Nov 30, 2011- Pockets of Strength, Areas of Strong Growth and Themes for 2012

I can understand that most short term traders in the Philippines have seen only muted price reactions, perhaps even lethargic reactions to overall global markets’ cheer and exuberance over possible 30 cents assurance of IMF to cover the sovereign bonds of European debt, strong Black Friday US Sales etc.

For the past two days, AUDUSD which has been an excellent proxy with a 0.99 correlation to the Dow Jones index (1 Week) according to DailyFX’s Research team, rallied from lows of  0.9670 and is hovering near .9950 as of writing, from a short term high of 1.0070.  Some market pundits are now searching for levels on where the rally can possibly extend further, in order to initiate short positions, as there’s still a lot of bearishness on Europe’s fundamentals, weighing on the whole region, dismissing what transpired a few days ago as merely relief rallies on an oversold market.  Asian markets, US Futures are dropping again.

News that the Bears Love to Chomp Upon:

Today, I saw in the news stream that 7 US banks have recently been downgraded a few notches in their credit rating (Bank of America, Goldman Sachs, Citigroup etc), while Chinese banks got upgraded (Bank of China, China Construction Bank etc.).  JPMorgan was also removed from Australian Banks’ prime list.   American Airlines filed for bankruptcy.

Read more from Bloomberg here:  Stock Futures in U.S. Decline After Bank Ratings Cut by Standard & Poor’s

William Pesek’s Commentary on the Laughable Credit Rating Agencies, is a must read.

Pesek writes:

Come on, can anyone really say our global credit-rating system works? Look no further thanStandard & Poor’s downgrade of U.S. debt this year. Afterward, investors couldn’t get enough dollar-denominated securities. Then there’s MF Global Holdings Ltd., which S&P, Moody’s and Fitch Ratings all rated investment grade a week before bankruptcy. Congress is right to investigate whether Jon Corzine’s star power and political connections clouded judgments of the New York-based firm’s viability.

Our credit-rating system also shows how little things have changed. It missed the Asian crisis 14 years ago and Russia’s default a year later. It was asleep on the job when technology stocks crashed, Enron Corp. imploded, the U.S. housing bubble inflated, Wall Street lost all sense of responsibility and Europe veered toward a financial cliff.

*****

There’s just so many mixed views in the market, and this can be seen from the price action itself so I’d just like to concentrate on a few pockets of strength that are fundamentally good to look upon before trying to make any trading positions in a flaky market.  It’s easier today, to just do research and wait until things are clearer.  Since I’m a perennial optimist, I have listed below pockets of strength and areas of strong growth that’s besetting our futures.  They may be related to the markets, or may not, but nevertheless, these are places where I believe the future is bright.

Notes to Self: — Look and read further into these topics.  I just want to bring your attention to these themes.

Pockets of Strength/ Themes for 2012 and beyond: (Rough Drafts in my head) 

1.) China’s Luxury Market/ Luxury Retailers/ Gold, Watches and Expensive Bags

Mega Trends: Rising Consumption for High End Goods in Asia Unabated

Industry

Sales of luxury goods in mainland China hit an estimated US$8.6 billion in 2008, according to the consulting firm Bain and Company. When purchases by Chinese people abroad are factored in, the market was worth US$20 billion.

China is forecast to become the world’s top buyer of luxury goods by 2015, according to consulting firm PriceWaterhouseCoopers.

Source: China Post

Specific Company Earnings Results – Prada Beating Estimates

Nov. 29, 2011 – Prada Confident for Year as Quarterly Profit Beats Estimates (Bloomberg)

Sales Growth

Prada follows rivals including LVMH and PPR SA in predicting sustained demand for luxury items amid Europe’s sovereign-debt crisis. Burberry Group Plc’s Chief Executive Officer Angela Ahrendts said this month the British company can weather any fallout by focusing on wealthy clients in cities such as New York and Hong Kong. Still, Tiffany & Co., the luxury jewelry retailer, said today that sales growth will slow to the “low-teens” in percentage terms in the fourth quarter.

