Stocks to Buy Now for the Recovery Later

Shares of these five companies should perform better than others when the economy starts to rebound.
By Ilana Polyak, Contributing Writer, Kiplinger's Personal Finance
April 30, 2009
Investors are looking for glimmers of hope that the recession is nearing its end and that an economic recovery might be afoot. It will probably be a while before that happens, as jobless claims continue to rise and home prices continue to fall. But when the economy finally does turn, some areas of the stock market will perform better than others.
In the past, industrial sectors and small-company stocks roared out of the gate early. However, as Morningstar equity strategist Paul Larson notes, "There has been nothing typical about this recession." He thinks other types of companies might take the lead this time. With that in mind, we looked at five potential winners among early-recovery stocks.
Need evidence that energy and economic activity are linked? Crude-oil prices are down 63% from their July 2008 peaks, and natural gas is off 66% since June, just as it became clear that the recession would be deeper and longer than had been forecast. Prices remain weak as people drive less and try to conserve energy at home.
Shares of Unit Corp. (symbol UNT), a natural-gas producer and contract driller, could climb once investors conclude that a recovery is in the offing. At its April 29 close of $28.09, the stock is down 68% from its high in early July.
But Unit has a strong balance sheet, and the stock trades below the company's book value (assets minus liabilities) of $34.56 per share. Joshua Strauss, co-manager of the Appleseed fund, says Unit is well positioned to take advantage of an economic upturn. "And if we're in a weak economic scenario with heightened inflation, which I think is a much more likely scenario, that's good, too, because commodities are a great inflation hedge."
Transportation is another good economic barometer. When consumers start spending again, businesses will need to ship more goods, leading to more demand for freight services. "Freight provides an early indicator of the cycle on both the good side and the bad side," says Eric Ende, manager of FPA Perennial and FPA Paramount funds. The past year has been terrible for the sector. In February, the American Trucking Association's trucking index was down 9.2% from the prior year.
Two of the strongest players in the business, Knight Transportation (KNX) and Heartland Express (HTLD), have similar profiles.
Both companies operate in the truckload segment. They move their customers' wares from pickup to delivery in a single trip, rather than deliver products to another destination for other trucks to pick them up. Both companies have operating profit margins in the high teens, compared with 5%, on average, for their competitors, says Ende. And neither has any debt. When the economy improves, both companies have the financial wherewithal to pay for new trucks and quickly increase their capacity.
Heartland's first-quarter revenues, reported on April 15, fell nearly 23% from a year earlier, with half of the decline attributed to smaller diesel surcharges. But earnings were flat from a year ago, at 15 cents a share. "That's extraordinary in this environment," says Ende.
Knight's results, released April 22, were similar. Revenues were off 16% -- also the result of lower demand and the removal of the diesel surcharge -- but profits rose a penny a share, to 14 cents.
On the surface, the stocks aren't cheap. Knight, at its April 29 close of $17.50, trades at 27 times the average analyst earnings estimate for 2009 of 64 cents a share, while Heartland, at $15.02, trades at 23 times 2009 earnings estimates of 64 cents a share. Once the economy picks up steam, however, the companies may generate earnings well ahead of estimates.
Once thought unaffected by the economic climate, the technology sector is increasingly viewed as cyclical. And within the tech sector, hardware is the most economically sensitive because it's easiest for corporations cut hardware purchases in a bad times. Sales at hardware companies have dropped much more than those of software developers, says Tony Ursillo, a technology analyst with Loomis Sayles. "The hardware companies haven't maintained their profit margins at as high a level as software companies have, so they have more earnings leverage when the economy turns."
When corporations start boosting their information-technology budgets, router king Cisco Systems (CSCO) will surely benefit. Cisco is struggling now, as big companies such as AT&T and Verizon Communications trim capital spending. Revenues for Cisco's second fiscal quarter, which ended January 24, fell 7.5% from the year-earlier period, to $9.1 billion. And orders for new products were down, too.
But eventually, network traffic will revive along with the economy, Ursillo says. Despite a 10% rebound since the stock market's March 9 bottom, Cisco, at $19.25, trades at just 15 times estimated earnings of $1.25 per share for the fiscal year that ends this July. That's well below Cisco's average price-earnings ratio over the past five years. The low price, "combined with its balance sheet -- $10 billion in cash -- makes it a very good value proposition," Ursillo says. "When we see a rebound, Cisco will rebound stronger than the average stock in the sector."
Varian Semiconductor Equipment Associates (VSEA), a leading supplier of ion-implant tools used in the production of computer chips, has experienced an even bigger drop in revenues and, consequently, stands to improve dramatically once the economy picks up steam. Despite snagging market share as several of its competitors defect to the more lucrative solar-panel segment, Varian has suffered greatly in the recession. For Varian's first fiscal quarter, which ended January 2, revenues plunged 58% from the same period a year earlier, to $107.4 million. Analysts expect the company to lose 77 cents a share in the fiscal year that ends this September and to eke out a small profit the following year.
But Jack McPherson, co-manager of Eagle Small Cap Core Value fund, says Varian has "good exposure to a rebound" and should also benefit from less competition in its market. Varian's shares have already gained a lot from their November 20 low of $14.05. But the stock, at $23.65, is still 43% below its 52-week high

