Growth Report : Canadian Solar

Big Oil and Big Brother Google

Ian Wyatt — Wed, 03 Sep 2008 09:44:00 GMT

Big Oil and Big Brother Google

I hope everyone enjoyed their long weekend. I know I did. But I’ll also freely admit – I always look forward to getting back in to the office after a holiday.

The financial markets are the most dynamic of beasts. They give you something new and different to chew on every day. It’s a constantly shifting landscape. On a daily basis, you have to be ready to shift gears quick in response to trader’s fickle sentiment.

For instance, on August 19^th we noticed a pronounced shift in sentiment toward one solar stock, Canadian Solar (Nasdaq:CSIQ). That stock was up 17% in the days following. And you’d think the entire solar sector had received an upgrade.

By August 22^nd, a handful of double-digit gains could have been made, based off that one event with Canadian Solar. Canadian Solar is still holding 10% or so of its gains, while other solar stocks have given all their recent gains back.

Think Long-term, Act Short-Term

Of course, over weeks and months, the recent rally for solar stocks will be just a bump on the charts as longer term business and economic trends play out. I’ve been bearish on traditional “Big Oil” stocks for months. I just can’t see how – with virtually no new discoveries and rising costs – a company like Exxon-Mobil (NYSE:XOM) can see its stock price rise. Record-setting profits or no.

And Exxon recently broke below $80 a share for the first time in nearly 2 years. That was well before Hurricane Gustav was even a blip in the radar.

We’ve been having good results with small, dynamic exploration and services companies all year.

Today, oil prices may be responding to Gustav-relief. But there are much bigger issues for oil prices. Commodities are dropping across the board as the OECD has slashed growth estimates for Japan and Europe to 1.2% and 1.3% respectively. England’s 1.2% estimates appears to be a best-case number, as the OECD acknowledges that the UK economy is looking recessionary.

Surprisingly, the US is doing better than expected. Growth estimates here rose to 1.8% from 1.2%. With a strengthening dollar and rising exports, perhaps the rally that began on July 16 hasn’t been complete folly.

This Time, I’m Cheering for Microsoft

One particularly important-sounding headline that greeted me this morning was the latest in the Google vs. Microsoft heavyweight battle. In case you missed it, Google is launching an Internet browser, called Chrome, to compete Microsoft’s 8^th version of Internet Explorer.

Internet Explorer is the dominant browser with 75% market share. With no vested interest, I’ll usually pull for the underdog. It’s always nice to see the little guy win. Of course you can’t really call Google “little” anymore. This is a battle of titans with Google weighing in with a $146 billion market cap to Microsoft’s $248 billion cap.

We all saw Microsoft crush Netscape. And WordPerfect. And any other company it could. But I’m pulling for Microsoft and Explorer 8 to thoroughly pound Google’s Chrome into the cyber-canvas. And I’ll tell you why.

Google is a remarkable company. It pretty much created the paid search industry. And it’s now a major determinant for all Internet traffic. In other words, if you’re not picked up by Google’s search functions, you ain’t sellin’ squat.

Trust me, I’m in the publishing business and we do much of our work on the Internet. And I consider my relationship with Google downright Faustian. On the one hand, with its paid search results, Google has made Internet advertising simple and effective, albeit a little expensive.

But on the other hand, Google is very specific about the free results that it will display when you search for specific information. In fact, if you don’t construct your website with a Google-approved design, you’ll never show up in their search results, no matter how relevant your solution to a query might be.

Free the Internet!

Google’s strict and mysterious search criteria has spawned legions of companies that do nothing other than try to figure out what Google’s search algorithms are looking for. And of course, those algorithms change every few months.

In a nutshell, Google is attempting to take way to much control over Internet commerce. And it seems to me, if it gets a massive share of the Internet browser market, Internet commerce will become Google commerce.

