Fiscal Cliff, Sequester, Wolf!
In Italy, Beppe Grillo Leads the Way – But Where?
10 Stocks to Hold Forever – Part Nine
Remember the Fiscal Cliff? For many months, we were warned that if Congress couldn’t find a way to compromise, the economy would go over the cliff. Somehow, they did, and it didn’t.
Then came the Sequester, preceded by more dire warnings that allowing the automatic (last resort) measures to take effect would strangle the economy, put thousands of federal employees and contractors out of work and inconvenience—or endanger—the rest of us as government productivity slowed.
Well, the Sequester has taken effect, and I can’t say I’ve noticed.
But I do wonder who’s going to cry wolf next.
And recognizing that our politicians are becoming increasingly unable to run our country with any degree of cooperation and efficiency, I present the chart below!
Created by Harris Interactive, after a broad survey (more than 14,000 interviews) of U.S. general public, it illustrates the Reputation Ratings of 14 industries and the government.
At the top, most respected of all, is the technology industry. Thank you Apple, Netflix, Google, Facebook, LinkedIn and all the companies that make our lives more fun and productive.
At the bottom is tobacco. Understandably.
And one step off the bottom, viewed negatively by 67% of respondents, is the Government. Overall, we don’t respect it. We think it’s ineffective, if not just plain wrong. We take for granted that our politicians protect the interests of themselves and their lobbyists first and us second. And yet we allow the government to keep growing!
Meanwhile, over in Italy, something interesting happened in the general election 10 days ago.
Beppe Grillo upset the apple cart. And he wasn’t even running! But his populist Five Star Movement, which unlike other parties formed no alliances and vowed to refrain from doing so in the future, took 25.5% of the vote, electing 163 representatives to the Parliament of 945.
Which means that no alliance in Italy has a majority. Which means that no group in Italy controls the government. Which means that Italy now has no effective government.
Now, some wags will quip, “What else is new?” After all, past president Silvio Berlusconi, whose coalition received 29.1% of the vote, has been convicted of perjury, illegal financing of a political party and tax fraud. He just received a one-year sentence for abuse of office concerning publication of wiretaps. And he’s still on trial for paying an underage prostitute!
Well, I think the Italian election results are big news. I think Italians, especially the younger ones who voted heavily for Five Star candidates, were desperate for something different.
They wanted to “throw the bums out,” and in many cases they did. The challenge now is getting from here (limbo) to a better place. It will be interesting to watch.
Similarly, it will be interesting to watch what happens in our own government, where there are many similarities.
Here in the U.S., 38% of voters now identify themselves as independents, while 32% identify with the Democratic Party and 24% identify with the Republican Party. This is the highest percentage of independents in 75 years.
As the Democratic and the Republican Parties cooperate less, an increasingly large group of citizens will be up for grabs by these three alternatives:
Movements built on principles
or combinations of the above.
In Italy, Beppo represents the first and second. Here in the U.S., the Occupy movements of the past two years represented the second and third, while the Tea Party movement represented the third.
None of these alternatives have gained significant power yet, but there’s no question our own government is becoming increasingly less effective as the parties become polarized, and thus the opportunity grows for a person/ideology/movement to emerge that upsets the apple cart here and puts some power back in the hands of the people.
Having no idea who or what that will be, I’ll close with the words of an American whose words and deeds on that subject have stood the test of time.
“The spirit of resistance to government is so valuable on certain occasions, that I wish it to be always kept alive. It will often be exercised when wrong, but better so than not to be exercised at all. I like a little rebellion now and then.”—Thomas Jefferson
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We Gained 88.6% while the Dow is Up Just 6.1%
When Editor Roy Ward recently issued a “Sell Alert” for EBAY, it said in part…
“eBay reached its Minimum Sell Price. The company has produced excellent results during the past several quarters, which helped EBAY’s stock price to move steadily higher …
“I first recommended eBay in the Modern Value Model in the January 2007 issue of the Cabot Benjamin Graham Value Letter at 29.70. EBAY has advanced 88.6% during those six years while the Standard & Poor’s 500 Index has increased only 6.1%.”
Cabot Benjamin Graham Value Letter subscribers that followed Roy’s advice made 88.6% gains compared to only 6.1% for Standard & Poor’s 500 Index.
In recent weeks, I’ve been writing a series called “Ten Stocks to Hold Forever,” featuring 10 stocks, selected by Cabot editors, that you might choose to, well, “hold forever.”
The ninth stock is Stratasys Corporation (SSYS), and it was selected by me.
The company is one of the two leading players in the 3-D printing industry. The other is 3-D Systems (DDD).
Both are growing by acquisition, effectively locking up all the expertise in the industry. And I expect both to grow tremendously in the years ahead. But I’m choosing Stratasys over 3-D Systems for the simple reason that the company has no debt.
Stratasys is based in Eden Prairie, Minnesota. It was founded in 1989. And it’s grown revenues every year of the past decade but one (2009), when broad economic weakness brought modest shrinkage. It’s been profitable every year of the decade, too, though its earnings trends are messier, mainly because of acquisitions. But after-tax profit margins are improving, and in the last quarter of 2012, they crossed the 20% level, hitting 22.9%. In the same quarter, revenues grew 63% from the year before to $71.2 million and earnings grew 29% to $0.40 per share. Those are impressive numbers, and one more sign that the company is well managed and on the right track.
So what exactly is a 3-D printer?
It’s a lot like an inkjet printer. But instead of printing in two dimensions, on paper, it prints in three dimensions, building a real physical object. Stratasys uses two different technologies, FDM and PolyJet. FDM stands for Fused Deposition Modeling, and in this system, the machine creates parts by extruding molten thermoplastic in fine layers to build the part layer by layer. The PolyJet process also builds in layers, but using photopolymers, which are simultaneously cured by ultraviolet light.
And who uses 3-D printers?
Industries include aerospace, automotive, medical device, electronic device, military and educational.
Functions include building concept models, developing prototypes, producing manufacturing tools (like jigs) and creating finished parts for low-volume production.
The most important question of all, though, is this: Where is this industry going and how big will it get?
No one knows. Maybe 3-D printers will be in our houses someday, just like 2-D printers, which no one imagined 50 years ago. Maybe not. But there’s little question that as costs come down, the printers will find more uses in a wide variety of industries. And if Stratasys remains one of the leaders, as I expect it to, its fortunes will continue to grow.
As to the stock’s chart, that’s very interesting. When I chose SSYS for this list late last year, it was trading around 70, in a confirmed uptrend. In January, it hit 90. But in late January, both SSYS and DDD sold off on big volume, after a couple of analysts opined that the industry was in a bit of a bubble. SSYS bottomed at 60 a month later, and today it’s working its way back up, having released an excellent fourth quarter report early this week.
In short, while SSYS is no longer a leading stock, the decline since January has taken a lot of risk out of the stock and this looks like a decent buying opportunity for investors with longer time horizons, including “forever.”
Yours in pursuit of wisdom and wealth,
Editor of Cabot Stock of the Month
P.S. In August, I’ve gathered eight of the world’s top financial minds and given them one task: Show you how you could make the next 12 months your most profitable on record!
10 Forever Stocks – 2013:
The eighth forever stock to buy is one of the world’s leading owners of containerships. Management is top-notch and there’s a very fat dividend yield…
The tenth and final forever stock is a non-traditional automobile company. The cars are wonderful. And the engineering has been nearly perfect.
This forever stocks series was introduced with Thomas Phelps’s Stocks to Buy and Hold Forever idea…