Only 1 way out of big economic hole

Plunging deep into debt may have staved off a global catastrophe, but that debt now threatens to hinder growth and reduce living standards for a generation.
[Related content: Barack Obama, economy, financial crisis, politics, Jim Jubak]
By Jim Jubak
MSN Money
Check 'em off. President Obama's first 100 days: done.
Now get ready for the hard part: the next 1,000 or so days.
That's about how long the United States and the rest of the world have to turn the anemic economic growth that now seems likely into the kind of strong economic growth we need to pay down the huge pile of debt we've created in our efforts to stave off a global financial meltdown.
Without growth higher than is now projected, the burdens of this crisis will linger for a generation in the form of lower living standards and higher interest rates, taxes and inflation. And, unfortunately, the world's economic experts know even less about creating stronger growth -- without creating a bubble -- than they do about fixing a global credit crunch and a deep recession.
Projections don't look good It's not that stopping the global financial crisis was easy. Or that the world banking system is fixed and the world economy is on the road to a turnaround. Despite considerable progress, it remains very much a work in progress.
It's just that the next part is even harder. Most of the world's economies -- the United States', the United Kingdom's and Japan's, in particular -- have dug themselves very, very deep holes in an effort to end the economic and financial crises. Strong economic growth, for a decade or so, offers the only comfortable way out of the hole. Alternatives such as runaway inflation or Draconian cuts in living standards have major, what shall we say, disadvantages.


The New Revolt of the Masses

PARIS – Is the current economic crisis uniting the democratic world in anger as much as in fear?
In France, with many factories closing, a wave of executive hostage-taking – “bossnapping,” as this newfangled crime is called – is agitating board rooms and police across the country. In the United States, big bonuses given to executives from firms receiving billions of dollars in taxpayer bailouts – the insurance giant AIG, in particular – has infuriated public opinion, with a populist press and Congress fueling popular rage.
Similarly, in Great Britain, an increasingly inquisitive and critical public is now lumping together bankers and members of Parliament in a common climate of suspicion. Is the current crisis creating or revealing a growing split between rulers and ruled?
Populist anger is one of the most predictable, and certainly inevitable, consequences of today’s financial and economic crisis. The unifying factor behind this rising “anger” is rejection of both real and perceived inequality – inequality in both treatment and economic conditions.
In terms of the French Republic’s credo, “Liberty, Equality, Fraternity,” the first principle, liberty, became the motto of our age after the fall of the Berlin Wall in 1989; the second is gaining greater precedence today as the economy falters.
Can a renewed quest for equality close the traditional gap that has existed between America and Europe? Will the “American dream” be Europeanized? And, with their country’s economy humbled, will countless Americans’ secret hope that they, too, might one day be rich now give way to European-style envy?
It would be dangerous for America if things went that far. America is not France – at least not yet. But it seems obvious that increasing economic inequality in the US and, indeed, throughout the OECD, has stoked a perception of injustice and growing anger.
In the US, as the financial sector soared, the manufacturing base contracted sharply. It is clear that all over the western world, particularly in the last 20 years, those at the top of the income ladder have done much better than those in the middle or at the bottom. While the rich got richer, the poor did not get poorer, but the gap between rich and poor expanded significantly.
The current crisis may have seriously eroded the wealth of many of the very rich, destroying their assets in an unprecedented way. But the fear, if not despair, of the poor and not-so-poor has increased tremendously.
Of course, inequalities between countries are one thing, and inequalities within countries are quite another. But today the two processes are taking place simultaneously and at an accelerating pace. Anger is no longer restricted to extreme anti-capitalist, anti-globalization forces. A deep feeling of injustice is spreading across large swaths of society. This sense of injustice is only partly contained by political considerations in the US, thanks to the “Obama factor,” a rare phenomenon that can be described as the restoration of trust in one’s political leaders.
But the more you distrust politics and your politicians, the more anger will manifest itself in uncontrollable ways, especially if your country is imbued with a romantic “revolutionary” tradition and culture. This is obviously the case in France, where, contrary to what the French historian François Furet thought in the immediate aftermath of communism’s collapse 20 years ago, the French Revolution is neither over nor a closed chapter in history.
In France the decreasing popularity of President Nicolas Sarkozy and of his main “classical” opponent, the Socialist party (still deeply divided and in search of a leader), favors the rise of the extreme left behind the energy and charisma of its young leader, Olivier Besancenot.
In the US, the reverse is true. President Barack Obama’s popularity remains largely intact and acts as a kind of buffer against an uncontrolled explosion of anger.
It is possible, but far from certain, that what Obama describes as a “glimmer” of hope in the US could be sufficient to keep popular anger at bay and bring about a recovery in trust in politics and politicians. And European discontent will probably continue to grow, whatever happens in the US. Economic recovery, when it comes, will probably start in America, but it is likely that the public’s sharpened sense of injustice, and the resulting resentments, will linger, poisoning politics in the Western world long after the crisis has passed.

