As part of our recent 69 page Transportation & Logistics Report we spoke with David Campbell Sr. at Thompson, Davis & Company.  He gave his outlook for the entire sector including some smaller companiesthat seemed well positioned to survive;

TWST: You mentioned a couple of smaller names as well. What’s the interest in smaller names in a tough environment like this?

Mr. Campbell: The smaller, well-capitalized companies like For­ward Air and Express-1 are benefi­ciaries in the United States of their financial strength, vis-à-vis some larger companies that don’t have prof­itable operations. We look for benefi­ciaries of financial strength, and the capacity to carry more business without adding debt to balance sheets. These two are good examples of that

TWST: Where are they picking up market share from?

Mr. Campbell: We think that companies like Forward Air and Express-1 would benefit from traffic lost by Roadway or other highly leveraged, bigger competitors that may be terminating markets in their systems. Forward Air does not carry ground freight, but some of its freight could be and has been carried by less profitable trucking companies. Forward Air may benefit from gains in market share, as well as growth in the international part of its business, where the company picks up and delivers international freight in the U.S.

TWST: As the economy gets better, can they hold their gains in market share or are they likely to give some of those up?

Mr. Campbell: It may be difficult for competitors who lost the traffic to get it back. Customers are satisfied with Forward Air and Express-1 services, and so they are probably going to re­tain a lot of that traffic.

 

As part of the Transportation Report we asked Natasha Boyden of Cantor Fitzgerald  to give us an overview of Marine Transportation .  She thinks the dry bulkers are certainly moving up a bit better and their rates have been falling dramatically.

Ms. Boyden: The dry bulkers are certainly moving up a little better. Their rates over the last couple of weeks have been fall­ing dramatically and I think a lot of that is due to the fact that Vale (VALE) has taken itself out of the market, is no longer putting in orders I think. But in the second half of the year, we’re certainly seeing lower iron ore imports into China, as their inventory is hold­ing steady at about 76 million tons and they certainly don’t look to be increasing that. Steel prices have fallen pretty dramatically, down about 15% in the last month, which to us does indicate a weakening in demand for the products. I think the last quarter of this year is going to be definitely not as good as the first three quarters, which I think took everybody by surprise. I think the worry here is if they drop another $10,000 it will be at breakeven again or below. It’s certainly something we’re watching very closely

The fact that the dry bulk space has been behaving so well is really, in our opinion, much to do with the Chinese stimulus pack­age. It was about $586 billion in 2009 and 2010, about 50% of that is for infrastructure. Very clearly that would stimulate domestic steel demands, et­cetera. It’s a question of whether or not we’re seeing real demand or we’re seeing stimulus demand. Scrapping levels were pretty high in the first half of 2009, but they have slowed down since. Deliveries have been much less than anticipated. We expect that to reverse later this year.

Our featured interview this week is with Federal-Mogul Corporation (FDML)

The complete interview with Jose Maria Alapont, President and CEO, is now available.

Federal-Mogul Corporation is a leading global supplier of powertrain and safety technologies, serving the world’s foremost original equipment manufacturers of automotive, light commercial, heavy-duty, industrial, agricultural, marine, rail, off-road and industrial vehicles, as well as the worldwide aftermarket. The company’s leading technology and innovation, lean manufacturing expertise, as well as marketing and distribution deliver world-class products, brands and services with quality excellence at a competitive cost. Federal-Mogul is focused on its sustainable global profitable growth strategy, creating value and satisfaction for its customers, shareholders and employees. Federal-Mogul was founded in Detroit in 1899. The company is headquartered in Southfield, Michigan, and employs nearly 39,000 people in 36 countries.

As part of our recent Transportation and Logistics Report we conducted a Roundtable Forum with Helane Becker of Jesup & Lamont Securities , Robin Byde of HSBC Bank Plc , Kevin Kirkeby of Standard & Poor’s and David G. Ross  of Stifel Nicolaus. Mr.Ross gave us his snapshot on the industry;

Mr. Ross: On the volume side,we hit the bottom for absolute freight volumes in the second quarter, and we should grow softly from that base. Over the next few quarters, we should see stimulus programs, like cash-for-clunkers program, boosting freight at least temporarily. Plus, we believe the inventory destocking that has occurred over the past year is nearing an end, and we should see at least inventory stabilization, if not a slight inventory build

Even though the path for an economic recovery will be mild for a protracted period, there will still be some volume growth from the rails and truckers. Select companies within the transportation sector will start to show earnings growth, probably driven more by changes in capacity than by any change in near-term demand.

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As part of our Education report we spoke with George Sakellaris of  GARP Research & Securities Co. and asked him about the regulatory issues facing the education industry

Mr. Sakellaris: “That’s the big question here. I think that’s some­thing that’s held some of the stocks in check over the past several months It’s certainly a topic that’s been batted around significantly in the investment community. It’s hard to say. Negotiated rule making ses­sions are coming up in the fall, and some new rules could emerge as early as Q1 of next year. My personal opinion is that it’s a lot of hype that may result in little change. I think the administration’s topline goal is to get more col­lege graduates. Given the capital intensity and other growth impedi­ments at traditional schools and the almost unlimited capacity potential and open enrollment policies of most for-profit educators, I think the administration will have a hard time reaching its goals with­out embracing not only community colleges, which is what they have done so far, but also some of the higher quality for-profit educators. “

As George Bush 41 learned in 1992 it’s the Economy stupid. It was true then and it is true for the gaming industry today. We recently spoke with Grant Coverson of Union Gaming Group who gave us his view of  the gaming industry;

” a lot of people kind of considered gaming to be more or less recession proof. Obviously, that is not the case and, especially with this consumer-led recession, it’s really crushed gaming, especially in Las Vegas. There are a couple different dynamics here: You have Las Vegas, the US outside Vegas and then Asia. Vegas has been hit particularly hard. It’s always been a destination -  you’ve got to get on a plane, you’ve got to get a hotel room, etc., and what’s happened over the past year-plus is that if you happen to live in, say, Chicago, you’re now more likely to go to a riverboat in the suburbs and gamble there rather than jump on to a plane and come to Vegas. It’s a convenience factor. So in other words, the regions or the riverboats have outperformed Las Vegas and continue to do so. “

Is this where we insert some sort of pun about what happens in Vegas stays in Vegas ? Sorry to disappoint but no pun here just the facts. And the facts seem to point to a rough patch for gaming that may take 5 to 10 years for recovery.

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In a recent interview with Brian Ruttenbur of Morgan Keegan & Co. Inc. he examined the Homeland Security Sector. Interest in the space has waned among investors but value investors are coming back, and the big defense names are extremely cheap.

“The defense companies are getting more and more into the security space because it’s a faster growing area. Core defense budgets are going to see a 2% to 4% increase per year over the next five years. But security budgets are expected to grow much faster. We see the big defense primes actually coming into the space and becoming the primes in homeland security and other areas.”

Cyber Security Buzz

“There is one big growth area within security in the federal government and that’s cyber security. Cyber security is a big buzz phrase because of the Obama Administration. The cyber security spending per year could be as high as threefold or fourfold higher than levels they are at now.”

Homeland security will continue to grow very strongly within the federal government, particularly cyber security, which could be three or four times higher than current levels.

Companies mentioned include: Northrop (NOC); General Dynamics (GD); Lockheed Martin (LMT); Cogent (COGT); FLIR Systems (FLIR); NICE Systems (NICE); L-3 Communications (LLL); Raytheon (RTN).

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Recently as part of our Gold Industry Report Andrew Mikitchook of Thomas Weisel Partners Canada Inc. gave us his top three picks for the Gold Industry.

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Speaking with Analyst James Lucas about Industrial Equipment recently, he gave us his five companies to look at in this space. The industrial equipment space may be doing poorly this year, but be sure to look to these companies to see just when it’ll turn around:

Mr. Lucas: There are a number of different data points to track. Companies like Grainger (GWW) and Fastenal (FAST) in the distribution space provide their sales data and watching those month-to-month trends gives an indication of what’s going on because they tend to be MRO-related products, so it’s more of the day-to-day handling within a business. Kennametal (KMT) in the machine tools space, Illinois Tool Works (ITW), which tends to be little bit more consumer and commercial related, and Emerson (EMR), which gives you some network power, technology, and is very heavy on the process oil and gas side, also give their monthly numbers. When you take those five, it gives you a pretty good cross-section of the overall economy to get an idea of what’s going on out there.

For the full Industrial Equipment report, including the full interview with Mr. Lucas, as well as interviews with top CEOs in this space, click here.

In our recent Industrial Equipment Report we spoke with Daniel Whang of B. Riley & Co., Inc. who was very high on Regal-Beloit:

“Regal-Beloit (RBC).is a leading manufacturer of electric motors, motion control products, and generators. They have a strong brand. One of the things that I like about them is that they have significant exposure to early cycle demand. Roughly about 40% of their revenue is coming from resi­dential, what they call HVAC or Heating, Ventilation, and Air- Conditioning motors. As the economy starts to bottom out and show improvement, I think they could be one of the early beneficiaries of that. In the industry, they have a reputation of producing high qual­ity products. They have a management team with a good track re­cord. In the current environment, the company is reducing their costs while they continue to invest in the business.”

Mr. Whang also recommends another Industrial Equipment company but you need to read the full interview for that information which is available here .

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