Fuel for smart investors in an uncertain stock market
It won’t be a banner year in the markets, says this U.S. advisory, but there are smart investment strategies out there, like one fuel stock.
There are bulls and there are bears.
And then there are some who don’t really hang their hats on either peg. They are neither eternal optimists nor relentless pessimists.
They simply try to take the markets as they come, without imposing a pre-determined viewpoint on events.
One such would be Mr. Benjamin Shepherd. He is the editor at Louis Rukeyser’s Wall Street, as successor to the late Mr. Rukeyser.
“Although the markets kicked off the new decade (or the last year of the old decade, if you’re a purist) with a bang, this isn’t going to be the year of the raging bull.”
Yet if the market isn’t going to roar, he adds, there are encouraging signs ahead and a number of opportunities for investors who follow “reasonable investment strategies.”
One of those opportunities comes from a fuel distributor that is getting ready to absorb some of its competition.
We’ll get to that in a minute. First, what’s good and not-so-good in the markets.
Temporary workers
The stock market runs on corporate earnings. In the past year, companies propped them up with cost cutting. Now those earnings will have to go out and grow on their own.
It’s going to be a bit of a tough slog, says Mr. Shepherd. “Earnings will likely be tepid relative to earlier in the decade, as consumers simply lack the wherewithal to spend as freely as they once did.”
Employment figures in the U.S. are looking up, he points out. Or at least not looking as far down. 69,000 job cuts a month in the fourth quarter is far less than the 600,000 a month in the first quarter.
The heaviest losses came in the expected areas — construction, manufacturing and wholesale trade. But temporary staffing agencies added 47,000 jobs. “The number of temporary workers is worth noting because the ranks usually swell before companies add permanent positions.”
Bearish commentators discount the 4,000 new jobs created in November. And there is some merit to their argument, adds the editor.
Even if 300,000 net new jobs were to be created each month, it would still take six years to create enough jobs for all the jobseekers out there.
The new normal
“In short, the economic recovery is gaining steam, but 2010 won’t be a banner year for corporate earnings,” proclaims Mr. Shepherd.
“Nevertheless, investors should stretch their wings a bit and take on measured risks — just bear in mind that selectivity and a focus on quality companies remain the keys to success, no matter how hot or cold investment sentiment runs.”
Smart investors will follow reasonable investment strategies, he says, and ignore short-term moves in the stock indexes.
This is the new normal, suggests the editor, investing in a market that cannot be counted on to be hot or cold for any sustained length of time. So fuel up for the long run.
A bedrock balance sheet
Fuel may be the most economically sensitive of all commodities, says Mr. Shepherd. It doesn’t take much of a price bump to pull down demand.
In the face of recession, this uncertainty has left a trail of bankruptcies and consolidations in the industry. But that kind of mayhem usually leaves a few strong companies standing — and standing taller than before.
That’s the case with World Fuel Services (NYSE-INT), which is “resting on the bedrock of a solid balance sheet,” says the editor.
This firm distributes marine, aviation and ground transport fuel through a network that reaches into over 2,500 locations around the globe. Its financial strength and large cash position allowed it to extend credit to its customers at a time when many competitors could not, or would not.
World Fuel has a prestigious customer list, including the U.S. military, a number of governments and Fortune 500 companies.
It has a few other advantages as well. It supplements its revenues with flight planning and risk management services. And it has the muscle to buy in bulk. Throughout the economic slowdown, this enabled it to keep its margins growing even as prices declined.
As shipping volumes pick up in a recovering global economy, World Fuel should move along with it. Mr. Shepherd points out that the quaintly named Baltic Dry Index, which measures the cost of shipping various raw materials by sea, is gradually rising.
This company grows by acquisition. It has made four in the past three years, including two big ones at the height of the recession. With $350 million in cash and little debt, it is prepared to pick up smaller competitors at competitive prices. It has its eye on several ground transport firms.
Anything that slows fuel demand — higher oil prices or a double dip recession — could gum things up for the company, at least temporarily.
“But World Fuel’s roster of value-added products makes the firm a convenient one-stop shop for transportation management — the firm is well-positioned for success,” concludes Mr. Shepherd.
The stock, which has been slack so far this month, trades at $23.12 and yields about 0.6 per cent on a dividend of $0.15.
In the end, this editor has a simple message. Smart investors don’t let the market indexes tell them what to do. They make their own choices.
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