UPDATE: GM's April China Sales Up 50% On Year At 151,084 Units

BEIJING -(Dow Jones)- General Motors Corp. (GM) said Tuesday its China sales rose 50% in April from a year earlier to 151,084 units, boosted by the release of two new models and brisk sales of its smaller vehicles.
Sales at GM's passenger-vehicle joint venture, Shanghai General Motors Corp., rose 34.7% from the same month last year to 55,245 units, the company said in a statement.
Sales at GM's mini-commercial vehicle joint venture SAIC-GM-Wuling Automobile Co. rose 60.6% from a year earlier to 95,544 units.
The U.S. auto maker's strong performance in China contrasts with sales in its home market, which slumped 33% from a year earlier in April to 172,150 units. Overall light vehicle sales in the U.S. fell 34% last month, according to Autodata Corp.
GM is racing to restructure outside of bankruptcy court in the U.S., and is expected this week to accelerate talks with the United Auto Workers union and move toward closing about 2,600 dealerships.
In China, the popularity of GM's smaller vehicles is a testament to the effectiveness of government measures to boost demand for autos, said CSM Worldwide analyst Yale Zhang. China halved the purchase tax on vehicles with engines 1.6 liters and under to 5% in January.
Sales of the Buick Excelle sedan, which is available with a 1.6-liter engine, rose more than 120% to 22,078 units in April, GM said. It also sold more than 50,000 units of the Wuling Sunshine minivan.
Zhang said GM's sales were also lifted by the launch of the Buick Regal mid- size sedan in March and the Chevrolet Cruze compact sedan in April.
But the boost from government incentives, which also include subsidies for rural residents to purchase fuel-efficient vehicles, will likely wear off in late June, Zhang said.
"The traditional weak season will start," he said.
About 9.38 million vehicles were sold in China last year, a 6.7% increase from 2007. Sales began weakening in July but improved earlier this year, rising 3.9% in the first quarter to 2.68 million units.
-By Patricia Jiayi Ho, Dow Jones Newswires; (8610) 6588 5848; patricia.ho@ dowjones.com (END) Dow Jones Newswires
05-05-09 0046ET
Copyright (c) 2009 Dow Jones & Company, Inc.

Mexican plane en route to pick up nationals in China

BEIJING, May 5 (Reuters) - An aircraft was due to land in China on Tuesday to take home dozens of Mexicans who have been under forced quarantine, straining diplomatic relations, as a protective measure against a new flu strain.The confined Mexicans have become players in a larger drama about how far governments should go to stifle fears that the H1N1 virus could creep through their borders.Mexican Foreign Minister Patricia Espinosa accused China at the weekend of discrimination after Beijing ordered dozens of Mexicans into seclusion across the country, although only one, a man now in Hong Kong, was found to have the H1N1 flu.China has denied the charge, saying isolation was the correct procedure, but both countries have agreed to send aircraft to pick up their respective nationals. [ID:nSP475284]A Chinese aircraft has already left for Mexico to pick up Chinese left stranded there after China suspended scheduled, direct flights to the country, the Foreign Ministry said.An Aeromexico flight will arrive in Shanghai on Tuesday and fly on to Beijing and Guangzhou, an airline official said.None of those quarantined had shown any signs of being infected, the Chinese Health Ministry said.The state-run Xinhua news agency said the Mexicans in Beijing were doing well inside a hotel where they have been confined, though the air conditioning has been turned off to prevent any spread of disease despite temperatures reaching 30 degrees Celsius (86 F) outside.They were put in the best rooms and sent fruit and flowers every day, Xinhua said, citing Deng Xiaohong, deputy director of Beijing Municipal Health Bureau."The Mexicans said they were grateful for our work. They said they feel it was understandable to be quarantined as it was a necessary method to avoid the spread of the virus," Deng was quoted as saying.Staff at the hotel contacted by telephone would not let Reuters talk to any of the Mexicans.A Mexican embassy official, speaking on condition of anonymity, said it was in regular contact with its nationals. "They feel okay," the official said, declining further comment.In Shanghai, the Mexicans -- including a honeymooning couple -- had been quarantined at a four-star hotel with a sea view, Xinhua said."They can contact people outside, watch television, listen to music, read books or surf the Internet," it added.In a further diplomatic tussle, Canada said it would pursue World Trade Organization action against China if it maintains its ban on pork and hogs from the province of Alberta [nN04406901]. China's Commerce Ministry had no immediate response.The one Mexican in China found to have the H1N1 virus arrived in Hong Kong on Thursday after passing through Shanghai. Many of the confined Mexicans were on his flight to Shanghai.China's vast population and patchy medical infrastructure make it vulnerable should the virus take hold. But even Mexicans residing outside their country have been held by Chinese authorities, the Mexican Embassy spokeswoman said.


