Tuesday, March 11, 2014

Alcatel-Lucent (ALU) is an innovator in global communications providing products in IP and cloud networking as well as ultra-broadband fixed and wireless access. ALU is at the front of next generation communication ...... see more at http://seekingalpha.com/article/2081263-alcatel-lucent-how-bright-is-its-future

Monday, March 10, 2014

Investing In The Future: Illumina

Illumina (ILMN) is a leading innovator in next-generation sequencing (NGS). NGS enables researchers to study biological systems at a much greater capacity than traditional DNA sequencing technologies. This technology cost researchers $1 billion just 10 years ago making this testing available to very few labs..... See the rest at http://seekingalpha.com/article/2076613-investing-in-the-future-illumina

Parker Hannifin: Buy, Sell Or Hold?

Parker Hannifin
Parker Hannifin (PH) has performed very well in 2013 as its stock gained 40%. This is not surprising considering the overall equities market performance during that time. Many companies' stock increased at similar or higher rates resulting in...... See the rest at http://seekingalpha.com/article/2075503-parker-hannifin-buy-sell-or-hold

Monday, March 3, 2014

Investing in The Future of Energy

The Future of Energy
The United States is becoming more energy independent every year as new technology and natural gas reserves reduce the need for energy imports. Below is a chart from the U.S. Energy Information Administration depicting net import trends over the years.
-Source U.S. Energy Information Administration
New technology is enabling energy companies to extract oil and gas more effectively than ever before. Although the U.S. is actually still a net importer of oil, many articles in recent news confuse being a net exporter of oil with oil products; the U.S. is a net exporter of energy products such as gasoline, but those products are the result of the net imports refined into gasoline. As the U.S. becomes more energy independent and trends towards being a net exporter of natural gas and oil, the companies ahead of the curve are set up to return large gains for investors. It is expected that natural gas reserves contain more than 100 years worth of gas and only 11% of that is being tapped into.
The newest technology allowing companies to extract natural gas from shale is hydraulic fracturing, known as fracking. The technology has been around for some years but new formulas for the pressurized water make fracking less hazardous to ground water and more widely accepted by the general public. Today about 25% of total U.S. dry gas production is done with hydraulic fracturing and it is expected by 2035 that about 50% of total U.S. dry gas production will be done with hydraulic fracturing.
Companies that create and innovate better technology for hydraulic fracturing, sell and lease equipment, and produce natural gas are positioned for future gains as an energy play. I will discuss three companies one each at a different level of the supply chain. Parker Hannifin (PH), National Oilwell Varco (NOV) and Chesapeake Energy (CHK).
Parker Hannifin
Parker Hannifin , a Cleveland, OH based company, is a leader in hydraulics and is investing in the development of new technology to make drilling for shale gas more efficient. They are working with builders to create oil rigs that are able to produce more pressure for drillers that weigh less and are easy to move. PH's current exposure to the energy market is growing fast and it expects to see large growth in sales from this business. Below are a few quotes from Sales Managers Rick Carnes and Doug Gilbert regarding hydraulic fracturing:
"(Shale gas) is one of the markets that's really bought in to it and utilizes it, because it's all about speed lately," Mr. Gilbert said.
"We've seen a boom associated with that, simply because of the sheer demand from everyone racing to drill for as much natural gas as possible," he said.
"We fabricate the pipes and make everything in our shop and send out a kit that can be assembled in a matter of days, as opposed to weeks," Mr. Carnes said.
Parker Hannifin is a great value company set up for huge growth opportunity with their innovation to develop better hydraulic fracturing products allowing companies to drill for natural gas faster and safer than ever.
PH also has a long history of solid financial performance. The company is only trading at 17.5 times earnings, has a PEG ratio of .9, a current ratio of 1.74, and working capital of $2.5B as of 12/31/2013. These are few fundamentals of many that prove PH's strong financial position. PH also pays quarterly dividends annualized at a range of 1.6-2.2% every year. PH is at the top of my list for long term growth and I put a strong buy on the company.
National Oilwell Varco
Next, a company that sells and leases oil equipment is National Oilwell Varco . Recently Warren Buffet's Berkshire Hathaway (BRK.A) (BRK.B) acquired a position in NOV. NOV has a P/E ratio of only 14.18, current ratio of 4.5 and working capital of $9.75B. NOV is investing a lot of cash in into drilling equipment which it leases to drilling companies drilling for untapped natural gas and oil reserves. With only 11% of expected reserves being drilled, many more companies will be setting up oil rigs and demanding more of NOV's products far into the future making NOV a great long term growth energy play. National Oilwell Varco also offers quarterly dividends annualized at 1.35% at current the current stock price.
Chesapeake Energy
Finally companies drilling for natural gas are positioned for large growth in the future. These companies are taking advantage of new technology offered by companies like NOV and developed by companies like PH. One leader and company investing in the future of energy and producer of shale gas is Chesapeake Energy . CHK is increasing its production of shale gas at rapid rates. Some of its locations are expected to double the current output by the end of 2014. CHK is also investing a lot of capital in new products to extract shale gas in places it couldn't before and they are increasing the amount of wells in which they drill from. Since Q1 2013 CHK had capital expenditures of over $4B to purchase or lease equipment reaching more gas reserves than ever. These purchases, along with others are the main driver for the mediocre financial ratios and balance sheet. Currently the company is trading at 19.07 times earnings and has a PEG ratio of .87; they also pay quarterly dividends annualized at 1.35% of current stock price. CHK is investing heavily in the future of natural gas production and as the country continues to be more environmentally conscious the demand for natural gas will be a huge catalyst for this company.
Overall the energy industry is reshaping itself and leading are these three forward looking companies, investing in the future of energy. This provides investors opportunities to be ahead of the curve and invest at bargain prices. While there will obviously be short term gains and losses in any investment, investing in this industry through these companies will provide long term growth and annual income through dividends.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article

