Tag - ERII

The other day I made the case that oil is going to appreciate because it is a scarce resource, and that therefore oil and gas-exploration companies were a good long-term investment. Of course, as always, a good entry price is critical. 

The same case can be made for water. And the companies that treat water to make it safe to drink, and safe to dispose of, are compelling investments. In fact, depending upon your perspective, the case for water could even be stronger. While I could get by for a while without oil, I haven't got a shot without water.

Water demand is growing for use in agriculture, industry, cooking, energy production - the list goes on and on. And we use a lot of it. While you may only drink half a gallon a day, you used around 25 gallons during your last shower. And it takes 1,857 gallons to produce a pound of beef.   

In my world, this growing demand for water means looking for small-cap companies that can alleviate the problem, and investing in the best ones.  Just yesterday, I recommended a Chinese water stock to subscribers of my SmallCapInvestor PRO advisory service. That stock is poised to increase by more than 50% on growing demand for its suite of water treatment products.

If you were to read Samuel Coleridge's entire poem, you would follow the tale of a mariner who has returned from a long adventure at sea. Despite the abundance of water, the ship's crew has no method by which to remove the salt and make the water potable.

Thankfully, technology has advanced considerably in the last 210 years. Today, the desalination process removes solids like salt and other contaminants from seawater and makes it safe to drink. It is a burgeoning industry of $30 billion today, and according to FORTUNE Magazine, it will double by 2016...

Stocks jumped today after consecutively back to back good reports from Goldman Sachs (NYSE:GS) and Intel (Nasdaq:INTC) as well as a surprise from Gannett (NYSE:GCI) that it beat profit estimates by 9 cents, driving shares up 28%.

 

Good news kept flowing as investors were treated to revisions from the Federal Reserve Open Market Committee that the economy will shrink from 1% to 1.5% in 2009 as opposed to its earlier prognostication of 1.3% to 2%. The committee raised its inflation projection for 2010 to a range of 1.2% to 1.8%.

 

The Dow was up sharply by 256 points to close at 8,616, the highest its been in a month. The Nasdaq closed up 63 points to 1,863 and the S&P 500 roared to 933, up 27 points from yesterday's close at 906.

 

Small-cap stocks fared well with the Russell 2000 closing at 509, up 15 points. 
 

Today's volume leaders in the small-cap space include yesterday's leader, CIT Group (NYSE:CIT) with over 74 million shares traded, although trading was halted before the close on impending news concerning discussion with the federal government. Other small-cap volume leaders include Huntington Bancshares (Nasdaq:HBAN), and Sirius XM Radio (Nasdaq:SIRI).

 

Small-cap gainers were lead by Targacept (Nasdaq:TRGT) up 137% after news broke that its depression treatment drug candidate, currently called TC-5214, was able to significantly outperform a placebo drug in testing on patients with major depression disorders. The company announced that it expects to start late-stage trials of the drug in Q2 2010 and is in talks with several potential partners to help complete the drug's development.

 

Other small-cap gainers include a one-time holding with SmallCapInvestor PRO, Brigham Exploration (Nasdaq:BEXP) up 23%; Ferro Corporation (NYSE:FOE) up 35%; and beleaguered newspaper giant Gannett (NYSE:GCI) up 30%.

*****If you've ever wondered what it's like to be Warren Buffett and have more cash than you can spend or invest, just ask China. China just announced that it has over $2 trillion in foreign reserves.  

That is an unbelievable amount of cash to have accumulated. Bloomberg reports that China's reserves doubled in less than 3 years.  

This much money means two things: China can support it's GDP growth as long as it chooses to; and, China will continue to buy Treasuries. 
Sherman Chan, a Moody's economist in Australia said, "China has the strongest prospects out of all major economies, so it is not surprising that hot money is flowing back…China has certainly recovered from the downturn, and it is on a strong footing now." 

That's why we've been loading up on Chinese stocks in SmallCapInvestor Pro. It's not too late to profit from our top Chinese stocks. Click here for details.  

*****Yesterday morning it was Goldman Sachs (NYSE:GS). Then last night, it was Intel (Nasdaq:INTC). The world's biggest chip maker crushed earnings, but then did the unthinkable and offered a 3rd quarter revenue forecast that is as much as 14% higher than what analysts were expecting.  

Between Goldman and Intel, I'll take Intel. Intel is selling a product. And apparently, consumer demand for Intel's product is stronger than anyone imagined. Sure, much of the strength is coming from Asia (back to my China comment above), but, so what? Revenue is revenue. 