Wireless charging Adaptor die

Consumer electronics: A new push is under way to let mobile devices off the leash by doing away with their dependence on power cables
IF THE father of electromagnetism, Michael Faraday, could be transported into the 21st century, he would no doubt be awestruck by the iPhone. After five hours of tapping its touch-screen to browse the internet, make calls, play games and determine his location via satellite-positioning, he might also find himself a little puzzled. Why, with all the advances in technology and communications, would such a sophisticated device still need to be plugged in to be recharged? If phone calls and web pages can be beamed through the air to portable devices, then why not electrical power, too? It is a question many consumers and device manufacturers have been asking themselves for some time—and one that both new and established technology companies are now hoping to answer.
To seasoned observers of the electronics industry, the promise of wireless recharging sounds depressingly familiar. In 2004 Splashpower, a British technology firm, was citing “very strong” interest from consumer-electronics firms for its wireless charging pad. Based on the principle of electromagnetic induction that Faraday had discovered in the 19th century, the company’s “Splashpad” contained a coil that generated a magnetic field when a current flowed through it. When a mobile device containing a corresponding coil was brought near the pad, the process was reversed as the magnetic field generated a current in the second coil, charging the device’s battery without the use of wires. Unfortunately, although Faraday’s principles of electromagnetic induction have stood the test of time, Splashpower has not—it was declared bankrupt last year without having launched a single product.
Thanks to its simplicity and scalability, electromagnetic induction is still the technology of choice among many of the remaining companies in the wireless-charging arena. But, as Splashpower found, turning the theory into profitable practice is not straightforward. One of the main difficulties for companies has been persuading manufacturers to incorporate charging modules into their devices. But lately there have been some promising developments.

The first is the formation in December 2008 of the Wireless Power Consortium, a body dedicated to establishing a common standard for inductive wireless charging, and thus promoting its adoption. (It is modelled on a similar body that did the same for Bluetooth, a short-range wireless technology that is now found in most mobile phones.) The new consortium’s members include big consumer-electronics firms, such as Philips and Sanyo, as well as Texas Instruments (TI), a chipmaker.
Menno Treffers, chairman of the consortium and director of standardisation at Philips, says universal standards are the single most important requirement for the adoption of wireless charging. Philips is one of the few companies to have commercialised wirelessly charged devices—notably, electric toothbrushes and something it calls an “intimate dual massager”. But Mr Treffers acknowledges that a more collaborative approach is needed to ensure that different devices, such as mobile phones, laptops and digital cameras, can share the same charging equipment.
Charging ahead
Fierce competition between manufacturers of mobile devices is also accelerating the introduction of wireless charging. The star of this year’s Consumer Electronics Show, an annual jamboree held in Las Vegas, was the Pre, a snazzy smart-phone from Palm (pictured left). As well as the standard arsenal of technical features—touch-screen, Wi-Fi, GPS, Bluetooth and built-in camera—the Pre also has an optional charging pad, called the Touchstone, which uses electromagnetic induction to charge the device wirelessly. When the device is placed on the pad, the two recognise each other through built-in sensors. Magnets embedded in the pad align the handset and hold it in place during charging.
Palm was not the only exhibitor in Las Vegas promoting wireless charging. Fulton Innovation, another member of the Wireless Power Consortium and the eventual owner of Splashpower’s assets, used the show to unveil a number of products including an in-car console equipped with inductive coils that can wirelessly charge mobile devices while on the road. (BMW says it will offer its 7 Series cars in South Korea with a wireless-recharging dock for one of Samsung’s handsets.) A modified toolbox from Bosch demonstrated the potential for wirelessly charging power tools.
Other domestic applications in the works include embedding charging pads into kitchen counters to enable the wireless use of blenders and other appliances. Bret Lewis of Fulton Innovation says his firm’s technology could also be used for industrial applications, or to charge electric cars. For the time being, however, the focus is on mobile phones, laptops and other consumer devices, and he sees 2009 as “the year for wireless”. That is probably too ambitious, but a third recent development suggests that the commercialisation of inductive charging may not be far off.
In November 2008 TI announced that it had joined forces with Fulton Innovations “to accelerate development of efficient wireless power solutions”. TI, which provides components to many of the world’s leading mobile-phone makers said it was exploring the production of integrated circuits that supported the technology developed by Fulton Innovations, with the aim of reducing the cost and size of the components needed for wireless charging and making it easier for device-makers to incorporate them into their products quickly.
It now seems to be a matter of when, rather than if, wireless charging enters the mainstream.
“From a semiconductor and power-management point of view, wireless charging is a natural extension of what we have been doing,” says Masoud Beheshti, director of battery-charge management at TI. He predicts that, like Bluetooth, wireless charging will initially be offered on high-end devices, before gradually becoming more widely available.