Sunday, March 2, 2014

Spring Cleaning

Spring Cleaning!

Winter is soon ending and the beginning of spring is upon us.  With spring comes cleansing and new beginnings.  It is important to develop a "life balance sheet."  Seek the position your life is currently in and discover things that need to change such as relationships, possessions, financial position, career, residency, health and anything else you feel needs to be optimized. It is easy for people to get caught up in the game of life in today's environment so setting aside time to talk a walk through your life is essential.

After assessing my life, many things need some work but I want to focus on being healthy.  In college I was very athletic running everyday and competing in marathons throughout the years.  Over time as I entered the professional environment it has been easy for me to take a night off here or there to stay in the office late or grab drinks with coworkers.  As more time passed one or two nights off of exercise turned into weeks and sometimes months that I would not go to the gym or head outside for a run.  So over the past years not only have I been reducing the amount of activity I do by sitting at the office all day, I am eating highly processed and fatty foods and washing that down with my favorite pint.  This combination, of no surprise to anyone, allowed me to put on 40 pounds since those active college days.

So this is the year I turn it all around, and you can too!  On February 20th I began a work out schedule that will train me for the NYC Marathon this coming fall 2014.  I am starting out slow as if I never ran a race before and if I have never even ran before.  Therefore, this is a great training schedule for anyone looking to get a fresh start to 2014 and run for health, sport and inspiration.

Week 1:
Today is day one so you need to see what kind of shape you are in.  Force yourself to get out there and go for a run; it will be tough and you will hate it, but persevere because the reward comes sooner than you think.  This post i assuming your starting point is 1 mile.  Also, a key to distance running and overall health is a strong core, balance and posture; all accomplished with yoga.

So day one run 1 mile. 
Day 2 - run 1 mile
Day 3 - yoga
Day 4 - run 1 mile
Day 5 - rest
Day 6 - run 1.5 miles
Day 7 - rest

Week 2:
Ok, so week one is done with!  You just made it through the toughest part of your training, congratulations!

Day 1 - run 1.5 miles
Day 2 - run 1.75 miles
Day 3 - yoga
Day 4 - run 1.75 miles
Day 5 - rest
Day 6 - run 1.75 miles
Day 7 - yoga

Week 3:
Day 1 - run 2 miles
Day 2 - yoga
Day 3 - run 2 miles
Day 4 - rest
Day 5 - run 2.5 miles
Day 6 - yoga
Day 7 - run 3.2 miles

Week 4:
Wow, you just finished your first 5K of the year! Keep it up, from here on out your distance will start to improve much faster.  You should already feel the rewards from the first 3 weeks and running is starting to pay off.  You have more energy, your breathing has improved, you are starting to enjoy scenery's' and amused by little things such as snow melting or buds sprouting.