Other semiconductor companies were rallying in after hours, including Texas Instruments (NYSE:TXN) and Advanced Micro Devices (NYSE:AMD).   
As for Goldman, I didn't think that stock will stay over $150. Not that it matters. TradeMaster's Jason Cimpl has made money shorting Goldman. But as for me, Goldman is on the "Never Short" list along with Google (Nasdaq:GOOG) and Apple (Nasdaq:AAPL). They may have bad days, their stocks may get a beat-down once in a while, but these are solid companies with a penchant for finding profits no matter what the economy is doing. 

*****Government actions are currently filling in for an actual economy. That's how it is in our new "Managed America." Most expect the heavy hand of government to be temporary, and that Managed America can end sooner than later. We'll see… 

I expect the conditions of Managed America - high unemployment, sluggish growth, more regulations, higher taxes, and inflation to last years instead of months. And I've outlined my expectations for investing under these conditions in my new Special Issue of Top Stock Insights. The article is titled Managed America: The New Economic Reality. It's being released this morning. You can sign up for Top Stock Insights and get my blueprint for profiting in Managed America. Click here for your copy now.  

*****Now, as you know, it's Newsletter Advisors Wednesday. And by coincidence we're going to be speaking with Andy Obermueller about profiting from government-driven investing. It's essentially the flip side of the Managed America. Enjoy.

Best regards,

Ian Wyatt
Chief Investment Strategist
SmallCapInvestor.com

Newsletter Advisors Wednesday

This week's NewsletterAdvisors.com investment expert is Andy Obermueller, Chief Investment Strategist and editor for StreetAuthority's Government-Driven Opportunities.

Andy was a journalist before joining StreetAuthority. He worked for the business desks of the Philadelphia Inquirer and the Star-Ledger, New Jersey's largest paper, before going on to lead business coverage for a Texas daily. Andy briefly left the industry to get an inside look at corporate finance as a commercial lender for Wells Fargo's business banking group. He lives in Austin.

Andy, thanks for joining us today, now let's get started.   

Can you explain your investment process and criteria for investments?

I keep a very close watch on the executive branch of the government, including each cabinet department, as well as Congressional action. This gives me a pretty good sense of what Washington is up to. I study the legislation and regulatory proposals and track all the data I can -- there's a lot of it. I then look at which companies will be affected by government action and what that's likely to mean for them.

For instance, the FDA is part of the Department of Health and Human Services. I have a database of every drug in the approval process. For some giant drugmakers -- a Merck, say, or a Pfizer -- a new drug might not have much impact on the bottom line. But when the government approves a drug for a smaller drugmaker, the effect is huge. Those small drugmakers can be extremely lucrative investments -- all because of a government action.

What do you believe gives the government-driven investment style an edge over other investment styles?

Two words: Billion and trillion. These are the dollar terms of the government programs that the newsletter deals with. The U.S. federal government is gargantuan. It's the most powerful financial force on the planet. Every time a public dollar is spent, a private sector profit is realized. That has enormous implications, especially in light of the bailout, the stimulus bill and the administration's willingness to expand the role and reach of government.

Look, I'm passionate about this topic for one reason: it works. I've personally invested using a number of strategies over the years. Like you, I've tried various combinations of value, income and growth strategies. However, I'm not sure I've ever seen anything with as much potential as the government-driven stocks I'm finding.

What sectors do you think offer the most opportunities to profit from government action today?

I like energy and finance. Mr. Obama's move toward a green-collar economy, that is, merging the environmental movement with the gross domestic product, has far-reaching implications for every industry. And the banking system offers vast possibility: Though most large banks have entered a post-bailout phase, many small and midsize financial institutions are still struggling. They will come back -- they are as vital to the national economy as the large banks are too big to fail -- and their stock will follow suit. These two areas are outstanding for investors seeking large returns over the long term.

Ok, let's look at energy. Tell me about a government-driven stock you've dug up in this area.

Well, everyone knows that clean energy is a major part of the Obama agenda.  He hasn't even been in office a year yet and his green initiatives are already playing out.  On June 28th the House passed the "cap-and-trade" bill - which calls for a dramatic reduction in the amount of CO2 that industry can emit. This is historic.

The problem is, 35% of America's carbon emissions come from coal-fired power plants. Why? Because coal is both abundant and cheap in the U.S. -- we're sitting on enough of the stuff to power every home in America for the next 400 years. And at the same time, these coal plants are simply too expensive to replace. It would take $672 billion and several years.