So how’s Microsoft going to help? Mainly, by keeping what websites we visit at least semi-private. Here are a couple quotes I’ve come across today…

“[the new Explorer’s functions include]…privacy changes that could prevent it [Google] from collecting information related to the effectiveness of its ads, quick-linking to Microsoft mapping and other offerings and a more robust search bar that is also more Microsoft-centric.” -- D: All Things Digital

“Microsoft…released a new version of Internet Explorer last week for testing. The software lets users control whether it saves the sites they've visited.” Bloomberg

We all know that many company websites put “cookies” on your computer when you visit. The cookie can then track your steps and report its findings back to the company for marketing purposes.

Maybe I’m being too Orwellian here, but the thought of Google taking sole control of Internet advertising scares me a bit. If I have to align myself with evil Microsoft to maintain Internet commerce freedom, then so be it. I won’t be using Google’s Chrome browser any time soon.

Friday’s Investors Insight Discussion

As you know if you read last week’s entry, the moderators at the fine website Investor’s Insight (www.investorsinsight.com) asked if I’d be willing to host a live forum discussion event on their website. I agreed and it’s happening this Friday, September 5, from 11:30 am to 12:30 pm, ET.

It’s totally free. All you have to do is sign up with a valid email address at the website. Then you can listen in to the discussion and ask questions if you like. I expect we’ll be talking mostly about my stock-picking machine TRIGR and what investment opportunities it’s been turning up lately. But this is an open forum discussion so you’ll be free to bring up any topics for discussion.

Again, I’ll be hosting a live Internet discussion at www.investorsinsight.com on Friday, September 5 between 11:30 am and 12:30 pm, ET. I hope you can make it, it should be fun, informative and profitable!

Best regards,

Ian Wyatt

Publisher

Growth Report

Inflation, The Fisher King and a Solar Stock

Ian Wyatt — Tue, 19 Aug 2008 21:12:00 GMT

Inflation, The Fisher King and a Solar Stock

And to think, investors cheered the Fed’s decision to hold interest rates unchanged.

Today, the Producer Price Index, a popular low-ball measure of wholesale inflation, came in twice as hot as expected at 1.2%. That 8.9% rise is the biggest jump since 1981. I don’t think anyone cares to hear the annualized number.

In case anyone is curious, the inflation rate for July of 1981 was 10.76%. A year later, Paul Volcker’s rate hikes had slashed inflation to 6.44%. Speaking of Volcker, his name is certainly being tossed around a lot lately. And not just for his endorsement of Presidential candidate Barrack Obama.

Apparently I’m not the only one invoking his name as a model for Bernanke. Larry Kudlow’s “Where's Bernanke's Inner Volcker?” takes a similar position as my “Princess and the Dragon” article here on August 5 – interest rates are too low and should be hiked.

The Fisher King?

At least there’s one member of the FOMC who seems to understand that inflation needs to be dealt with pronto. Dallas Federal Reserve Bank President Richard Fisher has dissented at every FOMC meeting this year. He has advocated smaller cuts to help the financial meltdown and he’s been on the side of higher rates lately.

Maybe I’ll start calling him the Fisher King. In the Arthurian legend, the Fisher King keeps the Holy Grail. But he has a lingering injury and cannot move of his own will. And so long as he is injured, there is a blight on the land. So he sits and fishes.

I’d say there’s enough connection there to make it an intriguing metaphor. The Fed’s Fisher can’t move rates on his own. And until rates are higher, inflation is likely to remain a blight on the U.S. economy.

In the week following the FOMC’s last meeting on August 5, the Dow put on an amazing 544 points. Amazing, because homebuilders and financials were leading the charge. It should be no surprise that the Dow has since given all that back. And then some.

A Keen Eye for the Obvious

The obvious reason is that it’s dawning on investors that the banking liquidity problems are far from over. Just the other day, bankruptcy specialist Wilbur Ross told CNBC that a thousand banks could fail. Of course, Wilbur would be in hog heaven with that much feed in his trough.

