Association for Investor Awareness - Week of 09/24/2009

In This Issue:

Will The Right Fundamentals Please Stand Up?
The "Uncle Sam Effect"
Small Investors Are Coming Back To Stocks
Inflation Fears Are Increasing
First Some Bad News, Then Some Good News
Easy Index Gains May Be Over
These Four Favorites Should Stay On Top
And So Should China
The Bottom Line This Week

Despite all the worries about overvalued stocks, the market is continuing to advance. To be sure, the gains aren't coming by leaps and bounds anymore – but they are still adding up nicely. Since our last newsletter, the Dow and the Nasdaq rose another 1.8% and 5.1% respectively.

Will The Right Fundamentals Please Stand Up?

When it comes to stock fundamentals, value is in the eye of the beholder. Traditionalists believe the market is too expensive for the weak economic recovery they expect to see. The analysts argue that the economy may take over a year to justify the whopping 46% gain in the Dow since March. Some analysts think the recovery will never gain the necessary strength.

However, many other number crunchers believe the data suggests that stocks have further to run. Their main argument is that earnings were whacked so hard by the economic downturn that even a small uptick in growth will have a big impact on profits. The more bullish analysts believe that even a 2% expansion will double the profits of many top companies. It follows that if earnings shoot up, so should stock prices.

Other bullish investors believe it's a mistake to look solely at a company's U.S. potential. The globalists point to the much stronger recovery that is happening in the world economy. The bulls insist that investors in well-run companies with a substantial amount of business overseas can expect to prosper over the next few years.

The "Uncle Sam Effect"

We think even the most optimistic fundamental investors are missing the biggest plus for the stock market: a great deal of Uncle Sam's stimulus and bailout money is moving into equities. That's not surprising since increasing stock values was almost certainly one of the Fed's goals. That's as it should be since raising equity prices is one of the best and broadest ways to increase America's economic health.

So far, the government has pumped about $2 trillion (that's trillion with a "T") into the economy. Another $2 trillion or so has been earmarked for additional programs. Since stocks are the best-performing investments available now, it isn't surprising that they are attracting much of the money.

Small Investors Are Coming Back To Stocks

Another plus for stocks is individual investors are starting to come back to Wall Street. If that trickle becomes stronger, there should be an attractive new leg up for the bull.

Small investors hold a great deal of potential because they have some $5 trillion available to buy stocks. Money market accounts alone contain over $3 trillion, most of which is earning returns below one percent. It is no wonder that investors are chomping at the bit to find better opportunities for their cash. High quality stocks that pay good dividends are moving to the top of that list.

America's baby boomers are especially eager to boost their investment returns. Most retirement portfolios took huge hits when the market collapsed two years ago. Although the boomers are being very careful not to lose even more money, they know they must recoup their earnings if they want more than a subsistence old age.

Since April, only about $56 billion has come out of safe harbor accounts to be invested in stocks. It doesn't take a math wizard to see that a great deal of money is still available to purchase equities.

Inflation Fears Are Increasing

The huge amount of stimulus and bailout money the government is pouring into the economy is causing many people to worry about rising inflation. That's especially true since most of the money was created out of thin air for the occasion. Since the new money isn't represented by additional goods and services, many economists say it will soon begin to push prices up.

The threat of sharply rising inflation is adding to the need to find greater returns. That's because the value of cash can be expected to fall at whatever rate inflation rises.

On the other hand, the tangible asset values are likely to keep pace with inflation. That's not true for all of them, of course. Real estate, for example, doesn't look very attractive right now.

However, precious metals and some commodities should do well if inflation returns. But those hedges don't appeal to many mainstream investors. Most people are more attracted to high quality stocks that have a long history of keeping up with inflation. The icing on the cake is the best companies also pay dividends.

First Some Bad News, Then Some Good News

When we put all the stock market pros and cons together, we think the odds favor more gains. However, we should not expect additional returns to come as easily as those we received in recent months. Progress from here is likely to be bumpy.

