July 2, 2007
1, Issue #1
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2. China Petroleum (SNP)
3. Energy Conversion
5. Investor Trivia -- Total
6. Featured Topic --
7. Free Investing
reading this email? View
Top Stock Picks
Leading Oil Company is a Foreign Growth and Value Play
With a PEG of just 0.5, "Sinopec" is more than just a
play on energy markets and China -- it's a value play as
well. Read More. . .
Cutting Edge Firm Could Double in the Next 24 Months
Solar power company Energy Conversion Devices
(Nasdaq: ENER) is a an emerging technology company
whose time has finally come.
Read More. . .
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delivered average total returns of +38.9% per year since 2004.
the name of this security!
Chalk up another weekly win for the bulls -- but just barely.
Stocks jumped out of the starting gate on Monday, with the Dow Industrials gaining more than 100 points in morning trading -- recouping a good chunk of the steep 185-point loss from the previous Friday. However, traders
wavered later in the day, and appeared unsure about how to interpret more signs of weakness in the housing market: the latest data showed soft sales of existing homes, a tenth straight monthly decline in median home prices, and inventories reaching levels unseen in nearly fifteen years.
That uncertainty later gave way to fear, and when news of refinery outages pushed crude oil prices back above $69 per barrel, a once-promising rally quickly evaporated and left the major averages with minor losses for the session. At least for a day, stocks became untethered from Treasury yields, as a pullback in the benchmark 10-year yield from 5.14% to 5.08% didn't coax any buyers out of hiding.
A similar pattern played out again on Tuesday, as morning gains quickly fizzled out, and selling accelerated into the closing bell. However, the markets finally managed to buck the trend on Wednesday, thanks in part to a robust fourth-quarter earnings report out of Oracle (Nasdaq: ORCL),
which boosted tech shares. The Nasdaq gained more than 30 points (1.2%) and moved back above the 2,600 mark.
All eyes turned to the Fed on Thursday, which as expected, left short-term interest rates unchanged at 5.25% and said little to suggest a policy shift in the months ahead. Traders also largely shrugged off a GDP report showing that the nation's economy barely budged in the first quarter, growing at an anemic
+0.7% pace. While that represents the slowest rate in several years, most attributed the slowdown to a housing-induced
cutback in corporate spending (overall consumer spending continues to grow at a healthy 4%+
However, the week ended on a down note, as the major averages sang a familiar chorus on Friday -- rising sharply in the morning only to lose steam and reverse course in the afternoon. That oil-driven about-face left stocks just slightly ahead of where they started the week, as the S&P gained a grand total of one point. However, given an unsettling bomb scare in London and typical end-of-quarter portfolio "window dressing", it could certainly have been worse.
Looking ahead, economists are expecting GDP growth to have bounced back strongly in the second quarter. And the market -- a reliable leading economic indicator -- would seem to agree. For the three-month period from April through June, the major averages all clawed their way forward for solid gains. The Dow picked up over 1,000 points, finishing the period with a nice
+8.5% gain. The Nasdaq was close behind at +7.5%, followed by the S&P at
Surging crude prices may have caused some jitters in the broader markets lately, but
some investors are actually profiting from rising oil prices -- such as shareholders of China Petroleum & Chemical (NYSE: SNP).
In today's TopStockAnalysts Digest newsletter, I will drill down deeper into this sharply undervalued company, which should continue to gush cash flows in the years ahead.
Meanwhile, the dawn of alternate energy sources like solar power and fuel cells is also finally at hand, and several companies engaged in this exciting industry are quickly becoming viable. Below,
renowned investing expert Dr. Stephen Leeb profiles one of the most promising, Energy Conversion Devices (Nasdaq: ENER). This patent-rich firm is finally starting to turn the corner to profitability and could have the inside track to break into not one, but several different multibillion-dollar markets.
-- Nathan Slaughter
"Undervalued Stock of the Month" is Trading at a 33%
you're a value investor looking for a great bargain on one of the
world's fastest-growing companies, you need to learn more about
our "Undervalued Stock of the Month" for July 2007. Due
to market volatility, the shares have pulled back -30% from their
recent highs. As a result, bargain hunters now have a rare
opportunity to pick up one of the world's most dominant companies
at a 33% discount below our estimated fair value.
