On The Cusp

In spite of the beginnings of a housing decline, we may be looking at a significantly higher stock market in the months ahead. The decline in the price of oil will certainly aid this, as it will keep inflation in check, and that in turn will keep The Fed from increasing rates. With The Fed at bay, stock prices can increase. That's the logic.

As we have cited before, many stock averages have been doing very well. The Dow Transports have already hit a new all time high. If the Dow Industrials confirms, then we are off the races. This seems a possibility.

Oil and Energy

With oil going down is it time to quit the oil stocks? Well, if your perspective is short term, it might well be a good time to sell them. It’s been on a good ride for a couple of years now, and it could easily see a significant pullback. It already has. I’m going to keep my energy plays because I think our energy problem is long-term. Consumption, especially from China and India, is just going to keep coming on, and I’m not impressed with the new sources. We’re not discovering new Saudi Arabia’s.

Personally, I’m going to watch the oil companies go down, and maybe pick up a few shares here and there. I still like Suncor (SU) because it is one of the few plays that can regularly increase its production at will. It’s just a matter of mining more. Buying more equipment, building more facilities. There is no discovery cost. It is, in effect, a growth stock.

Moreover, all the old problems are around. Dislocations from hurricanes, cold winters, terrorist bombings of supply lines, governmental interference, to wit: Venezuela’s production has consistently gone down since Chavez has taken control. Down from 7 million barrels a day to 3 millions barrels a day. If we bomb Iran, the number 4 producer in the world with 4 million barrels per day, does that mean we lose all that production? Iraq’s production was 3 million barrels per day before we took over, now it is anywhere between 1.5 and 2 million barrels per day. Bombing Iran alone will put oil over $100.

Alternative energy stocks have also gone down. Those may be worth a look, though I have no recommendations.

Technology

We are hardly out of the technology era. My favorite play continues to look good: Microsoft (MSFT). The stock has been dead money for 10 years and more. But wait: its first new operating system since XP is coming out next year, Vista. People are holding off, waiting for the next operating system. One of the Motley Fool guys is putting off his next Dell until Vista comes out, and so am I. Its first entry against the ipod, Zunes, is coming out this winter. It’s earnings have been consistent, and they’re going to buy a boatload of their own stock. Maybe open systems will be a big problem for them further out. But for the next few years, this looks like the place to be. And within that framework, 3 years, I think it’s probably a double.

I still think network makers are going to be a good place to be. Bandwidth needs to increase to accommodate the video over the internet, and VOIP (voice over the internet). You see the commercials for Vonage all the time, that is VOIP. And whatever Vonage’s problems, it’s coming on. Comcast is advertising for it all the time for VOIP. I subscribed to Vonage to see how it is, and it seems to be pretty good, but if your carrier (Comcast, in my case) has a problem, then you are going to have a problem. I like Cisco (CSCO), but it’s gone up about 5 points recently, so bear that in mind. It’s the biggest of all the network suppliers. I still like JDSU because optical is the way to get bandwidth, though it’s earnings have not yet justified my faith and recommendation. So, I have to rate it as speculative.

September 16, 2006