A Big Beneficiary of Falling Fuel Prices

As a publisher and editor, I’m always aware of my next deadline.  And I’m always looking for new material, ideally material that is interesting, educational, entertaining and profitable.

For example, I recently enjoyed an afternoon and evening with Max Bowden, New Zealand’s biggest publisher of business newsletters, first here in the Cabot office and then at my house.  Max was accompanied by his charming wife, Frances–who developed a warm relationship with my dog–and I learned a lot about New Zealand during our time together.  I even had visions of doing some kind of partnership, as a way to get Cabot into the New Zealand market.  But … when I learned the population of New Zealand is just 4.2 million, which slots it somewhere between Kentucky and Louisiana, my interest waned. 

And when I learned New Zealand has 10 sheep for every person … I realized why one of Max’s newsletters is devoted to the agriculture business!  Max and I did share plenty of ideas; he uses photos in his newsletters (we don’t) and he says his readers love “10 Best” lists.  But I could find no investing ideas related to either New Zealand or sheep.

Interestingly, a lot of my best story ideas come when I’m engaged in an everyday activity that requires little conscious thought.  Brain experts tell us that’s when we’re relaxed enough–unfocussed may be the better word–to notice the new connections our minds are making.  For my father, it was often while shaving.  For me–perhaps because I have a beard and thus don’t spend much time on that activity–it’s often while showering, or walking the dog.  Sure enough, recently, while walking the dog, I had the idea to create the following list … and I give Max Bowden a little credit.

Six Reasons I Love My Job

1. I have a wonderful team of co-workers.  They work well together.  They are good at finding ways to achieve our goals.  And because they’ve been through market ups and downs before (some many times), they know that the difficult times of the past year will give way to a new bull market.

2. It provides intellectual stimulation.  There’s nothing better than learning.  In recent weeks, while working on our various newsletters, I’ve learned about solar energy, bone grafting, geothermal energy, the history of Fannie Mae, genetic technology, the economy of Iceland, the power of compost, the efforts of the Chinese government to stimulate the market, blood infections, anthrax vaccinations and much more.

3. It provides an opportunity to help people by teaching them something.  And it provides welcome feedback from subscribers who thank us for making them better investors.

4. We are free from onerous government interference.  Yes, we have to deal with the payroll tax, workmen’s compensation, Social Security, Massachusetts health-care laws, property tax, excise tax and local trash tax, but as publishers in a country where freedom of expression remains a fundamental right, we are free to publish any thoughts, observations, opinions and conclusions that we might have.

5. We have no debts.  For this I credit my father, who founded and grew this business without borrowing a nickel.  As a result, the current credit crunch does not affect us directly.

6.  Finally–and selfishly–I’m the boss, so I’m not worried about losing my job.  The position does, of course, entail certain responsibilities, but none unreasonable.  Interestingly, both of my brothers, Rob and Andy, also run their own companies here in Salem.  Dad’s very proud.

I know, Max suggested “10 Best” lists and I only gave you six.  I could name four more reasons, but they just wouldn’t be as big.

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Invest Like the Oracle of Omaha

In a recent op-ed in The New York Times, Warren Buffett, laid out his plan to capitalize on the recent stock market crash. His mantra: “Be fearful when others are greedy, and be greedy when others are fearful.” It’s clear that right now, fear has reached a fever pitch. Buffett, one of the world’s most famous investors, isn’t predicting the short-term moves of the market, but he’s betting that in the long-term, the market will rebound and move significantly higher.

Buffett went on to say, “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Cabot Benjamin Graham Value Letter follows the system laid out by the father of value investing, who taught the system directly to Buffet when he was Graham’s student at Columbia University. Click the link below to start investing like the Oracle of Omaha.


Moving on to the current investing climate, I have this to say, only slightly tongue-in-cheek.

“Nobody Knows Nothing”

I say this because history proves it, over and over.  For example, last week I pulled from my desk drawer a copy of the Wall Street Journal from Wednesday, May 23, 2007.

It was not a particularly notable day.  The bull market was in force, and the Dow was hitting new highs … even though gasoline prices were at record levels.  But here at Cabot we had been noting a growing divergence in the market; both the NYSE Advance-Decline Line and the Nasdaq had failed to confirm the Dow’s high.  Also, we detected a high level of optimism among both investors and the general media.  So I saved The Wall Street Journal, in part because of the lead article that announced, “Why Market Optimists Say This Bull Has Legs.”