Prada said the pattern of retail sales in November is in line with previous months. Retail sales climbed 39 percent in the quarter and 36 percent in the nine months through October, the 98-year-old company said. While Prada is ready to react to defend profitability, “we remain highly confident about the potential of the luxury market,” it said.

Sept. 20, 2011 – Prada First-Half Profit Jumps 74% on New Stores, Asia Growth (Bloomberg)

Hermes International

Birinyi likes Hermes International  which he called the “most iconic brand in the world.” (Top 5 Stock Picks for 2012, Birinyi CNBC)

Sept. 2,2011-  Birkin bag maker Hermes International SCA overtakes France’s second biggest bank Societe Generale SA by market value

Hermes’s market value is 55 percent greater than Societe Generale’s, even though it has 5 percent of the staff and 8 percent of the revenue of the lender, according to Bloomberg data. Investors are paying 54 times reported earnings for Hermes compared with 5 times for Societe Generale.

2.) Data, Data and more Data is our Future, and the implications to productivity, profits

The Need for Data Aggregators, Data Scientists, Data Specialists

In the United States alone, our research shows, the demand for people with the deep analytical skills in big data (including machine learning and advanced statistical analysis) could outstrip current projections of supply by 50 to 60 percent. By 2018, as many as 140,000 to 190,000 additional specialists may be required. Also needed: an additional 1.5 million managers and analysts with a sharp understanding of how big data can be applied. Companies must step up their recruitment and retention programs, while making substantial investments in the education and training of key data personnel. (Reference: McKinsey Quarterly, “Are you Ready for the Era of Big Data”, Nov 2011)

Useful Quote Reminder:

“Capitalize on big data instead of being blindsided by it.” – McKinsey

More Useful References/Links on Data:

1.) Competing through data: Three experts offer their game plans (McKinsey)

MIT professor Erik Brynjolfsson, Cloudera cofounder Jeff Hammerbacher, and Butler University men’s basketball coach Brad Stevens reflect on the power of data.

“I first break down all of the statistics that I can on opponents to try to get my mind wrapped around what their trends are.” – Brad Stevens, Butler University Men’s Basketball Coach

“I think this revolution in measurement… is as profound as the development of the microscope and what it did for biology and medicine.” – MIT’s Erik Brynjolfsson on how big data yields productivity and profits.

“Conceive data as a competitive advantage.” – Cloudera cofounder Jeff Hammerbacher

2.)Data Analytics: Crunching The Future (Bloomberg Businessweek)

Minority Report- Becoming a Near Reality

The company works with law enforcement agencies around the U.S. to keep track of about 15,000 ex-cons, meaning it must collect and analyze billions of GPS signals transmitted by the cuffs each day. The more traditional part of the work consists of making sure that people under house arrest stay in their houses. But advances in the way information is collected and sorted mean SecureAlert isn’t just watching; the company says it can actually predict when a crime is about to go down. If that sounds like the “pre-cogs”—crime prognosticators—in the movie Minority Report, Florek thinks so, too. He calls SecureAlert’s newest capability “pre-crime” detection.

3.) Why Geeks are the Best Marketers (Bloomberg Businessweek)

Amazon.com is the king of all Moneyball Marketers and is so stealthy that Chief Executive Jeff Bezos has often stated that Amazon has “no marketing department.” What the company does have is hundreds of analytics geeks, running perhaps the world’s most sophisticated marketing effort—monitoring the performance of online and offline ads.

GEEK TECHNIQUE

Amazon spent more than $1 billion in marketing last year. The company runs thousands of ad tests each month to find keywords and messages that drive consumers to its website and gets them to buy. Ad spending is carefully analyzed to ensure payout. That’s a big reason why the company has grown an average 27 percent per year for the past 10 years.

