. There is, for example, a huge urbanization movement happening on this planet of ours. Think about this: The average population of the world’s top 100 cities in 1900 was 700,000. Today, the average city has 6 million people living in it. In just the last 30 years, the world’s urban population went from 1.6 billion to 3.3 billion. This puts huge stresses on water systems.

Industrialization also eats up a lot of water. It takes large amounts of water to make food – some 630 gallons of water to make a hamburger. Even basic consumer goods take a lot of water to make – it takes 2,900 gallons of water to make a pair of jeans.

Semiconductor plants are huge consumers of water. Power generators also use water for cooling. Manufacturers use it for cutting, cleaning and more.

We ask a lot of water. The water services industry alone is a $385 billion business – and growing. "There is a boom in the construction of new assets," says Antoine Frerot, CEO of Veolia Water. "The assets are also more complex and more technical than before." Water-related equipment is another $64 billion industry. That too is a growing field.

Energy and water are also linked in ways people don’t appreciate. It takes a lot of water to make energy.

As the easy oil is gone and we go deeper into the earth, our water needs rise. "Enhanced oil recovery," reports the FT , "is particularly water intensive." Alternative energy is no better off. Biofuels, obviously, consume water, but so do solar and wind power. It’s just not as obvious. (There are enormous amounts of water used in making the equipment.)

But this is only half of the greater water crisis. The other half is an issue of supply. I don’t have space to get into that aspect of it again here. But suffice it to say that in the American West, China, India and many other parts of the world, getting water where people live is an ongoing problem. According to the U.N., there are over 1 billion people without access to clean water. This has appalling health effects.

"Water has never been more under threat in modern history," reports the FT without exaggeration. A new special report in the salmon-colored pages of the Financial Times is entirely about water. I give the paper credit for reporting on this topic more than any other mainstream outlet I follow.

Thinking thematically, energy, infrastructure and agriculture all look attractive to me as long-term investment themes. And water issues touch each of these in numerous ways.

Over the holidays, I swapped e-mails with my friend Tom Rooney. He is a former CEO of a water pipe company and a highly sought-after consultant on water issues, especially now. "Water and water infrastructure are getting hotter by the day," he reports.

"It’s not going away." I agree, it’s not going away – whether we have a global depression or not. For investors, water is, indeed, blue gold.

Sincerely,
Chris Mayer

January 8, 2009

Investing in Water: Mining for Blue Gold was originally featured in the Penny Sleuth.

I’m talking about Franklin Delano Roosevelt in 1933. But the same thing could apply to the 44th president of the U.S. in 2009. Barack Obama plans to spend $700 billion over the next two years as part of a new plan to give a jolt to a flagging economy. It’s a kind of “new” New Deal.

His stimulus package is big – it’s more than what the U.S. has spent on Iraq in the last six years. It also rivals the Paulson bailout plan. And Obama’s stimulus plan just gets bigger and bigger. During the presidential campaign, it was $175 billion. Heck, by the time he takes office, we could be talking about numbers that begin with a “T.”

Where is all that money headed? It’s basically new money for public works projects to repair the nation’s crumbling infrastructure. It’s a lot of money for highways, bridges and water infrastructure projects. It will also include a fresh infusion of cash to promote alternative energy and green technology.

China has its own $586 billion new deal, too. When the world’s two largest economies plan to spend that much dough, you’ll want to know where it’s going. The short answer is infrastructure. As investors, we have a window to cash in on a sort of government-guaranteed prosperity. You don’t have to like it, but you can profit from it.

Most of it will go toward highways, railroads and airports. Already, China’s infrastructure spending has grown at a pace of 20% annually for the last 30 years. The impact on China’s economy has been transformational. For example, new highways now connect small far-flung rural towns to much larger booming cities. As a result, the economic activity between the two areas is in full bloom.

This transformation in China reminds me of the effect canals had on trade in the U.S. during the 1820s and ’30s. The Erie Canal alone cut transportation costs by 90%, according to Tomorrow’s Gold by Marc Faber. It linked the Great Lakes grain markets to New York. Canals more closely knit the interior part of the country with the Eastern seaboard, resulting in explosive growth in trade.

How to pay for these plans is a question neither country seems all that concerned with at the moment.

There is this belief that you must stave off economic contraction at any cost. Meanwhile, the U.S. government’s fiscal position is atrocious, with a deficit closing in on $1 trillion and the federal debt approaching $10 trillion. China is in much better financial condition. But China’s stimulus plan is still a big bet. It’s about 14% of the Chinese economy. As The Wall Street Journal reports: “The central government likely will have to significantly boost its own debt sales to fund the stimulus.”