The subhead of the article followed with, “They See Decade of Gain Fed by Global Growth; Skeptics Cite Big Doubts.”

On the bullish side were Vernon Smith, a Nobel Laureate economist at George Mason University, Louise Yamada, a longtime Wall Street market analyst previously with Smith Barney and independent since 2005, and Fritz Meyer, Senior Market Strategist at Invesco AIM Investments.

So I reread the article and what did I find?  Fundamental talk about global growth, low interest rates and a technology revolution that would boost productivity.  Ms. Yamada even had the courage to utter the phrase that makes an experienced investor quail, ” … it really is different this time.”

Also given ink were the detractors, who claimed that reversion to the mean was inevitable, that low interest rates couldn’t last, and that the weak dollar and above-average P/E ratios would eventually pull the market down.

But here’s what I found interesting (in hindsight):  Not once in the entire article did anyone mention credit!!!

Today, we know from our rearview mirror that credit was the culprit of a decline that has crushed the global financial system.  But just 17 months ago, a reporter looking for reasons the bull might not last found no one mentioning credit!

Which means what?  That trouble usually comes from where you least expect it.  I’ve seen it time and time again, which is why I tend NOT to worry about the things other people are worried about.

And there’s a corollary, which is this: Good things often come from where they’re least expected.  Today, the only good that most Americans expect is an end to the longest-running presidential election campaign in history.  They certainly don’t expect any good economic news; in fact, when it does arrive they hardly recognize it!

We’ve now got exactly what we were wishing for a year ago–plunging gasoline prices and a strong dollar–yet no one’s cheery.  Everyone’s still looking in the rearview mirror at the cliff they just drove off and wondering when the asteroid will come along to finish them off.

My suggestion is this:  Stop worrying about the asteroid.  You should now be looking for the stocks that will lead the next bull market upward.

Admittedly, the list of good-looking stocks is extremely small these days; that’s how it is at market bottoms.  But the few stocks that do reveal strong investor support are worth following closely–particularly if they have great growth stories–because they’re the stocks most likely to lead the next market advance.

One sector we’re keeping on eye on is the airlines.  It’s common knowledge that high fuel prices killed some of the weaker players in the industry.  But now that fuel prices are falling, the airlines are going to report surprisingly good earnings … and the performance of their stocks reflect it.  Two airlines earned a spot in Cabot Top Ten Report last week.  One of them was Continental (CAL), the fifth-largest airline in the world, and here’s what editor Michael Cintolo wrote.

“Like all airlines, the company has been battered by high fuel costs … Hurricane Ike contributed to another $50 million of lost revenue.  So why is the stock so strong? Because the top in fuel prices is in … oil prices sit about 50% off their July peak. As a business, Continental has remained in relatively good shape–revenues rose thanks to flat passenger totals, but higher fares. Thanks to the huge drop in energy prices, analysts believe this company can earn more than $3 per share next year, which shows you how much earnings power the big firms in the airline sector have when the environment is bullish.”

On the technical side, we wrote, “What impresses us most is the five straight weeks of high-volume advances seen after that mid-July low, versus the sharp, four-week decline with tame volume during the market’s crash.”

Today CAL continues to act very well.  It’s beaten the market easily over the past three months, and is likely to continue to do so in the future.  And cheap?  The stock is currently selling at just four times next year’s expected earnings.

Editor’s Note: CAL may not be mentioned here again, but it will certainly be covered in every issue of Cabot Top Ten Report until editor Michael Cintolo recommends selling.  Every weekly issue of Cabot Top Ten Report includes coverage of the strongest stocks in the market … with no biases.  Today, for example, in addition to airlines, we’re seeing strength in medical stocks (both conservative and aggressive) and in reliable retailers that sell consumer staples like dog food, farming supplies and children’s clothes.  Cabot Top Ten Report not only gives you precise buy levels for these stocks, it also has a market timing component, so that you know when to invest aggressively and when to hold cash.  To get started with your no-risk trial subscription, simply click the link below.


Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory


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