I see it a little differently when it’s the former chief economist for the IMF saying that …”we’re going to see a whopper…”. Now an economics professor at Harvard, Kenneth Rogoff side with the Fisher King in saying that the Fed shouldn’t have cut rates as much as it did to help the financial sector.

Still, the one item that stuck with me the most is the Freddie Mac bond sale from Monday, August 18. Apparently it was undersubscribed. Ya don’t say?

And stocks sold off as a result. Shocking. I’ve always had a keen eye for the obvious.

A Solar Stock

Well, just a few minutes ago, my senior analyst Benson George called me over to his office. Benson’s the mastermind behind my stock-trading machine, TRIGR. If you ever need someone to turn support and resistance points or moving average breakouts into mathematical formulas, he’s your man.

Apparently, Candian Solar (Nasdaq:CSIQ) jumped over 3,000 points in TRIGR’s ranking system to take the number 3 spot. The 3,000 points were awarded due to new analyst coverage and some recent increases in earnings estimates that leave Canadian Solar with a forward P/E of 7.3.

I can’t tell you whether thin-film or polysilicon technology will be the big winner in the solar energy sector. But I can tell you what happened the last time Canadian Solar rose to the top of TRIGR’s rankings.

It was April 10, 2008. the stock closed at $23.75 that day. Over the next month, it made it as high as $34.10 on May 12. The next day, Canadian Solar announced blowout earnings. The stock closed at $40.78 on May 13 and $44 on May 14.

The stock eventually peaked at $51 in mid-June. Now, it’s almost back to where it started in April. Support looks good at $25. Just thought you’d like to know.

Best Regards,

Ian Wyatt

Chief Investment Strategist

Growth Report

PS – The last time Canadian Solar (Nasdaq:CSIQ) made it to the top of TRIGR’s rankings, it went on to post a 102% gain. Find out how high it goes this time with TradeMaster Daily Stock Alerts .

In Search of a Bull Market

Ian Wyatt — Wed, 23 Jul 2008 15:40:00 GMT

In Search of a Bull Market

It’s an old stock-market saw – there’s always a bull market somewhere. Even though the S&P 500 is down some 16% year to date, it’s easy to point to commodity and oil stocks and say, “See? There’s your bull market.”

Now, I’ve been warning my readers away from Big Oil stocks for over 6 months. But my recommendations of stocks like oil services company like Graham Corp. (NYSE:GHM) have proved that the ever-present bull market hasn’t completely become a cliché.

However, I have something else in mind. Biotechs. Believe it or not, in the midst of the bank meltdown, runaway inflation, and U.S. recession, the Biotech HOLDRs (BBH) is at a 52-week high. Over the last year, the BBH

has established solid support at $160, has broken a strong resistance point at $175, and is currently working on a secondary resistance point at $180.

With an important sector benchmark like the BBH showing strength, it gives the impression that biotechs are breaking out all over. Well, yes and no.

78.9% of the BBH is dominated by three biotech heavyweights – Affymetrix (Nasdaq:AFFX), Genentech (NYSE:DNA), and Gilead Sciences (Nasdaq:GILD).

That’s really not enough of a sample to draw any firm conclusions about the overall strength of the biotech sector. Still, where there’s smoke, there’s often fire…

Follow the Money

About six months ago, my stock research analysts put the finishing touches on a stock-picking machine for my advisory letter, Growth Report. Without going into too much mind-numbing detail, this machine ranks 3,500 small cap stocks on based on 88 criteria every day.

The stocks at the top of the list have received the highest ranking based on relative sector strength, relative valuation within the sector, profitability, growth prospects and several other fundamental metrics, with some technical metrics like momentum and expanding volume thrown in to identify stocks that, in addition to being attractively valued, are actually being accumulated.

As you might expect, the top rankings have been dominated by oil services and exploration companies for months. But there have been a few surprises. We had great success with a few solar stocks back in March. Canadian Solar (Nasdaq:CSIQ) jumps to mind. And there have been a few tech stocks like Netezza (NYSE:NZ). We even caught a 20% run on Green Mountain Coffee Roasters (Nasdaq:GMCR) back in May.

