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Gov\’t & Utilities Archive

Badger Meter Profits Keep Flowing, up 29% in Q2

Badger meter is popping a nice 9% today on strong Q2 earnings. Compared to Q2 of 2007, Q2 2008 sales are up 20.1%, net earnings up 28.8%, and EPS up 26.3%. These results are in the face of what appeared to be a challenging environment for utility and industrial component suppliers. Chicago Bridge & Iron (CBI) confirmed the decrease in utility and local municipal spending (local municipalities have been hit by the credit crisis and the decrease in tax revenues due to rising foreclosures). However, Badger Meter showed us that water utilities are still buying the small infrastructure components such as meters and valves, even as larger projects such as those Chicago Bridge & Iron is involved in are being scrapped. This is another reminder of the big sea change I’ve been concerned with for a while: U.S. infrastructure is deteriorating fast and must be replaced and upgraded. If new big projects such as new utility stations or pipelines have to be canceled, that puts even more pressure on the existing system, requiring advanced technology such as Badger Meter’s AMR (Automatic meter reading) technology to make the existing system more efficient and reliable. Badger Meter also mentioned strength in precision valves and flow sensors due to the continued demand in the petroleum industry.

Also, Badger Meter’s recent acquisition of an automatic metering infrastructure (AMI) system is looking good. Watch for accelerating growth in this product line.

The majority of Badger’s sales are domestic, which is where the weakness concerns have been.  International infrastructure should still be strong across the board.  So if Badger can find strength in the U.S. domestic market, this is a good omen for both Flowserve (FLS) and SPX Corp (SPW), who are leaders in flow technology.

More on Badger Meter:

Additional Water Utility Resources featured on SuckingLess.com Research Tools

**Disclosure: I own shares of FLS and SPW as of this post**

ABB acquires U.S. Transformer Company Kuhlman Electric Corporation for America Presence

Transformers Optimus PrimeABB finally made the move I’d hope they make! In this A.D.D. market only able to focus on 2 things: financials and oil, great things are happening at individual companies and not even registering on the radar. ABB acquires U.S. transformer company Kuhlman Electric Corporation. This is one of the sweetspots (of the limited investable opportunities) for the power grid upgrade and buildout. I own SPX Corp (SPW) exactly for their transformer business, SPX Corp’s fastest growing business:

“Our Industrial Products and Services segment had revenues of $966.4, $836.7 and $716.0 in 2007, 2006 and 2005, respectively. Of the segment’s 2007 revenue, approximately 44% was from the sale of power transformers into the US transmission and distribution market.” ~SPX Corp’s 2007 10-K

One of my very first blog post dealt with the twin drivers for the power grid infrastructure suppliers: U.S. power grid outdated by some 30 yrs, always using near capacity and a system shock away from massive destructive blackouts. The complementary driver: BRIC (and then some..Mid East especially, no one talks about Saudi Arabia building 4 Dubai like cities….) countries building whole CITIES, of which the power grid is the foundation.

The problem with investing on this theme was Read the rest of this entry »

Trading Brazil: Is the next teet to milk Brazil financials and NOT Commodities?

PBR and RIO have been Brazil’s stars in this latest Brazil run, dominating positions in the iShares Brazil ETF ticker EWZ. PBR and RIO’s stories are well known, and I actually think RIO looks done for now given the continual weakness in nickel prices. Could financials be the next leg up for Brazil’s markets?

BLOOMBERG: REINSURERS RUSH TO BRAZIL AS PREMIUMS CLIMB 40%

“By Telma Marotto

July 11 (Bloomberg) — Swiss Reinsurance Co. and Munich Re, the world’s two largest reinsurance companies, are leading a rush to Brazil to capitalize on the biggest deregulation of a market since China opened up more than six years ago.

At least 13 companies have been authorized to operate since the government ended its 69-year monopoly in April, said Armando Vergilio dos Santos Junior, head of Brazil’s insurance regulator, who estimates the number will reach 40 by December. He expects reinsurance premiums to rise 40 percent to $3.5 billion this year and then double to $7 billion by 2011.”

Full Article: http://www.bloomberg.com/apps/news?pid=20601109&sid=aGQItoNVF_As&refer=home

SuckingLess.com, My New Investor Research Site, Debuts!