Leading Oil Company is a Foreign Growth and Value Play
Nathan Slaughter, Editor --
China Petroleum & Chemical (NYSE: SNP, $111.64), commonly referred to as "Sinopec," is China's leading
integrated oil company. The Beijing-based firm is involved in
all facets of the oil business, from exploration and production
all the way to retail marketing.
At the end of last year, Sinopec had proven reserves of around
3.3 billion barrels of oil, which produced a steady stream of
900,000 barrels every day. And in late May, the company
announced a major new find -- an oil field in the Xinjiang
region of northwestern China with oil reserves of up to 1.5
Sinopec is also the top petrochemical refiner in all of Asia,
operating more than two dozen refineries with a combined
capacity of 3.6 million barrels per day. And after it has been
refined and processed, much of the finished product is
eventually sold throughout the company's extensive chain of
30,000 retail gas stations. Last year, operating income
generated from these outlets soared +61%.
Aside from its oil & gas operations, the firm is also a major
producer of ethylene, synthetic resin and rubber, fertilizers,
and other chemicals for a wide variety of industrial uses. Last
year, it sold nearly 30 million tons of chemical products.
Combined, these business segments account for almost $135
billion in annual revenues, a figure that has more than tripled
over the past five years. Meanwhile, profits have been climbing
at roughly the same pace during that stretch, soaring from $1.9
billion in 2001 to almost $7 billion last year -- a compound
annual growth rate (CAGR) of around +30%.
While that pace is tough to sustain, Sinopec should have the
wind at its back for years. Demand for gasoline and energy is a
constant, and the company is an established leader in one the
world's most energy-hungry nations. Sinopec's home turf spreads
throughout the southern and eastern areas of the country, where
growth has been the most brisk. As the Chinese economy continues
to expand, so too will disposable incomes, meaning more and more
consumers will be buying cars -- leading to even stronger demand
Of course, while the upside is compelling, investing in China
also carries unique risks. For example, the government has
imposed price controls that have taken a toll on the firm's
refining business. However, Sinopec has a key advantage over its
competitors -- the firm is partially state-owned, and the
government holds three-fourths of the outstanding shares.
This cozy relationship has its perks. For instance, while China
is actively boosting domestic oil exploration to reduce its
reliance on foreign sources, the government has also worked with
oil-rich countries in Africa and the Middle East to boost
Sinopec's foreign oil reserves.
Looking forward, the continued growth of the Chinese economy is
expected to power earnings ahead at an impressive +20% annual
clip. A new 20-year partnership agreement with McDonald's (NYSE:
MCD), where drive-thru outlets will be installed at many of
Sinopec's gas stations, could also prove to be highly lucrative.
Yet, for all this, the stock trades at just eight times cash
flows and carries a rock-bottom PEG ratio of just 0.5 -- one of
the lowest we have ever come across. Even with a rather high
discount rate of 12% (well above what we would typically use for
a stable blue-chip industry leader with more than $100 billion
in revenues) we still calculate a conservative fair value of
While the shares have surged over the past five years, our fair
value estimate represents a discount of about
given the volatility of both the Chinese markets and the price
of crude oil, we would demand at least a 20% discount before
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Edge Firm Could Double in the Next 24 Months
Dr. Stephen Leeb, Editor -- Leeb's Market Forecast
The solar power
company Energy Conversion Devices (Nasdaq: ENER,
a an emerging technology company whose time has
finally come. Over the past 40 years, it has
garnered more than 350 domestic and more than 600
foreign patents covering a wide range of potential
solutions to our dependence on fossil fuels and
more. All it lacked were profits. Indeed, it has
been profitable in just two of the past fifteen
years. This "always tomorrow" company has stayed
afloat by its ability to attract capital from a
public willing to bet on novel energy solutions as
well as from partners including Chevron and Toshiba.
We think that tomorrow is now at hand, and we're
betting that Energy Conversion Devices will turn
profitable within the next six to twelve months and
will then grow at a super-fast clip -- by more than
+50% a year -- thereafter. Specifically, in
fiscal 2008, ending June 2008, it should ink more
than $1.00 a share; in 2009, $2.00 a share; and by
the decade's end profits could approach $3.00 a
share with the company on track for continued
outsized growth well into the next decade.