Like I said, there have been some surprises.

About two weeks ago, we started getting a new surprise. You guessed it: biotechs. And since the machine only ranks small cap stocks, it wasn’t picking up on the strength of BBH stocks. Something else is going on. And it could be the fire to the Biotech HOLDR’s smoke.

Why Biotech?

Pharmaceutical stocks are often considered to be recession-beaters because diseases aren’t economically sensitive. But again, there’s something else going on. Biotechs with products in the pipeline are moving higher.

If you’re looking for a sector that has the potential to change our very standard of living at a most fundamental level, there aren’t many sectors to choose from.

Alternative energy is one. There will be some huge winners in this space. But valuations can be extremely rich. And there’s still not much consensus about which technologies will have staying power.

Two years ago, as President Bush was throwing his weight behind ethanol, some of those stocks might have looked like slam-dunks. A quick look at those ethanol stock charts today would give even the most intrepid investor the heebie-jeebies.

Yeah, sure, I suppose there are a few tech stocks out there with life-changing potential. But somehow, I just don’t get fired up by iPhones and NetFlix set top boxes. I guess I’m just a dotcom cynic now.

Oil exploration won’t change our lives dramatically, though there are still some interesting profit opportunities in Canada’s oil sands and in America’s own Bakken oil shale regions.

Follow the Light

Perhaps in these dark economic times, investors are turning a hopeful eye to the one sector that can still fire the imagination that better times lie ahead – biotech.

It seems every day, scientists isolate the genetic cause for another disease. Recently, scientists announced that they’ve discovered a genetic cause for the processing quirks that result in autism.

If you didn’t know, autism now affects 1 out of every 162 kids in this country. It’s a virtual epidemic. Trust me on this one, parents of kids on the autism spectrum will pay dearly to get their children back.

Just today, scientists say they may have isolated a gene associated with a predisposition toward violent crime.

Scientists have already managed to turn ordinary cells into stem cells. So I may not have to rely on a Democratic Administration to push stem cell research forward. And for aging Americans, that’s probably a more pressing issue than hydrogen fuel cells.

Two Biotech Movers

There’s plenty of money on the sidelines, just waiting to be put to work in the stock market. And you won’t find many medium-term investment stories more compelling than biotech.

Don’t worry. I’m not going to leave you hanging. Here are two of the stocks my stock-picking machine has turned up.

The first is Emergent BioSolutions (NYSE:EBS). Emergent BioSolutions has the only FDA-approved vaccine for anthrax. The company is about one-quarter of the way through a $448 million contract with the U.S. government, so cash-flow shouldn’t be a problem anytime soon.

EBS rounded out its anthrax suite with the acquisition of a couple other Phase II drugs. It has a typhoid vaccine in Phase II trials. Plus, it’s a acquiring a recombinant flu vaccine called FluBlok that’s in Phase III trials.

Biotechs always carry risk that trials won’t demonstrate the efficacy of a future product. But with a forward P/E of 13, investors seem to be giving EBS the benefit of the doubt at the present time.

The second stock is Somanetics (Nadsaq:SMTS), a medical device maker. Somanetics makes the INVOS System which monitors blood oxygen levels in at risk patients. It also makes the CorRestore system which is used in cardiac repair and restoration.

I won’t pretend to understand exactly what that means. Quarterly revenue grew at a 39% clip last quarter and earnings grew 26%. The company is doing $42 million in sales and has a strong cash position of $51 million and no debt.

The forward P/E is a manageable 25. And the company has been aggressively buying back stock. Perhaps best of all, analyst earnings estimates for this year and next have been revised higher twice in the last two months.

Maybe it’s a little early to start talking about a bull market for biotechs. But if my stock-picking machine keeps turning up biotechs, Growth Report readers will be among the first investors to get on board.

Ian Wyatt

Chief Investment Strategist

Growth Report