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January, 2006


Typically here the emphasis is on a bottom up approach to investing, looking for good value stocks, one at a time, regardless of what might be happening in the economy as a whole. There can be benefit too, of course, from looking at things from the top down.

What trends may lie ahead of which the long-term investor may take advantage?

An obvious one would continue be the increasing need for good health care, as a higher percentage of the population is reaching older age.

Another may be the growing importance of precious metals for industrial purposes or jewelry or as hedges against uncertainties, such as a potential falling dollar, a new major terrorist attack, wide fluctuations in the price of oil, inflation sooner or later rising further (given our nation's high debt levels), Iran or North Korea taking additional steps toward the production and/or sale of nuclear materials and weapons, instability in China or the Middle East, greater natural disaster costs, a viral pandemic, etc.

Yet another would be the rising importance of traditional energy suppliers, as demand for petroleum products continues to outstrip refined supply.

Related to the last one, there will eventually be a major emphasis on alternative energy sources.

But since those are unlikely to fill the gap between demand and supply adequately in the near- or medium-term future, worldwide one may expect that modern, safer, more efficient nuclear plants will be getting fresh attention and investment.

And because oil is now more expensive, and new nuclear plants will probably not be operational for decades, another trend will be the increased use of coal.

An important concern will be the decreasing supplies of fresh, clean water vs. increasing urban, agricultural, or industrial water requirements.

What sectors might best be positioned to capitalize on the above trends? Obvious choices include:

  • Alternative Energy
  • Biotech
  • Coal Suppliers
  • Precious Metals
  • Healthcare
  • Natural Gas Utilities
  • Nuclear Plant Construction
  • Nuclear Utilities
  • Oil Producers
  • Uranium Mining and Production
  • Water Companies

Others have already thought along similar lines, so prices of several companies in these sectors are currently high. A worthwhile strategy may be to take an investment nibble at this time, with shares in some of the best relevant companies, and then to gradually add to one's holdings, on a dollar-cost-average basis, over the next few years.

From among the indicated industries, the following companies seem to stand out as having good prospects presently:

Berkshire Hathaway (BRK/A and BRK/B) is a well run conglomerate, with low debt and substantial cash reserves, that is now heavily into the overall utilities sector and seeking still greater such involvement.

General Electric (GE) is another well run conglomerate, with excellent growth prospects, that has significant involvement in nuclear plant construction, healthcare, and energy. It is among the highest rated by Value Line for financial strength and has a healthy (2.8%) dividend.

SJW Corp. (SJW), Connecticut Water Service, Inc. (CTWS), and American States Water Co. (AWR) are water companies that, in spite of the run-up in price for water utilities in recent years, still seem to offer good value. All provide above average dividends as well.

Cameco Corp. (CCJ) is the world's largest uranium company and has low debt. Although its price to earnings multiple is very high currently, it appears likely to be producing much more over the coming years. If interested in this area, but worried the price may drop, one might buy equal dollar amounts of CCJ each year, thus likely assuring a lower average price per share in a fluctuating market. Some suggest significantly increased prices for CCJ in the next year or so.

Burlington Northern Sante Fe (BNI) has a healthy dividend, a good historical dividend record, and extra profits recently from the transport of higher volumes of coal. It is expected to have healthy profit margins for the foreseeable future, particularly because China is buying large amounts of coal and other materials needed for its exploding industry.

BP plc, ADR (BP) and Chevron (CVX) are both well run, low P/E, high dividend, low debt companies involved in oil and natural gas production. CVX also has some coal mining operations.

Entergy (ETR) and Exelon (EXC) are natural gas and electric utility companies with reasonable P/Es and healthy dividends. Entergy operates five nuclear plants too.

Rio Tinto plc, ADR (RTP) is a reasonably priced, dividend paying gold producer.

BHP Billiton Ltd., ADR (BHP) produces silver, oil, natural gas, and titanium. The company's shares appear reasonably priced and offer a dividend.

I was not able to find a both profitable and promising company involved in renewable energies, alternative fuels, or related. The closest I came was IMPCO Technologies (IMCO) which has very low debt and is well rated for performance over the next 6-12 months, according to more than one investment service. IMCO makes components, such as fuel cells, hydrogen storage containers, or natural gas fuel systems, for use in hybrid or other alternative fuel system vehicles.

T. Rowe Price Health Sciences Fund (PRHSX) is a no-load, medium risk mutual fund with a good five-year record, relative to the S&P 500 Index. It is rated four-stars (above average) by Morningstar. As the name implies, the fund invests in health care sector and biotechnology companies.

Vanguard Health Care Fund (VGHCX) unfortunately is currently closed to new investors. Once it reopens, this would be a very worthwhile addition to one's portfolio. VGHCX is a no-load, low risk mutual fund with an exceptionally good long-term record. It is rated five-stars (highest) by Morningstar. This fund invests in health care and biotechnology securities too.

(As always, I suggest that investors check with their financial professionals or properly research candidate companies and funds before investing in any.)


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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