Manager: Ben Dickey, BSG&L Financial Services
Model: Pure Growth and Growth Plus Income
The U.S. economy is slowly gaining momentum, but it is still too slow to reduce unemployment. My belief is that the U.S. economy will stay slow and will expand at an annual rate of about 2%.
The one bright spot is the manufacturing sector, which seems to be gaining momentum much faster than other sectors. Europe is even slower than the U.S. due to the overhang of all the Sovereign Debt problems. So far, one month LIBOR is only 14 basis points above one month Treasuries. This tells me that the central banks of Europe are backstopping the commercial banks. However, the German people are growing tired of supporting the also rans. The one bright spot is the developing countries, which are still growing strong, with India showing particular strength, and China and Brazil continuing their full speed ahead growth cycle.
The key question on investors’ minds right now is “What will happen in the Middle East?” Oil prices soared at the beginning of May. I believe this is based on fear of the unknown and that prices will slowly pull back. I still believe however, that, due to overall world demand, oil prices will stay around $100.00/barrel in the first half of 2011.
Even at these elevated prices, we still think that the demand for oil will continue and several investment ideas related to that demand would be SeaDrill Ltd. (NYSE: SDRL), the Norwegian deep water driller that has a current dividend rate (as of 5/7/11) of over 8% and Knightsbridge Tankers (NASDAQ: VLCCF) that transports oil and currently has a dividend yield in excess of 8% as well (as of 5/7/11).
We believe that the chaos in Egypt, Libya and Yemen, will not disrupt worldwide growth of Emerging Markets. The earthquake and tsunami in Japan will add to the world’s demand for coal, iron ore, and liquefied natural gas (LNG). We are buying stocks that help produce these commodities, like Caterpillar (NYSE: CAT) and Joy Global (NASDAQ: JOYG), which are both deeply involved in mining operations. We are also buying Teekay LNG Partners (NYSE: TGP) with a 6.6% dividend (as of 5/7/11) as well as the commodity trusts that gain from increased prices and increased shipments of coal, Peabody Energy Corp (NYSE: BTU) and iron ore, Cliffs Natural Resources (NYSE: CLF).
Based on our views of the demand for all commodities, including agricultural commodities over the next couple of years, we are also buying Penn Virginia Resources (NYSE: PVR), Freeport McMoran (NYSE: FCX), Southern Copper (NYSE: SCCO) and Deere & Co (NYSE: DE).
We continue to like the natural gas and liquids transporters such as Linn Energy (NASDAQ: LINE), and Kinder Morgan Partners (NYSE: KMP). These investments pay a dividend of between 7% and 16% (as of 5/7/11) .
In other sectors of the economy, we like Honeywell (NYSE: HON), United Technology (NYSE: UTX) and Emerson Electric (NYSE: EMR).
I believe we are entering a secular growth period for both hard and soft commodities. Developing economies are consuming large quantities of better food and materials for economic expansion. In the last ten years, two billion people worldwide have doubled their income. They seem to be steady in their demand for better housing, better food and a better life.
– Ben Dickey, CFP/MBA
