Main Street Stocks

There are very few ways to play the growing wind market. Big turbine suppliers like GE and Siemens are so large and diverse you would hardly notice if their wind units performed well. Utilities are tied to regulated power prices and power generators usually sign long term power purchase agreements with utilities before building wind turbines effectively turning them into fixed income investments.

But there is one large player in the market, Vestas Wind Systems (VWDRY.PK). Vestas manufactures wind turbines in Europe, China and the US. They have a 23% market share, according to the latest survey. Before the slowdown in 2009 the wind market grew more than 50% in the US during 2008 and at a compound rate over 35% for ten years prior.

Vestas is projecting tripling sales by 2015 and is already on par with natural gas for cost of energy. Higher oil and natural gas prices along with a requirement to capture carbon from coal plants in 2015 will drive demand for wind turbines which provide a constant cost of energy.

New technologies like off-shore wind turbines are a growing section of the market and Vestas has installed 51% of the off-shore turbines as of March 2009. They are working on a new 3MW off-shore turbine for 2011 and a 6MW turbine is in R&D. A turbine that size could power over 1,600 homes. The reason larger turbines are important is they become more efficient as their size grows.

Operationally I’m impressed in Vestas commitment to research projecting 2,000 R&D employees by the end of 2010. They have also committed to the US market by building some of their largest plants in Colorado.

All is not rosy in the wind market though. The credit crisis and low costs for traditional energy sources has hurt demand in 2009. Anticipated government actions to spur “green” development has failed to materialize and has negatively affected Vestas business. These dynamics have caused a dramatic increase in Vestas working capital and effectively hurt their cash position.

While these concerns are real I believe it is also the reason Vestas is currently trading at a reasonable P/E ratio of 12 on their full year 2008 results. When 2010 earnings are announced on Wednesday I expect that ratio to rise slightly at current prices but improving EBIT margins, sales growth and positive future economic and industry trends make this stock undervalued.

Another company to watch in the sector is American Semiconductor. They are a supplier of wind turbine parts and have major contracts in China where wind is growing extremely quickly because of government investment. I’m watching them closely but does not have a valuation as attractive as Vestas.

I have posted a link below to an article the NY Times did on China’s growing wind industry.

http://s.nyt.com/u/tUj

Disclosure: I do not own Vestas or AMSC.

I can’t believe it took me this long to look into IMAX. After I went to Avatar the weekend after opening weekend and couldn’t get into the IMAX theater there should have been alarms going off in my head. A few things surprised me that weekend.

1. There are tons of 3D and IMAX movies coming out this year. Not just Discovery type movies but real box office movies: Alice in Wonderland, Toy Story 3, Shrek Forever After, The Twilight Saga: Eclipse.

2. Demand for IMAX 3D has been off the charts. Avatar had $150 million in IMAX box office revenue thru Feb 2, an astounding number for a format with under 300 commercial screens.

3. It’s still hard to find an IMAX screen. Most theaters don’t have IMAX and in some locations you have to drive hours just to find one.

What IMAX has is a unique position in a changing movie industry. They’re a component supplier to movie theaters and movie studios which are both looking for a competitive edge. IMAX helps provide that edge with screens that are in higher demand and more technologically advanced than standard screens. They’ve also been forming joint ventures with theaters which gives them upside when IMAX demands higher ticket prices and when movies perform well.

As 3D is refined and movies become more complex the experience will play a key role in consumer buying patterns. If you’re making a decision to go out and experience a movie, wouldn’t you want a the best experience possible? Even if it costs a little more? IMAX can capitalize as theaters realize new movies and customers are going to demand the best experience possible for new high tech movies.

After the Avatar experience and seeing the movies slated for this year I’m convinced theaters will be adding a large number of screens in the next few years. Probably even more than IMAX was projecting at their last presentation in May.

With a stock price of $12.30, IMAX has a high market cap right now at about $766 million on revenues of $106 million in 2008. It’s tough for me to like the stock at that price, especially since 2008 was not a profitable year. If the stock falls a little further I’d be willing to get in. Right now IMAX is trading just over a 21 forward P/E. Not terrible if they can hit their numbers and keep a high growth rate. I’m watching results and waiting for a pullback in the stock price.

Disclosure: The Mayor does not own IMAX. I do have a limit order in to purchase at $11.45.

