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Just Ahead: A Bull Market in GarbageBy Jeff ClarkTuesday, November 14, 2006 “It looks like we’re going to have to sell Halliburton,” said my assistant when he walked into the office on the Wednesday morning following the elections. “The Democrats have taken over the House, and it sure looks like they’ll win the Senate, too.”
I usually don’t make investment decisions based on politics, but with such a contentious bunch running around Washington, it’s best to avoid stocks with big bull’s-eyes on their backs.
Halliburton (HAL) is just such a stock. And so is ExxonMobil (XOM). And so is just about everything in the health-care sector.
I don’t mind selling Halliburton. It’s had a great run over the past few years, and now’s as good a time as any to cash in.
It’s tougher to sell ExxonMobil. I like Big Oil, and XOM is the biggest of the bunch. But there are a handful of other Big Oil stocks that trade at cheaper valuations, pay bigger dividends, and don’t make such a big target for opportunistic politicos. So I’ll swap out of XOM and into something a little more under the radar.
But I hate having to sell the pharmaceutical stocks. I recommended the sector last December to subscribers of The Big Trend Report. The stocks did nothing the first half of the year, but they really kicked into gear July, and we were sitting on some nice gains by October.
Last week, though, the stocks sold off. Memories of 1994’s proposed health-care reform legislation spooked investors, and they ran from the sector faster than Republican congressional candidates ran from President Bush.
In the meantime, however, there are a few sectors that should gain favor with the new crowd in Washington. Most notable is the alternative-energy sector.
Whether you buy into the “global warming/peak oil/Middle East conspiracy” theories or not, it’s clear that the new kids on the block are willing to throw money at just about any hairbrained alternative-energy concept that comes their way.
Ethanol is just such a concept.
Ethanol is more expensive than oil. And it takes more energy to create ethanol than the fuel actually produces. Nonetheless, like a bunch of preschoolers juiced up on high-fructose corn syrup, lawmakers are rushing to introduce pro-ethanol legislation. And the biggest beneficiaries are going to be the companies that produce and distribute ethanol.
The problem is, though, that most of these companies are pure garbage. They consistently lose money or they trade at ridiculously high valuations. Indeed, finding a low-risk trade in this sector is like finding a tax-cut bill in Nancy Pelosi’s office.
But I found it.
It’s a 60-year-old company whose stock trades at 14 times earnings and just 0.45 times sales. It’s the cheapest ethanol stock in the sector, and its revenue growth is among the highest.
All of the ethanol stocks are likely to do well under the new regime. But this one – the one that I’ll be recommending to The Big Trend Report subscribers in two weeks – will do the best.
Best regards and good trading,
Jeff Clark
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Clothing and retail stocks Liz Claiborne, Cherokee, Limited, JC Penney, Kohl’s, American Eagle, Nike surge as Christmas nears.
Blue chips hitting new highs: Microsoft, Bank of America, and DuPont.
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