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Jim Cramer has always said, its not “buy and hold” but “buy and homework.” Too many “investors” do not know what they own when they buy a stock, which is just reckless, but I don’t think its completely their fault. Most people don’t now how to do proper research, or have the background to understand how to do it. Even my friends who work at mutual funds often ask me where I get my info for the analysis I put on this site. This is why I started SuckingLess.coman investor research and education magazine/community.

SuckingLess.com is a collection of the best industry and company websites to learn about the companies you own. When you own a stock, you’re, in a sense, an owner in the company. So, you should at least understand the basics of the business or industry, which means you should probably read what someone who works in that industry would read. Still, this ISN’T you’re actual job and making it so would be too time consuming, so I’ve also tried to filter SuckingLess.com to have only the most relevant and easiest to understand websites.

I want SuckingLess.com to be a COMMUNITY, a tool for ALL OF US. So, I invite everyone to come and participate on the site, SUBMIT your favorite research resource to help others learn the way I’m trying to get this started with my own favorite bookmarks. Please RATE the sites you’ve used before to help others know what’s most useful, and leave comments on how you’re using the sites or anything you’ve learned. Again, to help others. I’m sure you’ll learn something from the site, so give back a little and share your investing knowledge and experience with us!  Sometimes its not immediately obvious what you can learn from a website, so give people a little insight too if theres a special way you’ve found to tap into the markets with a certain website.

For example, I don’t have many resources on financials, healthcare, or retail/discretionary because, as readers of this site you know, I focus on industrials, tech, and energy sectors. So, help me learn a bit too!

Finally, PLEASE PLEASE send me feedback on how to make the site more useful to you. This is a tool for all of us, so lets make this what WE need to do the best research. And get your friends and trading buddies to help build SuckingLess.com too. Thanks and hope this is what we all need to become better investors, i.e. Suck Less!

P.S. 90% of mutual funds underperform the markets…so sucking is not something to be ashamed of. We just have to suck less as we learn more.

Precision Castparts: Part 2 – Drivers for PCP’s Power Generation/Industrial markets

We’ll group these two markets together because the use of special metals from the likes of PCP for power generation and industrial markets are often very similar.

INDUSTRIAL GAS TURBINE (IGT)

This is the main driver for these two markets and why the power generation/industrial markets have so much potential for PCP. What are IGT’s? IGT is just a fancy name for jet engines that are used to generate power. Jet Engines just might be the most common way of generating power for heavy duty jobs from natural gas power plants to huge cargo ships. Since PCP is already the best at making jet engine parts for planes, making jet engine parts for other uses is a piece of cake.

Note: The momentum in IGT should prove even more lucrative for Woodward Governor, who has more than 60% in Turbine control technology. Basically, Woodward Governor’s control technology makes the IGT’s smart: allows IGT’s to operate under more situations, allows the IGT’s to self adjust during operations, and makes IGT’s more efficient and last longer, etc.

Estimates for IGT production will grow from about $9 Billion in 2007 to $15 Billion in 2011. IGT aftermarket and services are expected to grow from $1.3 Billion in 2005 to $1.7 Billion in 2010. The biggest players, GE and Seimens, are too big and diversified for this growth in IGT’s to significantly move their stock, which is why we’re turning to component players like Precision Castparts and Woodward Governor.

Why are IGT’s selling like hot cakes? Read the rest of this entry »

Reuters: ANALYSIS-U.S. coal production unlikely to sate world demand

Same concerns all the major utilities spoke about at the Goldman Sachs Eighth Annual Power and Utility Conference on May 13-14, 2008. The long term problem of electrical power shortage due to shortage of coal and high quality coal is just rearing it’s ugly head. I’ll have to do a bit more research to see if coal miners like Peabody Energy (BTU) and Arch Coal (ACI) are the ideal plays in this situation. If they can’t open new mines and increase capacity, their long term (5 years or more) potential to benefit is still unclear to me. I’m not saying they won’t…they’re great companies and great companies find ways to profit, especially off of ginormous trends like this. Just got to do more research. Same with the mining equipment like Joy Global (JOYG) and Bucyrus (BUCY). One thing’s for sure though, electrical power use will only grow, so power plants will have to become more efficient. I’m thinking engineering and construction companies like McDermott (MDR), Fluor (FLR), Shaw Group (SGR), and Foster Wheeler (FWLT) will do well along with power plant components like Flowserve (FLS), SPX Corp (SPW), Woodward Governor (WGOV), and Thomas and Betts (TNB). Preliminary thoughts…more on this later…

RPT-ANALYSIS-U.S. coal production unlikely to sate world demand

“By Bruce Nichols

HOUSTON, June 16 (Reuters) – U.S. coal production has room to grow, but expansion is unlikely to meet surging world demand because miners fear a boom-bust cycle, key reserves are declining, and regulation has tightened.