Dear Steve Jobs,

WTF, Steve. Count me unimpressed with the iPad. Not only is the name terrible but it looks like nothing better than a big iPhone.

Seriously, you couldn’t come up with something cooler than a QWERTY keyboard on an oversized iPhone in the last year? Let me take over R&D.

I’m so upset I have nothing more to say.

Sincerely yours,

The Mayor of a very sad Main Street Stocks

Disclosure: I still own AAPL but I’m less excited about it.

I need to start with a little background on the casino business for those who are new to Main Street Stocks. Gaming has proliferated around the world in recent years with the most growth taking place in Macau, China. This is the only place in China gambling is legal and has seen growth in excess of 50% in recent years. They’re much larger than Las Vegas in terms of gaming revenue, so Macau is the true driver of gaming stocks right now.

Then as the financial crisis hit all of the gaming companies struggled to stay afloat under staggering debt levels. Most were forced to re-capitalize in some way which diluted their stock but left them in a slightly less vulnerable position.

Earlier this month Macau announced that gaming revenues rose 48% in December from a year earlier. This is great news for Las Vegas Sands (LVS) in particular who has a leading market position in Macau and the most developable land on the Cotai Strip, a plot of land similar to the Las Vegas Strip. Wynn, MGM and Melco Crown also own casinos in Macau but LVS has three completed hotels with three more under construction for a dominant position.

The other exciting potential for LVS is their Singapore casino, which will open in March (hopefully). The company has estimated $1.25 billion in EBITDA for the casino and with a location in downtown Singapore I’m not going to doubt it. The right to build this casino was a highly sought after prize with Harrah’s once calling their bid their most important strategic project. For more detail including pictures (oooo, ahhhh) visit the site below to see a dated presentation from LVS.

http://files.shareholder.com/downloads/ABEA-242MDE/760170635×0x273732/a9fe3463-b8e5-465c-ad31-9930da5fa432/AC803CED-C019-46C3-A998-6FB4FF53E313_jan_09_Citi%20EMT%20FINAL.pdf

Pennsylvania also recently passed a bill to allow table games in casinos that currently have only slot machines. LVS’s Bethlehem casino should improve performance even though it may not be an impressive facility.

There are reasons I don’t like the other casino operators. MGM just opened City Center which is a huge waste of money. Wynn has developed almost all of the land they have available. Melco is intriguing but I’ll save analysis on them for another day.

Disclosure: I owns LVS and it is a considerable portion of my portfolio. But I’m not selling.

I’ve been out of commission for two weeks as I attended a seminar on sustainable development. Very interesting topics of discussion and the people and teachers of INCAE Business School in Costa Rica were very impressive. Now, on with the show.

The last two weeks have been up and down for the stock market. Positive economic data two weeks ago drove stocks higher but sketchy data has knocked it down the last couple of days.

I’m not overly concerned with the short term fluctuations of the market but the next month will be very telling for our important economic recovery. Currently far too much attention is being paid to the jobs data released on a weekly basis. What we should be concerned about is continued strong performance in earnings. Because if earnings continue to be strong hiring will soon follow.

If corporate profits were to flounder for the next six months corporations would be hesitant to hire and the recovery would take even longer. As companies like Starbuck’s and Seagate post strong numbers I’m encouraged for our economic future.

I’ve also been pleasantly surprised at the large number of job postings early in January. As the fiscal year rolls over I was hoping to see increased hiring which will help our upward spiral. I’ll keep an eye on earnings the next few weeks and give my thoughts here on Main Street Stocks.

Disclosure: Author is graduating in May with an MBA in Finance and is looking for a job.

The gaming industry has gone through fascinating growth over the last 20 years. When I got a Nintendo as a Christmas present in 1987 it was the coolest, most advanced gaming system ever. And the track pad made it even more incredible.

Today, the characters are more realistic (I caught myself doing a double take at Best Buy last week when I thought an NBA video game was a live game), programming is more complex and gaming systems fight to grab our attention. To analyze the industry we have to take a look at where it is going…

Industry Future:

- Like most media the gaming industry is likely to move to a download business model. Possibly operated on remote servers that can be accessed anywhere in the world. This makes me think the retail gaming market, dominated by Gamestop (GME) and big box retailers like Best Buy is an area I want to stay away from. They’ll be innovated out of the market.

