Solar Stocks, and Oil and Gas Stocks, Lead the Market

Some people talk back to the TV newsreaders when they disagree with what they hear. Some, I’ve heard, even throw things.

Me, I don’t watch TV news, but I read a lot of newspapers, and sometimes I talk back to the writers … in my head.

Last week, for example, the Wall Street Journal’s lead headline read, “Americans Delay Retirement As Housing, Stocks, Swoon.”

My first thought was, “That’s not the type of headline the Journal would have run before Rupert Murdoch bought it. The style is a little “hotter” than before, a tad more sensational.

And I don’t mind that. But implicit in the headline, and in the article that followed, is the notion that there’s something wrong with delaying retirement … and I’ve got a problem with that.

In short, I think most people retire too young, and I think extending the age at which Social Security kicks in could help solve a whole raft of problems.

We’ve known for decades that baby-boomers would overwhelm the Social Security and Medicare systems as they aged. That truth, in fact, was reinforced two weeks ago when the trustees for both programs gave their annual public warnings.

The Medicare program is already in the red, spending more on benefits than it takes in, and by 2017, Social Security will be in the same boat.

The solution, of course, is to either find new sources of income (raise taxes) or to find ways of lowering the payouts. But decades of politicians have found it convenient to avoid making the tough choices required to fix these problems, so here we are.

Raising taxes would help increase the program’s solvency, but might slow the economy’s recovery. Raising the retirement age, however, would not only help the Social Security program, it would also help the economy, by keeping productive people at work longer … and demographically, such a move makes a lot of sense.

Many Reasons to Delay Retirement

The Social Security Act, remember, was signed into law by President Franklin D. Roosevelt in 1935, as one of many measures designed to help people through the Great Depression.

At inception, the retirement age was 65, and the system was funded by a 1% tax on both employers and employees. Today the tax is 7.65% (!!), and the age at which you can get full benefits has been increased two years, to 67. But in the 73 years since the program’s inception, life expectancy for a newborn has increased an astounding 18 years, from 60 to 78!

Back then, the average 60-year-old could expect to live to 72. Today, the average American turning 60 can be expected to live to 83!

Another big change is the growth in private retirement accounts, which can be tapped at a younger age if the holder desires, thus delaying the “need” for Social Security. Furthermore, there are a number of alternatives to full employment.

Many older workers are happy working part-time. Others do contract or consulting work, which gives them more control of their own time. Still others practice job-sharing, or work in seasonal occupations, alternating months of labor with months of leisure.

Additionally, research has proven that people who are active contributing members of society live longer and feel better than those who retire from the rat race. Yes, finding your niche as you age means adjusting, but I have no doubt that the productively engaged semi-retired live more fulfilling lives than those who try to fill every day with such self-centered pursuits as golf or fishing.

Finally, there’s the matter of your private retirement investments. The reason you’re reading this is that you don’t want to be dependent on Social Security down the road; you hope to be responsible for your own future. There’s no question it’s a far brighter prospect.

And that’s something we at Cabot are more than happy to help you with. Successful investing is not an easy business, but if you are open-minded, if you can accept that frequent small failures are the price you must pay for finding big winners, and if you enjoy learning about the world and thinking about the future, there is no better avocation.

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Now, thinking about the world and the future, it’s clear some of the biggest changes today are occurring in the energy business. Oil and gas prices are high, and companies in the industry expect them to stay high. Companies that explore on land are investing heavily in new properties, and companies that explore in the oceans are contracting for drilling time years into the future.

Yet pollution, derived mainly from burning fossil fuels, is a growing problem! In the short-term, it poses serious challenges for both the organizers of the Summer Olympic Games and the athletes who will participate in them. But in the long run, it appears to be a far more serious problem because of the greenhouse effect, which has given us global warming.

At the same time, there’s explosive growth in the solar power industry, where companies–admittedly small–continue to grow revenues and earnings at triple-digit rates.

To me, it’s absolutely fascinating to see the stocks in both the oil and gas and the solar power industries leading the market higher in recent days. And it’s especially intriguing when you consider that the oil and gas industry (by my rough measurement of the stocks’ market capitalizations) outweighs the solar power industry by perhaps 76-to-1.

So where to invest? Wherever the growth prospects are best, and wherever the stocks are going up, and wherever investor perception can improve.

Oil and Gas Versus Solar

The big attraction to solar power stocks is that the companies are small, so they can still grow fast … and that money coming out of oil and gas stocks can pump up solar stocks fast. The big disadvantage is that the stocks, following last year’s market-leading performance, are still expensive by many measures.

The big advantage to many oil and gas explorers is that their stocks appear reasonably priced (even cheap) based on expected earnings. The big disadvantage is that someday it appears those solar power companies (and other alternative energy technologies) will begin to fulfill a significant portion of the energy market’s needs. But that day is still far enough away that investors in oil and gas companies are unconcerned. Thus I’m unconcerned … I don’t argue with the market.

So, reasoning that there’s still plenty of room left for oil and gas stocks to run, here’s a well-known company that was recommended a few weeks ago in Cabot Market Letter.

It’s called Southwestern Energy and it trades under the symbol SWN.

Here’s what editor Michael Cintolo wrote.

“As the name implies, Southwestern explores for and produces oil and gas in Arkansas, Oklahoma, Texas and New Mexico. The company is reaping the benefits of discovering the potential of the Fayetteville Shale natural gas reservoir in 2002; it now owns about 50% of the acreage in that region. The company estimates that its production from the Fayetteville Shale will rise from 325 billion cubic feet per day to 450 billion cubic feet by year-end 2008. The stock has been working its way higher and just stepped out to new all-time highs.”

What I particularly like about the company is the fact that both revenues and earnings display accelerating growth trends, which means analysts tend to have a hard time revising their estimates fast enough to keep pace. As a result, earnings reports tend to “surprise” investors, in a positive way, and the stock tends to climb higher as a result.

Since SWN’s appearance in Cabot Market Letter, the stock has climbed from 32 to 38, and that looks a little high short-term. But any pullback of a few points would be opportunity enough to get on board.

(In the near future, I’ll recommend a solar stock, too.)

Editor’s Note: Southwestern Energy may never be mentioned here again, but you can get our most comprehensive investing advice by subscribing to our flagship publication, Cabot Market Letter. Now in its 38th year of publication, Cabot Market Letter is the ultimate guide for growth stock investors, providing crystal-clear advice on market timing, stock selection, portfolio management and more. Over the past five years, it’s achieved a compound annual return of 16.9%, while the S&P 500 has achieved just 9.6%. Last year, the newsletter’s big winners included Crocs (CROX) and First Solar (FSLR). This year, who knows? As I write, editor Michael Cintolo is growing increasingly confident that the market bottom is behind us, and he’s perfecting his shopping list of market-leading stocks. To get started with a no-risk trial subscription, simply click the link below.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory

P.S. We here at Cabot want to thank our loyal readers who offered valuable feedback about Michael Cintolo’s FAQ issue of Cabot Wealth Advisory. We listened to what you said and want to offer the format more frequently. You can submit questions by email, as always, or you can utilize one of Cabot’s free new Web site features, the Cabot Forum, to send a question to our editors. To do this, go to the Cabot Forum, which can be found at and register a unique username and password. Then enter your question into the Ask the Editors section. We will check back periodically to see what questions are being asked and many of them will be answered in future issues of Cabot Wealth Advisory. So keep reading to see when your question appears!


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