Despite soaring prices, the U.S. Energy Information Administration has cut projections of U.S. output rather than raised them, and now foresees a total of 1.166 billion short tons by 2010, barely up from a record 1.163 billion in 2006.

That is not enough to overcome what some coal officials see as a shortage of 25 million to 35 million tons this year in the 6-billion-ton world market and a shortfall of perhaps 70 million tons next year.

Closing the gap with U.S. coal would require spending billions of dollars to expand mines, rails and ports, investment difficult to recover if — as has happened before — supply growth exceeds demand and prices fall…”

Full Article: http://uk.reuters.com/article/oilRpt/idUKN1637587220080616

**Disclosure: I own shares of MDR, FWLT, and SPW as of this post. **

Precision Castparts: Part 1 – Overview of an Abandoned Growth Story

Precision Castparts (PCP) has been on a nasty slide down to $100 since tapping $130 when it reported earnings on May 6, 2008. Stocks who supply products going into commercial airlines, including PCP, continued to be sold off. Investors seem spooked by recent fleet downsizing by the major U.S. carriers on the back of high oil prices and struggling consumers. Or, PCP is getting dumped along with all other stocks related to Defense just because Obama won the Democratic nomination, which people take to mean Obama will be president and that the U.S. will never need a single bullet again or sell our weapons of war to the rest of the world. Geez investors are imaginative!

I don’t believe things have gotten worse for PCP since May 6th. The U.S. fleet downsizing has a minimal, if any, negative impact on PCP’s aerospace business. Like other airplane parts supplier, PCP’s aerospace business is levered to GLOBAL commercial airline demand, which is still flying off the charts. PCP’s direct exposure to Defense compared to its overall aerospace business is limited. More importantly, PCP has large exposure to the hot hot hot global power generation and oil & gas infrastructure. This segment, which PCP calls it’s power generation segment, is growing like a weed such that PCP has to expand 2 new factories to meet demand.

Here’s the plan. Overview of PCP, then the opportunities in power generation, and finally addressing the more complex concerns of the U.S. commercial airline exposure. Read the rest of this entry »

Schwarzenegger proclaims that California is in a drought – LaTimes.com

Here’s just the latest incident of our under-invested aging infrastructure leading to a crisis. This won’t be pretty for those of us in California, but should be yet another boost to the opportunities in infrastructure construction and infrastructure components. Read the article first, trades/investment ideas to come later…

“SACRAMENTO — Gov. Arnold Schwarzenegger proclaimed a statewide drought Wednesday, warning that California’s water supply is falling dangerously low because of below-average rainfall and court-ordered water restrictions aimed at protecting fish.”

Full Article: Schwarzenegger proclaims that California is in a drought

Coal Continues to be Strong

While crude oil prices has been spasming (trying to find a direction) the last few days after hitting an all time high last week, coal continues to march ahead. globalCOAL’s NEWC weekly index reports coal trading at $138.35/tonne for the week of May 23 versus $134.85 the week before. The record high was $139.16 back on February 15th.

Problems on both the supply and demand sides continue to support higher coal prices:

  1. China continues to be forced to close power plants due to shortage of coal. Current coal supplies will only last for 3.1 days of power generation which is much lower than the 7 day minimum supply usually needed.
  2. Export train from Colombia’s Cerrejon mine was derailed on its way to Puerto Bolivar due to terrorist attacks.
  3. Bottlenecks at Australia’s Newcastle port has caused coal exports to decline by 18%. Furthermore, queue of coal ships waiting to carry the coal has increased, tying up coal ships for 13.5 days while waiting to load coal versus the 0.38 days average loading time for general cargo ships.

