Analyst Heather L. Jones, of BB&T Capital Management, speaks about the state of Agricultural Business at present
TWST: At this point in the year, how has business been in the agricultural segment?
Ms. Jones: Robust to say the least.
TWST: Is it because of ethanol?
Ms. Jones: Ethanol has definitely contributed to the robust demand and has drawn much public attention, but there are a number of issues that have contributed. Ethanol clearly drove higher corn demand, which resulted in more acreage being planted in corn this year. Those acres were taken from primarily soybeans, but also cotton, peanuts, etc., resulting in higher prices for those commodities. Although soybeans were in an oversupply situation, sharply reduced acreage has significantly tightened supply, resulting in much higher prices. Wheat has suffered from two very poor growing years. Stocks-to-use is at historic lows on a worldwide basis.
The US growing season was better than last year, but was still subpar. Consequently, wheat prices have soared. However, even with wheat ranging from $8 to $9 a bushel, there hasn’t been any indication of demand rationing. Export volumes are still very strong, which I believe is attributable to inelastic demand.
Going into the planting season, I believe there will be, for lack of a better word, a fight for acreage. Specifically, because of new ethanol capacity coming on next year, more corn acreage is needed, but soybeans need more acreage as well. Further, given current prices, farmers are very likely to plant more wheat.
For the full article with Heather Jones, featuring her full take on the current Agribusiness climate, click here.
In our coverage of biotechnology this week, analyst Liisa Bayko talks about her concerns in the Biotechnology Sector:
TWST: Are there any names that worry you?
Ms. Bayko: I think Dendreon is a little bit of a worry because it’s so volatile.It’s trading up now, and I have a sell rating on it. They are in the prostate cancer space. Their ongoing trial is called IMPACT, and we are going to have the data from that the middle of the next year. I worry if that’s going to be positive. They are putting so much into making that positive, that’s my concern. If it’s not positive, then what?
For our full coverage of the Biotech sector, featuring interviews with CEOs from 20 different companies, click here.
As the consumer trends away from high-carb sodas like regular Coke and Pepsi, there is a question as to where the focus of their energies will land. Analyst Lauren Torres discusses.
TWST: In the non-carbs, is there a hot product or category?
Ms. Torres: Yes, it’s a combination of a couple of different categories. If you are looking at, for instance, bottled water, last year that category grew 16.5%, sports drinks were up about 12%, and teas also did very well. So I’d probably highlight those three categories as having the best growth and where we expect to continue to see growth.
For more from Lauren Torres, click here.
For more from our beverages issue, click here.
This week we present five companies in the portfolio of Brazos Capital Mangement, as of 9/11/07
For our full Investing Strategies Report, including stock picks and stocks to avoid, click here.
Michael Mueller, Executive Director and Senior Analyst in Equity research of J.P. Morgan Securities Inc., continues our discussion of REITS with his perspective on the current state of REITS:
TWST: This is the first time in several years that the REITs group has not outperformed the market. What’s going on?
Mr. Mueller: A lot of it has come from pressure due to non-dedicated investors essentially rotating out of this space. I think we have a group of folks who have, over the past few years, not necessarily liked the valuation levels of the REIT space. I think they would have preferred to be elsewhere but didn’t really have a trigger to rotate out of this space given the momentum and larger benchmark weightings. I think what happened at the beginning of the year is there was a lot of confidence in the broader markets and people saw higher growth rates picking up outside of the REIT space. They just thought they could make more money elsewhere in the market. That was the trigger to actually start rotating out of this space.
For our full report on REITS, including several industry analysts and CEO interviews, click here.
In our coverage of the Beverage Sector this week, analyst Alton Stump, of Longbow Research, tells us his pick for alternative beverages:
Mr. Stump: Right now our top pick is Hansen Natural. Along with continued 40% type of category growth in US energy drinks, Hansen could benefit from a few emerging growth drivers, including rate price increases, on-premise Monster sales with Anheuser-Busch (BUD) and pending penetration into Europe. They are the best pure play in alternative beverages in our opinion.
For the complete interview with Mr. Stump, click here.
With financing markets tightening, one questions that arises is whether or not construction projects still in development will be completed, or whether those projects will be put on hold. One of analysts speaks this week about this situation with regard to hotels:
Mr. Loeb: To drill down to hotels, the industry is still seeing a fairly high degree of development activity. Some of that activity is early-stage development, not yet breaking ground. Some of those projects that are in development but haven’t yet begun construction won’t be financed; invariably loose financing markets create a lot of development financing, and tighter financing markets make it much harder to get development financing. So I think we’re going to hear about more and more projects that are in the development pipeline being put on hold, but others that have started construction will continue to be built because they were already financed or already under construction. We will see those hotels open.
For more from our REITS issue, click here
In our talks with analyst J.B. Groh, we found out some interesting information about BE Aerospace (BEAV), a company providing seating and interior products for aircrafts.
For the official website of BE Aerospace, click here.
For more info on J.B. Groh, and his predictions for the aerospace defense sector, click here
In our conversation this week with Ted D. Baszler, vice president and portfolio manager with Heartland Advisors, Inc., he gave some interesting insight into areas that investors should be wary of.
TWST: As you look ahead, what potential problem areas or challenges do you see that investors should be wary of?
Mr. Baszler: One of the areas of concern is the economy rolling over. We have seen some nice moves early this year in some of the cyclical and material names.We are probably getting close to peak earnings in some of these names and could see a meaningful earnings decline with an economic slowdown. Companies with high levels of debt are also very concerning at this time in the credit cycle. I believe credit spreads for low quality companies are going to be significantly higher a year from now. So any company with a marginal credit rating and with funding needs will be facing higher financing costs down the road.
For the full article, click here.
In continuation of our talks with Peter Arment of JSA Research on trends in defense, Mr. Arment comments on long-term defense spending, and areas of growth.
TWST: Let’s shift over to the defense side. What’s the longer-term outlook there? You mentioned resetting and refurbishing.
Mr. Arment: The budget continues to increase and a lot of that is tied to the global war on terror. Supplemental bills are not only funding the War, but addressing the repairing and replacement of equipment. The latter point is really focused on the Army and the Marines. Everything from vehicles, helicopters, precision weapons, ammunition, troop uniforms, body armor and other force protection equipment are on the list of receiving higher funding. Any company that has exposure to the Army is going to benefit regardless of a change in the administration in 2008. The political aspect of the defense budget will still exist, but in a post 9/11 environment, a strong national security theme still trumps social issues. A Democratic President is still seen to be weaker on defense spending by Wall Street, so some multiple compression is likely to occur. But given current valuations, the downside seems limited.
The biggest area of growth beyond 2008 is within armored vehicles. Humvees are going to be replaced along with a number of existing tactical vehicles. The Humvees that were utilized in Iraq have been found to be very vulnerable to the IEDs. As an interim step, the Army and the Marines have been buying MRAP (Mine- Resistant Ambush Protected) vehicles, which has become the Defense Department’s number one priority. This has been a very fast evolving program that started with just demand for a few hundred vehicles back in 2004 and now the request is for well over 20,000. MRAPs cost anywhere from $0.5 million to over $1 million a piece. We are talking about a $20 plus billion program that’s come out of nowhere from five years ago. There are only a handful of companies that are delivering these vehicles.
For more information, click here.