One of the first, and perhaps the biggest, bumps may be close at hand. After the market's 46% run-up over the past six months, a correction seems overdue. If you don't wish to run the rapids, this would be a good time to take some profits. If you want to remain in the market, but with lower risk, we heartily recommend the use of stop loss orders. The more nervous you are, the tighter you should place your stops. Just be sure to pick prices that are outside each stock's normal trading range.

Easy Index Gains May Be Over

When the market started to surge in March, investors in broad index funds did very well. For the first six months, making money was a no-brainer.

From now on, however, we think investors will need to be more selective to find attractive profits. As many brokers advise, "It's time to trade your shotgun for a rifle."

Another reason to choose stocks carefully is investors have become more conservative and risk averse than they were during the boom. Whiz-bang widget makers with big dreams and short histories are getting scant attention. Instead, the market now favors known companies with proven products and solid track records. The best blue chips fit those criteria perfectly.

These Four Favorites Should Stay On Top

Four companies that we like very much this fall are:

Alcoa (AA) http://finance.yahoo.com/q/bc?s=AA,

Deere & Company (DE) http://finance.yahoo.com/q/bc?s=DE,

General Electric (GE) http://finance.yahoo.com/q/bc?s=GE, and

Caterpillar (CAT http://finance.yahoo.com/q/bc?s=CAT.

We first recommended them in our June 25 newsletter, and they have since done very well. Here are the numbers:

Name Symbol Price on
6-24-09
Price on
9-22-09
Percent
Change
Yield
Alcoa AA $10.69 $14.26 33.4% 0.90%
Deere DE $41.83 $46.18 10.4% 2.50%
GE GE $11.79 $17.01 44.3% 2.40%
Caterpillar CAT $34.06 $54.34 59.5% 3.10%

Because all four companies are tied to the global economy, they are very efficient, and can prosper even in a slow growth environment; we continue to recommend them.

And So Should China

Another place we think you should take aim is China. While the U.S. and Europe remain mired in recession, China is booming.

In August, for example, the country's industrial production rose 12.3%. Retail sales surged over 15%. Real estate development jumped 14%. The list goes on and on. All together, China's economic growth is in the 8% range.

China is one place where stock gains are so broad that investing in an index fund makes sense. Our favorite is the PowerShares Golden Dragon ETF (PGJ) that tracks the performance of the Halter USX China Index: http://finance.yahoo.com/q/bc?s=PGJ.

The selective index contains Chinese stocks that trade on U.S. exchanges, and which have capitalizations of at least $50 million. We think the ETF is an excellent way to participate in the further growth of China.

For those investors who prefer individual stocks we have several favorites that we continue to follow and believe have significant upside potential.

Universal Travel Group (UTA) http://finance.yahoo.com/q?s=UTA

Universal Travel Group, a fast growing (20 to 25% top and bottom lines)travel services provider is engaged in providing reservation, booking, and domestic and international travel and tourism services throughout the PRC via the internet and through customer representatives. Under the theme "Wings Towards a More Colorful Life" the Company's core services include tour packaging for customers and booking services for air tickets and hotels.

Currently trading in the $13 range, multiple analysts have pegged UTA with a $20 price target.

NF Energy Saving Corp (NFEC) http://finance.yahoo.com/q?s=nfec.ob

NF Energy Saving is an integrated provider of energy conservation solutions utilizing energy-saving equipment, technical services and energy management re-engineering project operations to provide energy saving services to clients. Headquartered in Shenyang city of China, the Company currently has 220 employees and multiple proprietary energy saving technologies and patents.

In a press release issued early Wednesday morning (9/23/09) the Company stated that "based on customer orders received and anticipated project completion schedule for the remainder of 2009, the Company expects revenue for the fiscal year ending December 31, 2009 to reach $24 million, a 52% increase over revenue of $15.8 million for the fiscal year ended December 31, 2008."