As wireless-charging equipment based on electromagnetic induction heads towards the market, a number of alternative technologies are also being developed to transmit power over both short and long distances. WildCharge, a start-up based in Colorado, has already started selling a number of wireless-charging devices that take a cheaper but simpler approach in which mobile devices make electrical contact with a special charging pad via four small conductive metal studs (pictured).
Look, no wires
WildCharge and the licensees of its technology have developed replacement back covers for a number of popular devices, including Motorola’s RAZR phones and video-game controllers for the Nintendo Wii and the Sony PlayStation 3. No matter how the device is plonked down, two of the bumps establish direct electrical contact with the pad. The firm has also developed special “skins” for Blackberry smart-phones, so that they too can be charged without the need for an adaptor. Although it may not have the “wow” factor of inductive coupling, this approach does away with the necessity for a “handshake” between the device and the pad, and with the need to align the device and the pad in a particular way before charging can begin.
At the other end of the spectrum is the idea of long-range transmission of wireless power, which could in principle do away with the need for a charging pad altogether. This technique uses the energy in radio waves, broadcast from a transmitter and harnessed by an antenna, to generate electricity. Using the passive-power principle found in crystal radios, the method has proved successful over short distances in places where it is difficult to replace batteries or carry out maintenance. The problem is that the intensity of the radio waves needed to charge mobile phones and laptop computers over long distances might be hazardous to human health, and regulators would be unlikely to approve.
Nevertheless a firm called Powercast, based in Pittsburgh, Pennsylvania, has developed wireless-charging products that can do useful things while still operating at safe power levels. Over distances of less than 1.5 metres, its technology can be used to run low-power lighting systems; at a range of up to three metres, the radio waves can provide useful power for trickle-charging rechargeable batteries; and up to about 7.5 metres, they can be used to power wireless sensor networks. The firm talks of providing “milliwatts over metres” and “watts over centimetres”.
Yet another approach is that taken by PowerBeam, a start-up based in Silicon Valley. It uses lasers to beam power from one place to another, but it too faces regulatory difficulties. The firm says the low power-density of its lasers and a series of safeguards ensures that human exposure remains within regulatory limits.
With so many companies working towards wireless power, how long will it be before the cord is finally cut? According to Charles Golvin of Forrester, a consultancy, one of the key considerations is getting manufacturers to abandon a lucrative line of business. He says that many mobile-phone manufacturers use the proprietary connectors on their chargers to retain customers, as people are more likely to buy products for which they already have charging adaptors at home, in the office, or in the car. This may make them reluctant to switch to a common wireless-charging standard. But Mr Colvin thinks strong demand will ensure that wireless technology prevails in the long run.
Peaks and troughs
Stephan Ohr of Gartner, a market-research firm, says the prospects for wireless power are realistic, but the path to widespread adoption will not be as easy as many in the industry expect. New technologies tend to go through a period of “inflated expectations” in which they are hyped, but fail to gain traction. Only after passing through the “trough of disillusionment”, during which expectations return to a more sensible level, are they widely adopted. For wireless charging, Mr Ohr expects this to take three to five years.
But it now seems to be a matter of when, rather than if, wireless charging enters the mainstream. And if those in the field do find themselves languishing in the trough of disillusionment, they could take some encouragement from Faraday himself. He observed that “nothing is too wonderful to be true if it be consistent with the laws of nature.” Not even a wirelessly rechargeable iPhone.