But 'cap and trade' is a major thorn in the side of coal. The only solution I see is to find a way to burn coal without producing CO2. A handful of companies have actually figured out how to do this. Their method, called oxy-coal, is recognized as being perhaps the most promising environmentally-friendly technology on the planet. My favorite pick in this area is Praxair (NYSE:PX). It owns more than 200 patents related to oxy-coal.

What are your top three stock recommendations, and what attracts you to each?
I like Verenium Corporation (Nasdaq:VRNM). It's a small company that has engineered the leading biofuel process. It can make ethanol using cellulose, which is in all plant material found on earth. The government has put a ceiling on corn-based ethanol while at the same time mandating a +15,900% increase in the production of these "advanced biofuels" by 2022. What sets this company apart is that the government just gave it the nod to build the world's first commercial-scale cellulosic ethanol plant. There's no reason the explosive growth in this biofuel won't be mirrored by Verenium's stock.

Next I like Energy Recovery (Nasdaq:ERII). It makes a device that's critical to the efficiency of large desalinization plants, which are typically owned by governments. Without its equipment, desalinization is cost-prohibitive. ERII has 70% of the worldwide market, which is expected to double in the next ten years as water becomes ever scarcer. This issue is a lot closer to home than most people realize: Water supplies aren't just critical in the Middle East, they're increasingly important in places like California.

Finally, I like several players in the digital medical records space. The stimulus bill provides for $19 billion for these companies to upgrade the way the health-case system stores patient information. Storing these files digitally will improve physician access to information and not only improve the quality of care but reduce its cost, such as by eliminating unnecessary and potentially redundant medical tests. Among my recommendations here is Quadramed (NYSE:QDHC), which helped the Veterans Administration develop its VistA Program, the first and most successful large-scale electronic medical records system.  

Andy, thanks for the insights on how to profit from government spending and for the recommendations you're following. I'm sure readers will want to follow-up on those. This is certainly an exciting time to invest in companies making billions off the federal government.

Andy Obermueller is the Chief Investment Strategist for StreetAuthority's Government-Driven Investing newsletter. Andy invites you to follow his Government-Driven Investing blog, where he publishes his investing insights for free, at http://www.Government-DrivenInvesting.com

Also included among the results: Union Bankshares Inc. (Nasdaq:UNB), Alon USA Energy Inc. (Nasdaq:ALJ), DXP Enterprises Inc. (Nasdaq:DXPE), DrdGold ADR (Nasdaq:DROOY), Ameris Bancorp (Nasdaq:ABCB) and SVB Financial Group (Nasdaq:SIVB).

Shares of Energy Recovery Inc. (Nasdaq:ERII) tumbled to a new 52-week low this morning despite the news that the San Leandro, Calif.-based firm had tapped a water treatment applications veteran to serve as its product director.

Energy Recovery, which makes energy recovery products and technology for desalination, announced before the bell this morning that it had recruited Doug Eisberg, a former executive of Advanced Structures Inc., to serve in the position.

By mid-day, Energy Recovery is at $8.24, down $0.55 from Monday’s close, after having traded as low as $7.51 earlier in the day. Previously, shares had ranged between $8.50 and $13.25 during the past 52 weeks.

For detailed price information and news stories on Energy Recovery Inc., click ERII.

Tween Brands Inc. (Nasdaq:TWB), Rainier Pacific Financial Group (Nasdaq:RPFG) and Energy Recovery Inc. (Nasdaq:ERII) are among the new 52-week lows in Wednesday's trading among companies with market capitalizations under $1 billion.        

Also included among the results: Horsehead Holding Corp. (Nasdaq:ZINC), China East Air (Nasdaq:CEA), Clean Diesel Technologies (Nasdaq:CDTI), LNB Bancorp Inc. (Nasdaq:LNBB), IRSA (Nasdaq:IRS) and Guidance Software Inc. (Nasdaq:GUID).           

Here are the new 52-week lows among small caps:           
         

Energy Recovery Inc. (Nasdaq:ERII) is trading 23% higher today after the company announced it had added Raychem founder Paul M. Cook to the company’s board of directors. The San Leandro, Calif.-based company makes products for water-desalination operations, and it said Cook was an innovator in aircraft wire, heat shrinkable tubing and circuit products. Energy Recovery debuted last week with its initial public offering at $8.50. The stock is now up to $12.71 at 11:42 ET, about $2.47 higher than Monday’s close. Since its first trading day on July 2, the stock has increased about 16.9%.