The company has a stake in a wide range of energy
solutions, including hydride batteries that can
potentially power hybrid cars, ultra-fast
energy-saving chips, and techniques for storing
hydrogen. The division most likely to lead growth
over the next three to five years, though, is the
company's novel solar collection materials. Energy
Conversion Devices has been a pioneer in the
technology and manufacturing of thin film solar
energy collectors. While thin film collectors are
less efficient than silicon, they are far cheaper to
produce. As a result, right now the per-watt cost of
producing electricity using these films is about the
same as for silicon. But with thin film there is a
rapid learning curve, i.e., manufacturing
efficiencies are likely to bring costs down
dramatically, making this the cheapest path to solar
electricity. Because thin film is more pliable than
silicon but larger in area, it's ideally suited to
commercial and industrial applications.
Given the advantages of thin film and the fact the
solar market is still in its infancy, Energy
Conversion Devices can likely sell as much film as
it can make. Current capacity is about 28 megavolts
(MV) a year; the company aims for 300 MV by the end
of the decade. Its ability to successfully expand
its manufacturing capacity will determine the
company's overall growth trajectory. We're betting
on its success. One reason is that for the first
time in its history the company is being managed by
individuals with solid manufacturing and business
credentials, as opposed to brilliant scientists. The
chairman is Robert Stempel, a former General Motors
chairman. Also on the management team are Texaco's
former technology chief and Occidental Petroleum's
former treasurer. The company's ability to attract
such a stellar team is both a major plus and a
testament to its prospects.
The company is involved in a lot more than just
solar energy. It is a 50-50 partner with Chevron
(NYSE: CVX) in
a venture that manufactures nickel metal hydride
batteries -- the only maker of such batteries in
North America, meaning they'll be the batteries of
choice in hybrid vehicles manufactured in the U.S.
Moreover, because of patent protection, the venture
gets licensing fees from most batteries made outside
the U.S. The potential is enormous. Capital will be
required to gear up manufacturing if hybrid vehicles
really take off (which we think is inevitable). But
with Chevron as a partner, that shouldn't be a
problem. By early next decade this venture will
likely contribute substantially to the bottom line.
Energy Conversion Devices has a 39.5%
interest in another joint venture, this one to
manufacture super-fast memory chips. The
co-investors are Intel (Nasdaq: INTC) and the former chief tech
officer of Micron Technology (NYSE: MU). Manufacturing of the
chips has just started, and the products are being
tested. The venture claims that the chips are up to
a thousand times faster than current flash memory
chips. Applications could range from cell phones to PDAs to any number of other consumer devices. Here
too, the potential is vast. The flash memory market
is currently $20 billion, and the total memory
market tops $200 billion. Commercial production
could begin as early as 2008.
Finally the company is trying to develop hydrogen
storage materials that can be used in conjunction
with fuel cells. Fuel cells can be used in just
about any device that requires a battery. Unlike a
battery, a fuel cell has a constant source of power
-- hydrogen. The company's technology, which is a
much longer-term bet than its other products, is
aimed at allowing fuel cells to be manufactured
without platinum as a catalyst. If the product pans
out, Energy Conversion Devices would have access to
another multibillion-dollar long-term market.
An investment in this company is a bet that one of
the leading research organizations of the past two
generations will be able to transition from its
research roots to being a profitable manufacturer.
Given its exceptional management, we think the odds
are heavily in its favor. But we're not overlooking
the fact that this is a high-risk company that so
far has never managed to sustain profitability. But
actually, if you looked only at the company's
balance sheet, you could make a case for a good
risk/reward rating: debt is nominal, while cash
amounts to nearly $10 a share. Be assured, though,
that the company will continue to function even if
its profit plans are delayed. And given the enormity
of the potential markets, and the leading-edge
aspect of many of the company's proprietary
technologies, the potential gains far outweigh the
risks. Buy this high risk/high reward stock for a
security that could double over the next 24 months.
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Hot Growth Stock Has Increased Revenues at a
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for a company trading at a discount to its phenomenal growth
may be interested in shares of this firm.
Investor Trivia -- Total Returns
Over the nearly
20-year time span between July 1990 and July 2007, which of the following
stocks delivered the greatest total returns?
