Your Daily Profit
September 10, 2009
and Cash for Clunker Stocks
*****A Solid Stock
As if right on cue, the International Energy Agency
(IEA) raised its forecast for oil demand again yesterday.
“Oil demand in U.S.,
and other Asia
[countries] appears to be running stronger than preliminary estimates
suggested,” the IEA said in its report.
The IEA’s new estimate increases daily use by
450,000 barrels. Of course, that means demand growth estimates for 2010 are
lower, but that’s because we now have a higher baseline.
*****At the same time, China
said that it’s too early to reel in its stimulus plans. That likely throws a
bit of a monkey wrench into the bears’ plans for an imminent meltdown in China.
It should be clear that so long as governments are intent on supporting their
economies that there will be no implosions.
It’s when governments start to remove support that
danger exists. And that appears to be a ways off.
On that note, one of the Chinese stocks in the SmallCapInvestor
Pro portfolio made a 22% move higher last Thursday. The move was
accompanied by a massive surge in volume that marked a new 52-week high.
There’s no doubt in my mind that this is mutual fund buying.
It’s likely that the price will back off a bit
while the buyer takes a breather. But there’s little doubt the buyer will be
back once the price dips a little. For more on the Chinese stocks we’re holding
pumped $1.1 trillion in new loans into its economy in the first half of 2009.
That’s prompted Bank of China vice president Zhu Min to say “The potential risk
is that a lot of liquidity goes to the asset market…o you see asset bubbles
in commodities, stocks and real estate, not only in China,
And Chinese Academy of Social Science economist Liu
Yuhui adds that “There’s no way for the real economy to absorb so much liquidity…[p]olicymakers
in China and around the world are well aware of the harm that could do, but
they are unwilling to sacrifice short-term growth and wean the economy from
addiction to the stimulus policies.”
Of course, this is exactly the point. Corporate
balance sheets had to be improved to get credit flowing, businesses spending
and lending and financial markets stabilized. The easiest way, perhaps the only
way, to do that quickly is by pumping liquidity and raising stock prices.
Insurance companies are in better shape and are
able to meet annuity payments, for instance, because their investments are
worth more. Bank of America (NYSE:BAC)
and Citigroup (NYSE:C) have been
able to pay back some TARP money because they could sell stock at higher
Liquidity is the life-blood of the Cash for Clunker Stocks Rally. Don’t
expect an end to either anytime soon.
*****Of course, not all stocks that are rallying
are Clunkers. Glass-maker Corning (NYSE:GLW)
just raised its revenue estimates for the current quarter. Of course, this
comes after Corning had lowered revenue forecasts due to earthquake-related
delays at its manufacturing facility in Japan.
But don’t ignore the fact that Corning was one of
the small number of companies that significantly beat revenue estimates for the
Corning looks like it has built a nice base around
$15 a share. It’s a cash cow, throwing off $1.78 billion in cash flow on $5
billion in revenues. With a forward P/E of 10 and PEG
ratio just over 1, I’d say its come some upside coming.
*****Monday is almost here! That’s the day my first
book The Small Cap
Investor: Secrets to Winning Big with Small Cap Stocks. Of course, I wouldn’t let this
momentous event pass without a Special Offer to my loyal Daily Profit readers. I’ll fill you in on the details Monday…
*****As always, please send your questions and
comments to firstname.lastname@example.org.
09-10-2009 11:24 AM