- As of today consoles are the brain power of the gaming market. But even though they’re the brain they’re often sold at a loss by manufacturers Microsoft and Sony. Threats from “cloud” gaming could reduce our dependence on the console itself, rendering manufacturers even more helpless. It’s not likely they will be replaced all together any time soon but it is likely their power in the industry will remain low.

- This leaves us the middle man in the market. The content provider. And without them there is no game. They can develop their games for multiple consoles and sell them in any retail outlet including download form. They have by far the most power in the industry. So the key is to create content that gamers will demand. The more demand the higher margins go.

This is why Activision is the best in the gaming market. They simply have the best content. And they’re innovating around existing content. The recently released DJ Hero (which I’ve been addicted to the last few days) proves they can still innovate. Established franchises such as Starcraft, Call of Duty and World of Warcraft provide an extremely solid base for future growth. The challenge is creating the next great franchise. Something a formerly dominant Electronic Arts (ERTS) has failed to do. I think the diverse product base will help ATVI from following the same path.

Their forward P/E of 14.5 is reasonable although I would like to see a better value. If holiday sales fall short of projections it could be a great entry point under $10. But today’s close of $11.28 isn’t a terrible price.

Disclosure: The Author does not own ATVI, GME, ERTS or BBY.

The hype around Apple (AAPL) lately has been about a possible tablet they’re supposedly developing. To me a tablet seems like a very low impact product unless it can be sold for a price Apple will never reach, like $299. Being that’s what an iPhone sells for I doubt a new tablet will be such a low price.

If anyone can make a market out of tablets Apple’s a great candidate. They could leverage the iTunes Store and the reading apps could be improved to work with the tablet but I’m not seeing them growing earnings more than low double digits because of a tablet. And wouldn’t that cannibalize Mac sales?

What I think the hype should be about is the still floundering Apple TV. This is the best chance Apple has to make a game changing products. If Apple can add a little functionality:

1. DVDR/W – Ability to read a write DVDs. If I’m going to spend money on an HD movie I’d like it to be portable and usable after I throw out my Apple TV.

2. Cable DVR – Someone has to get us off the monopoly cable companies and their DVR players have. If this functionality materialized I would be the first one in line.

Rentals and HD purchases have already been added since Apple TV was introduced. It’s just looking for the push over the edge to becoming main stream. A cable TV subscription rumored a month ago could be another option. As could a TV with Apple TV functionality built in.

No matter what they introduce in January I think the stock has gotten very expensive. Apple’s current market cap is approaching $200 billion. Only a handful of companies are that large. It puts a big target on their chest in a challenging industry. I’ve been selling Apple shares over $200. I think it’s a great time to cash in some nice gains, although it pains me to sell a great company.

Disclosure: The author owns AAPL.

Asset bubbles always sound like a great idea on the way up. Remember when dotcoms were the next best thing. When they blew up we lowered risk by investing in the safest investment around… real estate. How did that one work out?

It wasn’t that these investments had a poor thesis to begin with. After all, the internet is just starting to realize it’s potential, and it’s true, real estate is a relatively safe tangible asset long term. The problem arises when a stampede starts running in the same direction the thesis starts to lose it’s value. Fundamentals that began sound and rational get out of control.

Lets go through the two main thesis the gold rush is built on.

1 – Inflation Hedge: This is one of the great lies of investing. Gold is not an inflation hedge and never has been. In 1983 gold was just over $500 an ounce. In January the CPI was 97.8 and today it’s 216.33. That means gold should have followed an almost straight line path from $500 to $1106. But instead it lagged through the 90s and early 2000s before gaining almost 400% in the last eight years.

The truth is, gold’s last major run-up was just BEFORE inflation hit in the early 80s. Gold didn’t keep pace with inflation and actually fell when inflation was double digits from 1979-81.

2 – Hedge Against The Dollar: This might hold a little more weight but if you’re worried about the value of the dollar why not hedge with Euros or Yen? Or you could invest in foreign equities or bonds. Aren’t these more direct hedge?

One way to short gold in this market is to own DGZ a short gold ETN from PowerShares. I’m seriously considering this for my portfolio.

Well we’re starting all over because the site was hacked but we’re finally back. Stay tuned for posts about stocks in coming days.