Both big expansion plans will probably end badly eventually. America’s infatuation with canals that began in the 1820s led to a canal boom that ended in tears by 1836. Canal stocks collapsed, over 1,500 banks failed, nine-tenths of Eastern factories closed and a depression began that would last to 1842. Ultimately, these plans likely lead to wasteful spending and overinvestment. In finance, as in an Argentine steakhouse, everything gets overdone.

For now, investors have a window to capture huge gains from the global infrastructure spend. As I write, the U.K. just announced a $30 billion stimulus plan – with huge chunks of money for infrastructure. Argentina quickly followed with its own big plan. The news agency AFP calls it “a massive public spending plan to pump more than $21 billion into Argentina’s infrastructure.”

This is the dominant theme – think of it as a kind of contagion. Soon every government with a slowing economy from Capetown to Moscow, from Brasilia to Bangkok, could follow suit. All of which spells a possible golden age for those that make asphalt, water pipes, wind towers and the like. It should be a nice ride for investors who get in now, especially as prices for these stocks have become so cheap.

Until next time,
Chris Mayer

January 2, 2009

Investing in the Global Infrastructure Boom was originally featured in the Penny Sleuth.

During the second presidential debate, Obama and John McCain were asked to prioritize what they would do in their first 100 days of office.

“Energy, we have to deal with today… That’s why I’ve called for an investment of $15 billion a year over 10 years,” Obama said, “So, that would be priority number one.”

Green energy technology is something we’ve discussed time and time again. But, instead of simply waiting for green energy breakthroughs, we should prepare for them…

You can’t have cars without steel, water without wells, or crops without seed. So, how can you have an energy revolution without energy infrastructure? Infrastructure is truly “Priority No. 1” in the Obama administration. Without it, we can’t have energy reform.

But, infrastructure goes much further than just energy. As Obama himself recognized, “[We must] put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels…” These are all included in infrastructure.

That’s why we found a crucial player involved in many infrastructure fields. This company’s products are essential to everyone who’s ever used a road or turn on a light switch. Now, you can buy it for cheap…

The National Infrastructure Reinvestment Bank

President-elect Obama is not exactly wet-behind-the-ears when it comes to infrastructure. He co-sponsored a bill in 2007 that could change the entire infrastructure industry.

In the National Infrastructure Bank Act of 2007, Chuck Hagel and Chris Dodd put aside their party differences and attempted to address the most important problem in infrastructure — funding.

The bill calls for an establishment of a trust of federal money to be used on infrastructure. Everything from roads to wastewater plants would fall under this category. The one caveat is private spending. The bank would maximize return by working with private investment firms to co-fund projects. All money borrowed would be paid back with interest, just like a regular bank loan. The only difference is it can only be spent on infrastructure…

The credit crunch has taken an enormous toll on spending. Without money floating between lenders and borrowers, many projects are put on the back burner. The new bank is expected to open up with $60 billion in its reserves and plans to spend aggressively. You can count on private borrowers lining up to start new projects with that cash.

The arrangement of this bank also depoliticizes infrastructure. Since most projects are necessary expenditures, politicians shouldn’t be involved. Unfortunately, infrastructure spending is political. Congressmen fight tooth and nail about which projects are funded until Congress adjourns and nothing is agreed upon. This new bank will fix that problem.

The National Infrastructure Reinvestment Bank will be a separate entity from the government. It will be made up of a five-member Board of Directors, modeled after the Federal Deposit Insurance Corp. (FDIC). This Board will make decisions on where to spend the trust money… not politicians.

Obama co-sponsored the bill when it was first drafted, and because the wheels fell off it in committee, he plans to reintroduce it as part of his “first priority” energy plan. This new bank will help kick start the hundreds of thousands of projects that were delayed or scrapped because of funding.

In the next week, we’ll be presenting the absolute best investment idea for Obama’s first 10 days in office to our Penny Stock Fortunes readers. This small cap has a minimum upside of 205%, but we expect somewhere between 261% and 711% gains. You can sign up for Penny Stock Fortunes and get in early enough to see these potential gains.

Sincerely,

Jim Nelson

December 10, 2008

Top Infrastructure Penny Stock for 2009 was originally featured in the Penny Sleuth.

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.

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:

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.

On the other hand, comapies that own tangible assets, base metals or natural resources should prosper. Companies well positioned to service the world’s immedaite need for infrastructure should also do quite well.

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,

Christopher Hancock
February 29, 2008

Keeping the Needs for the Basics Ahead of the Wants for the Apples was originally featured in the Penny Sleuth.