Day 1 - rest
Day 2 - yoga
Day 3 - run 3.5 miles
Day 4 - run 4 miles
Day 5 - yoga
Day 6 - run 4.5 miles
Day 7 - rest

Week 5:
Day 1 - run 5 miles
Day 2 - yoga
Day 3 - run 6 miles
Day 4 - rest
Day 5 - yoga
Day 6 - run 7 miles
Day 7 - rest

Week 6:
Day 1 - run 7.5 miles
Day 2 - yoga
Day 3 - run 8 miles
Day 4 - run 8 miles
Day 5 - run 4 miles
Day 6 - rest
Day 7 - run 6.5 miles

Week 7:
Day 1 - rest
Day 2 - run 7.5 miles
Day 3 - run 9.5 miles
Day 4 - run 3.5 miles
Day 5 - rest
Day 6 - yoga
Day 7 - run 11 miles

Week 8: 
Who would have thought 7 weeks ago you'd be able to run 11 miles?  But you can and you should be proud of yourself.  By now running is no longer hard.  You find your legs get tired not your lungs and it feels as if you could run forever without stopping.  You are now in great shape and should notice significant changes to your body, all good.  Do yourself a favor and sign up for a half marathon.  It will be a great way to see what running in a crowd is like.  For me it is exhilarating.

Day 1 - rest
Day 2 - run 12 miles
Day 3 - yoga
Day 4 - run 8 miles
Day 5 - rest
Day 6 - yoga
Day 7 - run 14 miles

Week 9:
Day 1 - rest
Day 2 - run 5 miles
Day 3 - yoga
Day 4 - run 8 miles
Day 5 - rest
Day 6 - yoga
Day 7 - run 15 miles

Week 10:
Day 1 - rest
Day 2 - run 3 miles
Day 3 - yoga
Day 4 - run 10 miles
Day 5 - rest
Day 6 - yoga
Day 7 - run 17 miles

Week 11:
Day 1 - rest
Day 2 - yoga
Day 3 - run 5 miles
Day 4 - rest
Day 5 - run 10 miles
Day 6 - rest
Day 7 - run 19 miles

Week 12:
Day 1 - rest
Day 2 - yoga
Day 3 - run 3 miles
Day 4 - rest
Day 5 - rest
Day 6 - run 3 miles
Day 7 - run 21 miles

You are now ready for the full marathon!  Your marathon should be 4-6 weeks from now and you should start to reduce the amount of miles you run here on out.  21 miles should be your longest run before the marathon.

Good luck!

Tuesday, September 17, 2013

Lets Reflect, 5 years later.

I was recently asked to, in order, rank the following groups to blame for the 2008 financial crisis:

-Wall Street
-Secondary Market

This question really had me reflect on the crisis 5 years ago and how we have recovered or changed policies since then. In order to rank these groups to blame for the crisis, I had to revisit exactly what happened in the economy that resulted in a crisis. Most arguments you may find throughout the web pick sides and blame one group over another, but to me its about a domino effect which really makes each group equally responsible for the crash. Like a perfect storm, the 6 groups above did exactly what they needed to do to contribute to a crisis. At the end of my explanation below, I will rank the 6 groups based on their fiduciary duty to another and how each betrayed that duty. However, to say one group was more responsible for the crash over another is impossible to do. Without the actions of any one of these groups, a crash would either not have happened or not have been nearly as bad.

The stock market hit an all time high in October 2007 when the Dow Jones Industrial Average exceeded 14,000 points. However, with in the next 12 months the economy started its decent to an ultimately crash in October 2008 and into 2009 which later became known by many economists as the worst financial crisis since the Great Depression. So what happened in the 12 months leading up to October 2008 that transpired into the worst financial crisis of our time? To answer this we have to travel back in time to 1977 when the Community Reinvestment Act (CRA) was passed by congress to encourage banks to meet the borrowing needs of low income producing communities. That's right we can actually trace the roots of the economic crisis the Jimmy Carter days! A year after CRA passed congress put a quota on the amount of mortgages banks or lenders needed to sell in order to make it known that home ownership was attainable by every single American. Making lenders meet a certain quota meant lowering restrictions borrowers needed to meet. This legislation (directly and indirectly) involved the government as a stakeholder in lending, banking and real estate.

Fast forward 15 years during Clinton's administration and you will see several changes in legislation and reform to the CRA which made lending even less restrictive and allowed for even more people to qualify for mortgages. In 1994 Congress increased the mortgage quotas on banks from 50% to 65% of Americans who should own a home. In 2002 the housing bubble was eminent but to avoid a crash and keep housing prices high, the FED kept rates low. With low rates and lending restrictions removed, houses were selling faster than ever and prices were rising at historic rates.

In the early 2000s mortgages were being written to almost anyone that walked in the door. The risk of default was no longer an issue for lenders because they simply sold the mortgages off to large institutions on Wall Street. So with no risk of default, lenders were lending faster than ever. The legislation that was put in place by the government leading up to this time period created many loopholes in mortgage lending in order to provide home ownership to Americans.