4.) Subset on Data: — Sports Shoes + Performance Data = Ground Breaking New Products 

Adidas -$338 Shoe With a Chip To Show You Your Performance 

“We’re able to show you what you did, give you the key metrics of your game, and enable you to compare this to your previous performances, the performance of your friends, competitors, or our global stars,” says Ryan Mitchell, head of the product introduction team in Adidas’s interactive business unit. (Bloomberg BusinessWeek)

5.) Sustainability,Going Green, Solar Powered Phones, Electric Cars, Polysilicon wafers and Solar Panels as a Theme

While the topic of going green, and sustainable energy has often been a hot topic as hot as Asia leading our nations for the past 5-10 years, most companies in this sector aren’t really given much attention and still trading at a speculative story phase.  Since this is still relatively considered “innovative and pioneer products”.  Companies trading in this space are worth looking at.

Useful Links and Summaries:

1.) The business of sustainability: McKinsey Global Survey results (McKinsey)

McKinsey estimates that the clean-tech product market, for example, will reach $1.6 trillion by 2020, up from $670 billion in 2010. The World Resources Institute estimates that people at the bottom of the income pyramid, who earn less than $3,000 a year, embody a global market of more than $5 trillion.2

Company Specifics  (GE, Dow Chemical, Whole Foods, Walmart) 

GE, for example, placed early bets on climate change: in 2004, before Al Gore and Hurricane Katrina made this a top-of-mind issue, the company resolved to double its research investments and sales in clean technology. It also promised to “green” its own operations. As a result, GE’s Ecomagination division has been a tremendous growth engine, with product sales reaching $18 billion in 2009. Other companies too have found instructive ways to build sustainability into drivers of value.

Returns on capital

Most companies creating value through sustainability look first to improving returns on capital, which often means reducing operating costs through improved natural-resource management (such as energy use and waste). Dow Chemical, for example, reported that it invested less than $2 billion since 1994 to improve its resource efficiency. To date the company has saved more than $9.8 billion from reduced energy consumption and water waste in its manufacturing processes, even as it continues to develop innovations. In 1996, through a separate initiative, Dow also created a set of goals for environmental, health, and safety issues, and it has ensured their integration into the company’s processes by tracking progress with clear metrics. As a result Dow, with a 20 percent reduction in absolute greenhouse gas emissions, has gone well beyond Kyoto Protocol6 targets.7

Companies are also driving down costs by systematically managing their value chains. Wal-Mart, for example, expects to generate $12 billion in global supply chain savings by 2013 through a packaging “scorecard” that could reduce packaging across the company’s global supply chain by 5 percent from 2006 levels. Moreover, companies can add value by improving employee retention or motivation through sustainability activities or by raising prices or achieving higher market share with new or existing sustainable products. Whole Foods Market, for instance, raised its sales by 13 percent a year from 2005 to 2009, in an economy experiencing single-digit growth.

Companies To Study In This Space:

$TSLA, BYD Electric Cars (HK:1211), Samsung, GCL Poly Energy (HK:3800)

Videos on Tesla

Elon Musk Profiled: Bloomberg Risk Takers (Founder of Tesla)

Samsung Solar Powered Phones – http://inhabitat.com/samsung-releases-solar-powered-phone/

*****

Bottomline: Trying to make sense of today’s uncertain environment is a difficult game.  One’s better off just reading on industry sectors that are experiencing tremendous growth, rising earnings, expansions in stores and sales and do research more into it to understand what’s happening in the bigger picture, and where to hide for pockets of strength in a decidedly difficult global market.

Just today, I saw a news clip on Meg clinching a P7Bil Clark Dev’t Deal in the Inquirer.  I believe those types of news, particularly the Andrew Tan-led group Alliance Global also expanding to a $1.1 Bil Bayshore project are all bullish points to keep your radar stock screens on.

– Faceless Trader (Tesla Car is the featured image for this post)

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