More Coal news at globalCOAL

These supply and demand problems should continue to act as a driver for coal and all of coal’s supporting infrastructure. Even as coal stocks are at or near all-time highs, coal miners like Arch Coal (ACI), Patriot Coal (PCX), and Peabody Energy (BTU) can still be bought on dips. Likewise, methods of transporting coal such as the rails, barges like Kirby (KEX), and dry shippers should still have momentum. Finally, coal mining equipment makers Joy Global (JOYG) and Bucyrus (BUCY) has products that are in high demand to continue to open new mines and bring out coal.

No need to chase these. This is just to highlight how real the problems with coal and power generation is. The bottlenecks at ports like Newcastle won’t be fixed overnight, or even over a year, as whole port cities might need to be constructed and railways built in order to get all the coal out. In China, even with the earthquake temporarily knocking out several provinces and thus their energy use, China is still 4 days short of coal. For a country that big, it will take a lot of coal just to bring coal supplies back to that 7 day minimum (not even a slight surplus for rainy days). Meanwhile, summer is approaching and U.S. utilities will be fighting the foreign buyers as U.S. utilities try to keep their requirements of coal from being exported.

**Disclosure: I own shares of PCX and BUCY as of this post**

SuckingLess.com: globalCOAL feature – Coal Prices & Data, News & Analysis, Trading system

SuckingLess.com: Energy Sector Resources

ABB is an Unstoppable Beast!

I love ABB! ABB delivered a picture perfect quarter across all metrics with net income rising 87% year-over-year to over $1 billion. Revenues rose 29% to $7.96 billion. Orders rose 28% to $10.8 billion, driving the backlog up 46% compared to a year ago. The real story for me is the blowout of estimates of the operating-profit margin, which expanded to 15.9% while analysts had expected it to be around 13%. Who doesn’t love expanding margins? I’ve said I’d expect to see margins expand to around 18%. ABB maintains its 2008 growth rates of 10% in automation and 15-20% in power. These are fabulous results, showing ABB businesses are on fire and operating improvements continues. Shares are up over 5% in Switzerland in early trade around 180 kr. Even with this move, the stock still trades below a PEG of 1, making it one of the cheapest value growth companies still! Highlights from the press release are:

CFO and interim CEO Michel Demare says, “Demand from utilities and most of our major industrial markets remained strong around the world, especially in emerging economies, but also in the U.S. Customers continued to invest in areas where we are market and technology leaders – power infrastructure, energy efficiency and productivity.

“These excellent results also reflect our continuing strong operational performance,”

“Lower cost sourcing, footprint optimization, better project execution and risk management, and more efficient capacity utilization all contributed to our improved results.”

These were operational improvements former CEO Fred Kindle architected and these initiatives seem to be sustaining itself even after Kindle quit in February. While it may be a bit early to say ABB can run just as well without Fred Kindle, such worries that caused ABB to sell off in February when Kindle left seems to be misplaced, at least for now.

Unexpectedly, ABB was a big beneficiary of higher commodity prices:

“Order growth continued in all divisions, led by Process Automation, where metals, minerals and marine customers in all regions built capacity or upgraded existing capacity to take advantage of high commodity prices and sustained demand.”

Emerging economies’ insatiable need for energy to power their new cities continues:

“Automation Products and Power Products also reported strong order growth, especially in emerging economies, reflecting favorable demand across all industrial markets and ongoing investments by power utilities in new and upgraded infrastructure.”

Finally, strength in robotics was driven by higher demand across all industries but especially by the automotive industry. This highlights the strength in autos overseas and that the disgustingly weak auto industry in the U.S. is only an U.S. problem: ” BRIC nations would produce 20 million vehicles in 2008 as against 17.4 million by both America and Canada, Scotiabank’s auto industry specialist Carlos Gomes said in a study released on Thursday.” (BRIC nations overtake North America in auto production – The Economic Times)

For the full ABB earnings release, go to http://www.abb.com/cawp/seitp202/bb97d62eeedbde75c125741c00450241.aspx

Again, as with all the other global growth names, the same themes emerge: strength in utilities, energy efficiency and conservation, power generation, infrastructure, oil and gas.  The companies are telling us the lay of the land.  Investing shouldn’t be this easy but right now it  is.  Why bother with all the traditional sectors that are junk now?  (i.e. drugs/pharma, banks, tech)  Make it easy on yourself, if you don’t know industrials that well, go learn a few.  It’s worth it in this environment.

**Disclosure: I own ABB as of this post**