A.) Microsoft (MSFT)
B.) Home Depot (HD)
C.) General Electric (GE)
D.) Eaton Vance (EV)
E.) Intel (INTC)
click on one the links above. After you make your choice, we'll show
you the correct answer on our web site.)
Featured Topic -- The Power of
Compounding is the simple concept of earning interest on
interest, and it is one of the most fundamental ways for investors to build
wealth over the long haul. In fact, at one point in time Albert
Einstein referred to compounding as "the most powerful force
If you earn 4% interest on a simple savings account balance of $10,000,
then you will have $10,400 in that account at the end of the first year. If you earn another 4% interest on that amount the following year, you'll then have $10,816. In 15 years, you would have accumulated $18,009, increasing your investment by more than
But compounding works for more than just bank customers. Stockholders can take advantage of it, too, through dividend reinvestment plans (DRIPs).
What Are DRIPs?
Many publicly traded U.S. corporations offer Dividend Reinvestment
Plans (DRIPs) as a way for their shareholders to acquire
additional shares at a very low cost. DRIP plans enable investors
to automatically take any dividends paid by a particular firm and
invest those funds back into the company's stock, often at a
discounted price. In addition, most DRIP programs charge
either very low transaction fees, or in some cases no fees at all.
The Power of Dividend Compounding
Over the long run, there's no better
way to grow wealthy in the
investment markets than to
systematically invest in
high-quality stocks and funds, hold
on for the long haul . . .
and reinvest your dividends.
That's why Dividend
Reinvestment Plans, or
"DRIPs," are such powerful
wealth-builders. By plowing your
dividends back into more shares,
DRIPs make it easy to harness the
miraculous power of compounding. The
beauty of compounding is that any
little smidgen of money you can put
to work now -- no matter how small
-- can have an extraordinary effect
on your wealth down the road.
example, let's say you're able to stash away $5,000 per year. Although that might not seem like
a tremendous amount of money, thanks to the magic of compounded
dividends, a $5,000 annual investment can turn into nearly $5.0
million over time. The chart below shows what would happen if you invested
year for 30 years in a security that pays an 18.3% annual dividend.
Assuming a $100 share
price, in this example you'd start out at year #1 with an investment of
just 50 shares ($5,000 divided by $100). But thanks to the magic of
compounded dividends, by the end of this 30-year period you'd have a nice
nest egg of 49,736 shares in your brokerage account, and those
shares would be worth nearly $5.0 million. Even better, at year #31 those
shares would be throwing off more than $910,000 in
cash dividends each and every year -- that's almost $1 million in annual
Best of all, this
chart assumes the security's underlying share price doesn't budge over the entire 30-year
period -- that it doesn't even gain
one single cent. The returns shown above display
gains from dividends only. If this security's share price increases in
value at just +5% per year, then in this example
you'd end up with 39,635 shares and over $17 million in your brokerage
like an unachievable "pie in the sky" example? It's not.
fact, in a recent issue of her High-Yield
Investing newsletter, editor Carla Pasternak profiled a
diversified fund that
offers an 18.3% dividend yield, plus a DRIP plan to help you automatically
reinvest your dividend checks, making gains like this possible over the long
to Invest in DRIPs
So, as you can see, DRIPs can
help income investors earn
incredible returns. However,
information on which companies offer
DRIP plans is sometimes hard to come
by, in part because the Securities
and Exchange Commission (SEC) does
not allow companies to actively
promote their DRIPs. Also, DRIPs
don't generate big commissions for
brokers or fund managers, so there
is little incentive for them to
That's where industry veteran Carla
Pasternak can help. In each issue
of her monthly High-Yield Investing
newsletter, Carla offers insight and
advice about specific DRIPs. She
also provides a detailed list of
securities that are getting ready to
deliver abnormally large dividend
payments in the coming weeks. For
example, Carla recently spotted an
unusually generous firm just days
before it paid a special dividend of
$15.00 per share!
In addition to DRIP information,
Carla also profiles a host of other
including REITs, MLPs, Canadian
Trusts, and more. If earning
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investing sounds like your cup of
tea, then visit
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sincerely hope that you find this newsletter valuable, profitable,
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