Currently trading below $5, NFEC is seen by several noted small-cap analysts as a good bet to hit $8.50 to $10 a share.

Shengkai Innovations, Inc. (SKII) http://finance.yahoo.com/q?s=skii.ob

Shengkai Innovations is engaged in the design, manufacture and sale of ceramic valves, high-tech ceramic materials and the provision of technical consultation and related services. The Company's industrial valve products are used by companies in the electric power, petrochemical, metallurgy, and environmental protection industries as high-performance, more durable alternatives to traditional metal valves.

SKII has delivered 128% in gains for January investors and with an attractive P/E of 10.00 it seems to just be getting started. Check out these strong financial results.

Revenue for the year ended June 30, 2009 increased 21.5% to $39,297,235, compared to $32,355,693 for YE 2008. Net income increased $3,490,655 or 34.6% to $13,577,694 for the year ended June 30, 2009 from $10,087,039 for the comparable period in 2008.

The Bottom Line

Although the stock market is no longer shooting up at its former rate, it is still continuing to deliver attractive gains. A correction seems likely after such a big run, but we think stocks will recover and go on to greater heights.

Four stocks that are doing even better than the market are Alcoa, Deere & Company, General Electric, and Caterpillar. All of them should continue to do well as the world emerges from the recession.

One country that looks especially good is China where growth is still an impressive 8%. We think investors who seek a broad stake in China should consider the PowerShares Golden Dragon ETF that tracks the performance of the country's most successful companies. Or, for individual stock picks three small-cap profit opportunities include Universal Travel, NF Energy and Shengkai Innovations.

Until Next Time

The AIA "Advocate For Absolute Returns", a publication of The Association for Investor Awareness, Inc., tracks market trends, industry news, the SEC, global trade and finance and Washington developments for you because they affect your investments. But who doesn't? Many sources report these issues as abstract facts. We feel that's not enough. The AIA Advocate's job is to warn you of what's important and how these developments translate to ground-level forces and threats that directly affect your wealth as well as your current investment opportunities. Not just information, but information you can use. Until next time...


Copyright 2009 The Association for Investor Awareness, Inc. All Rights Reserved

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. The Association for Investor Awareness, Inc. (AIA) and respective staffs and associates may or may not have investments in any companies, stocks or funds cited herein, may or may not have long or short positions and/or options and warrants relating thereto and may purchase and/or sell these securities or options at any time in the open market or otherwise without further notice. AIA, its Officers, Directors, Employees and Affiliates may receive compensation for the dissemination of this information.

Communications from AIA are intended solely for informational purposes. Statements made by various contributors do not necessarily reflect the opinions of AIA and should not be construed as an endorsement either expressed or implied. AIA is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not necessarily indicative of future performance.

In the interest of full disclosure, John M. Casson, Executive Director of AIA is president of Casson Media Group, Inc. (CMG), an affiliated company. CMG has received cash compensation and allocated $2500 for the transmission of this publication as part of a comprehensive corporate communications services agreement for Universal Travel Group. Although the Research and Editorial Staff of AIA conducts independent research and analysis, you should be aware of this potential conflict of interest.


Disclaimer

Copyright 2010 The Association for Investor Awareness, Inc. All Rights Reserved

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. The Association for Investor Awareness, Inc. (AIA) and respective staffs and associates may or may not have investments in any companies, stocks or funds cited herein, may or may not have long or short positions and/or options and warrants relating thereto and may purchase and/or sell these securities or options at any time in the open market or otherwise without further notice. AIA, its Officers, Directors, Employees and Affiliates may receive compensation for the dissemination of this information.

Communications from AIA are intended solely for informational purposes. Statements made by various contributors do not necessarily reflect the opinions of AIA and should not be construed as an endorsement either expressed or implied. AIA is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not necessarily indicative of future performance.




Posted 09-24-2009 11:48 AM by Research & Editorial Staff