Wednesday, June 11, 2008

How to Navigate This Market

I'm a buyer of select stocks at these levels. Weak dollar plays have eroded a bit, with the exception of oil stocks. Bernanke says they would like to support a stronger dollar and fight inflation, but it seems to be just talk for now. I'd continue to avoid financial stocks. I've done a little looking at Goldman Sachs, and on paper it looks cheap here. But that is based on earnings estimates which are probably high.

I'm looking to enter a position in Swiss industrial giant ABB (ABB). They are well positioned for growth as the world builds energy infrastructure, and the US upgrades theirs. Barron's did a nice piece on them, and here are a couple of excerpts worth reading:

And in all its markets, ABB is running hard just to keep up with demand. The company saw orders jump to almost $11 billion in the first quarter, driven by heavy spending on electric-power systems in emerging markets such as India and China, which generate close to 30% of the company's sales. Orders from most emerging markets grew by at least 15% in the quarter, as developing economies accounted for 47% of total orders.

ABB is doing well in more developed markets such as Europe and the U.S., too, as companies are forced to upgrade aging power grids. The company saw double-digit order growth in the quarter in the U.S., where it has little exposure to the weak housing market.

ABB doesn't see white-hot spending on energy infrastructure cooling soon; indeed, the company is adding 20,000 employees to its workforce of some 110,000 in order to capitalize on growing demand. Sterne Agee estimates that global spending on power will total $5.5 trillion between 2006 and 2020, with $750 billion of that directed to transmission and distribution, ABB's core markets. Some investors are confident the company can grow annual earnings by 15% to 20% through 2011, not least because its order backlog stood at $28.6 billion at the end of the first quarter.

"We are in the sweet spot of energy efficiency and of climate change," says interim CEO Michel Demaré.

This is the type of company that I'm looking to build a long term position in. The stock has had a nice run, but is pulling back due to overall weakness in Swiss and US stock markets.

No comments: