Gold To Wane As U.S. Dollar Reaches Its Bottom
2010-02-09 12:05:47
With little further to fall, a soon-to-recover U.S. dollar may signify the end of gold's "safe-haven" pricing and purchasing by the world's central banks, according to Commodity Strategist David Thurtell, a director at Citigroup Global Markets (London)."A lot of the positives that have driven the gold price higher over the last decade really have waned or are starting to wane seriously," said Thurtell, explaining ETFs have already seen the bulk of their gains and that only a small sliver of the gold hedge book - 250 tons - is left to buy back. "If anything, with credit harder to come by, small, high-cost gold miners might be inclined to put gold hedges back on, particularly now that gold prices are so high in historical terms."
Along the same lines, Thurtell predicts China and Japan will not follow the Western central banks' practice of purchasing massive amounts of gold, especially now that the price of gold has reached a historical high.
"The accumulation of gold reserves by Western central banks was really a byproduct of an exchange rate system which no longer exists. And there is no real reason why China and Japan would want to rush out and buy massive amounts of gold to mimic other central banks when the price is at a record level," Thurtell said. "It may make sense to accumulate a couple of billion dollars' worth of gold for a rainy day, or a couple of million barrels of oil, or a couple of million tons of copper...But if I was sitting in a central bank FX investment division, I wouldn't be recommending buying gold at the all-time high."
Analyst Q&A: A Domestic Growth Story in China Internet Services
2010-02-03 11:05:55
In this excerpt from TWST's interview with Tucker Grinnan, Regional Head of telecoms and media research, Asia-Pacific, for HSBC, discusses his favorite names in China's Internet services sector as well as the domestic growth trends that are currently driving the industry.TWST: What are the key growth drivers for the China Internet services space?
Mr. Grinnan: I think, again in a context of the broader Chinese market, China telco services, particularly wireless subscriber growth, has been the main growth driver for the industry as a whole. And investors have been positioned - particularly global investors - in a stock like China Mobile (CHL) because it's consistently sort of a structural play on the expansion of telco services in China. That is no longer the case. Subscriber growth has slowed, usage has slowed, revenue growth has slowed, in particular now that Chinese telco companies are transitioning to 3G and there is a wave of cap ex. China is spending roughly $50 billion this year on telco cap ex, which is half of global cap ex. So an enormous expansion of the underlying telco network, both the fixed-line and the wireless portion. And the biggest beneficiaries of these are actually these China Internet service companies because their services are riding over top of this infrastructure, and you have an enormous expansion of the infrastructure at no direct cost to them. Overall, the Chinese Internet penetration rate today is around, let's say on our numbers, 27% to 28%. We expect that to double over next three years. The China online services space is growing at something north of, let's say, 30% a year compound annual growth rate in terms of revenues. Online gaming represents roughly 50% of that, and the other key areas are search, ad and e-commerce. The key point I'm trying to emphasize is that while we can talk about how all these companies are positioned within the China Internet space, and what the various advantages and disadvantages are, the underlying revenue base is growing explosively at roughly 30% a year. So not the rising tide that lifts all boats, but it makes it a lot easier to sail.
TWST: Would you say investors basically can't go wrong in this space right now?
Mr. Grinnan: In a way, I don't think we can go wrong. In other words, I would say at an aggregate level, I'd be buying this whole space. What you notice is that there are three big companies, Tencent (0700.HK), Baidu (BIDU) and Alibaba (1688.HK), which are large cap and have their respective stakes. Tencent is our favorite name because it is the most diversified. But I like the Chinese online game space; I like the online ad space; I like the e-commerce space, and all of these segments are in the midst of a structural growth surge. And one of the key points is that there is no Chinese state-owned company that competes in this space. So this is a space that is exclusively for private companies. And given the dominance of the Chinese government in the overall economy, it's very hard to find a big, fast-growing space that has national exposure, that is geared to meet a domestic consumption play story, which I think is - the best part of the Chinese market is the emergence of the middle class in China, that's the big story from a macro perspective. And this sector is one of the most interesting ways, in our view, to play the China domestic consumption play space because it's a big sector that generates huge returns. It's not capital intensive and there is no government-owned company in the space.
Genomics: A Great Play for Growth Investors
2010-02-01 11:55:14
As today's growth investors search for pockets of innovation to drive stock performance, genomics is emerging as a growing market within the life sciences sector, offering attractive growth opportunities and products that will potentially change the field of research."You have companies like Illumina (ILMN), for example, who earlier this week launched a pretty impressive new DNA sequencer, the HiSeq 2000," said Isaac Ro, an analyst who covers the life science tools and diagnostics sector for Leerink Swann & Company. This product has the potential to provide four times the amount of genetic information per experiment with improved performance in comparison to other products currently on the market.
"I just raised my price target for [Illumina] because I believe this company is innovating not only in genomics, but they actually also have an entree eventually into the diagnostics world as well," Ro explained. "So there are a couple of things that, over the next couple of years, that are going to change the market and could take them well over $1 billion in revenues."
Ro is also positive on Illumina's efforts to bring genomic sequencing to the masses, lowering the cost of sequencing technology to a price that would enable all research labs to buy and use the company's products.
"And so they've got a technology still in the stock works that potentially emerges later this year or early next called Avantome, and there's very little known about it other than it's going to be ultra low cost, relatively high throughput. It would be about the size of a microwave and could go in every research lab," Ro said. "That's something that would really expand the market again."
Analyst Q&A: 2010 Outlook for Software Security Companies
2010-01-28 12:09:04
In this excerpt from TWST's interview with Daniel Ives, senior vice president and senior analyst in the technology, media and telecom research group of FBR Capital Markets & Co, Ives discusses the trends and growth drivers security software companies should expect to see in 2010.TWST: Looking at your coverage universe, what type of growth do you expect among security software companies in 2010? What factors will drive that growth?
Mr. Ives: In 2010 we are looking for an improvement in spending, although I would believe modest. I think growth depends on which company you are talking about. I think in general, we will be looking at a 5% to 10% growth from most of the companies that we cover, although that can vary depending on economy and spending.
TWST: For the security software companies, what would you say will be the main drivers of the growth?
Mr. Ives: I think it's a combination. I think security software is benefiting from being a defensive type of purchase in a tough spending environment. They have navigated the downturn, I think, better than many pockets of software. So I think they will benefit from a better spending environment. But in particular they are also benefiting from what I call "outdated security" - infrastructure out there that's long overdue for an upgrade. So there is a really a massive upgrade cycle going on as well, which I think security benefits from.
TWST: If you are an investor who is new to the space, which key concepts do you must you understand before putting money into these companies?
Mr. Ives: I would focus on - there are a lot of technologies, but I think you have got to separate the legacy technologies versus some of the next-generation technologies as to where some of the companies are heading and more importantly where customers are buying. I think three big areas in the space for 2010 are going to be areas such as virtualization, WAN optimization as well as speech recognition technology. I think when you think about names that are beneficiaries from some of those trends, you have the Citrix (CTXS), EMC (EMC), Nuance (NUAN), Blue Coat (BCSI) and Riverbed (RVBD). Because 2009 was about survival, 2010 is going to be more about where technology is heading, who are the beneficiaries in the next cycle. So security vendors are extremely well positioned. But I think peeling away the onion, and trying to look at the subsectors and which companies benefit, I think that's the key.
Government/Academic Research May Mean Greater Upside to Life Sciences Companies
2010-01-27 12:44:46
In his recommendations to investors, Analyst Dan Leonard says some of his top life sciences picks are those companies with the most exposure to government and academic research."Right now I am more predisposed to recommending stocks that have a good amount of exposure to academic and government-sponsored research in the tool space because I think that's a good growth trend worldwide currently," said Leonard, vice president at First Analysis Corporation. With a more favorable spending environment forecasted for 2010, such public grants and research could make up for sparse R&D budgets coming off of 2009.
"Academic and government-sponsored research support could be improving worldwide. You not only have the NIH stimulus in the U.S., but you have some science stimulus programs happening around the world in places like France and Germany," he said. "And it looks like the Japanese science spending is actually improving a bit and showing the first signs of life in a long time."
Other important trends Leonard emphasized to investors are molecular diagnostics, next-generation sequencing and companion diagnostics. Among these three areas he highlights companies Hologic (HOLX), Gen-Probe (GPRO), Qiagen (QGEN) and Illumina (ILMN).