A new product emerged called a collateralized debt obligation (CDO) The way the product works is subprime mortgages are bundled up with prime mortgages which the Wall Street banks then offer in the secondary market. The rating agencies rated these investments as AAA investments because of 2 reasons: The prime mortgages were mixed in. The second reason is the notion that even if the sub prime mortgages were defaulted upon, the value of the home would continue to rise. Therefore, the bank could repossess the home and sell it for a profit, making the CDO still valuable.

So now the lenders are happy because the requirements to receive a mortgage are more lenient AND they can sell off the mortgages to wall street (minimizing their exposure to risk of default). This resulted in over selling mortgages to pretty much anyone who walked in the door. There are accounts of people with annual salaries below $50,000 being approved for million dollar homes.

Since there were so many people being approved for mortgages and not enough houses to sell, construction companies were building large developments which were advertised and being sold by realtors. Realtors were advertising the homes as a win win scenario for consumers because they made people believe that housing costs would always continue to rise and even if they couldn’t afford the home, they could sell it in the future for a huge profit.

Finally, some people in Wall Street figured out the scheme before others and created a product called a Credit Default Swap (CDS). This was basically an insurance policy on the MBS so if the value of the MBS declined, the value of the CDS rose. The CDS was a derivative of the MBS (basically a short on CDO).

Through 2007, home prices continued to rise but during 2007-2008, people started defaulting on homes faster than ever. The reason was because of variable interest rate mortgages. The lenders offered variable rates to people, which, to the unwise seemed like a great deal. This means that the consumer would pay for example 2% interest for the first 3 years, then after 3 years they would start paying 8% interest, increasing their monthly payment significantly. Most consumers who bought homes during the bubble, bought from 2004-2008, which is why during late 2007 people started defaulting due to the variable interest rates. So when everything went down in 2008, the MBS and CDO, which were in pretty much every institutions portfolios, became pretty much worthless.

While the CDOs were quickly loosing value, the large institutions who were selling these CDOs were buying CDSs. This means Wall Street knew the CDO product they were selling was worthless but kept selling it. At the same time, Wall Street was buying large numbers of CDSs which during the crash became very valuable and the originator of those contracts were left with hundreds of billions of dollars in debt and with no cash.

So the crash of 2008, just like during the Great Depression was one of no liquidity. The large institutions who bought all the CDOs in the secondary market lost their liquidity. Insurance companies who issued the CDS lost all their money to pay out the claims. Wall Street firms were left with toxic assets on their balance sheets which rendered them no value and out of cash. There were a few firms invested in the CDS who were doing better than others, but still everyone lost in this game.

Based on the sequence of events, it is hard to place more blame on any group, however, some groups had a fiduciary duty to be responsible enough to not breach any moral code. This is why the following is how I rank these groups from most to least to blame:

1)Lenders – Had the responsibility to only sell to credit worthy individuals. Even though the government made it legal for lenders to sell these very subprime mortgages, they had a moral responsibility to decline certain consumers and they didn’t uphold. They had a fiduciary duty to make the consumer aware of exactly what they were doing and disclose in a better way the teaser rates and what would happen when those rates are no longer available.

2)Realtors – They too had the fiduciary duty to provide realistic opportunities for their clients and not try to oversell a home which is very obvious the consumer cannot afford.

3)Government – Although they have the highest level of fiduciary duty to the consumer, they put in place policies that were meant to provide consumers with more opportunity, however, these policies were too lenient and were abused by lenders. They are still somewhat to blame for allowing lenders the opportunity to make so much money on the backs of Americans.

4)Wall Street – Although, they were providing services that are typical for investment banks (for example buying the CDO’s from lenders and selling them to the secondary market), the Wall Street banks got greedy and started selling products which they knew did not have value. They were also buying the CDS’s while selling CDO’s to their clients. The products they sold ended up in large institutions which affected every day American's pentions, annuities, and other investments.

5)Consumer – Although the consumer is always right and they are to blame for the crisis too. They became greedy and irresponsible, buying homes they could not afford.

6)Secondary Market - This group is least to blame because they were simply adding these products to their portfolio’s which were advertised to them as a great investment and the investment was supported by rating agencies. The only people who really knew it was going to fail at the end were a few people in the large Wall Street firms. The secondary market was just the victim, however, since the secondary market was the direct link to every day Americans, they could have been more selective on what their portfolios held.