Your Daily Profit

May 12, 2009

*****Graham Corp up 65%

*****“Dangerous Complacency”

*****Sell in May?

Fellow Investor,

Oil is above $60 a barrel. Investors are buying on the expectation that the end of the recession is in sight. And hopefully, Daily Profit readers are benefiting via my recommendation of oil services company Graham Corp. (AMEX:GHM). Graham is breaking above $15 a share today. It’s now up 65% for those who have been following me for a while.

Of course, oil stocks are up on expectations. A dose of reality comes from the housing market today. It’s reported that home prices fell in 134 of the 152 metropolitan areas the National Association of Realtors tracks during the 1^st quarter.

Sounds bad, but there is a silver lining. The number of homes sold more than doubled in Nevada, rose 81% in California and 50% in Arizona. These states were among the hottest real estate markets during the housing bubble, and they suffered mightily when the bubble popped. That homes are selling is far more important than the price they are selling for. Housing inventory must get turned over for the economy to improve.

*****Nobel prize winning economist Paul Krugman isn’t convinced the recession is nearing an end. He doesn’t believe economic fundamentals support the recent rally and warns that recent economic data could breed “a dangerous complacency.”

The fear, of course, is that we will have the proverbial “double dip” of recession once government stimulus money (and patience) runs out. Like in the housing market, first time buyers are assisted by an $8,000 credit. That will boost sales, but for how long? The credit expires December 1, 2009. And it’s likely that the momentum of the credit won’t last that long.

Remember too that the IMF (International Monetary Fund) believes that the world’s banks still have a lot of losses to take. In fact, according to the IMF report released in late-April, banks aren’t even halfway done writing off bad assets and loans. Look for more “surprise” write-offs and charges to come from banks during the course of the year. One thing that will be different from last year is, of course, that we now expect these write-offs and can build them into banks’ stock prices.

*****The old saw says “Sell in May, then go away.” Well, it’s May, and the rally we’ve enjoyed seems to be taking a little breather. I don’t know if that means you should sell everything. But I do think it’s time to be on heightened alert.

I’ll be monitoring the news flow closely. Investor confidence may seem pretty strong right now, but it can change fast. Right now, it’s tough to say

what might cause sentiment to shift. Some really bad news out of the banking sector is the most obvious negative catalyst. But it could be something completely new. My top candidates are insurance, commercial real estate, and inflation.

*****China appears to be a bargain shopper. Bloomberg is reporting that China’s government is stockpiling raw materials at what appear to be low prices. Oil imports rose 14% in April. China’s also buying record amounts of copper and aluminum. You’ll recall these were all resources that China was consuming voraciously before market bust. Now China’s not so stealthily trying to pick up those same materials on the cheap. Keep an eye out on commodities plays during the next couple months.

You can expect China to put these raw materials to work. China’s government is in the process of channeling $586 billion in stimulus money directly into its economy. And that’s ramping stock prices. 

I told you about one such stock yesterday, Fushi Copperweld (Nasdaq:FSIN). To see TradeMaster analyst Jason Cimpl’s video chart analysis of Fushi, click HERE. You’ll also find an introductory offer for TradeMaster Daily Stock Alerts that includes a Chinese natural gas company. This company released stellar earnings last night and is moving higher as you read this.    

That’s it for today, I’ll talk to you tomorrow.

Ian Wyatt

Editor

Daily Profit

P.S.: Yesterday I mentioned some sweet dividend stocks. A few of you wrote in to tell me you lost the link on how to get the report. Here’s that link again.

P.P.S: Graham’s a great oil sector play. If you’re interested in more profits from oil’s run up, check out my new report, “Oil Shock 2009: Strike It Rich with 3 Stocks Under $5. It’s available here.