Thursday, September 14, 2006


According to the WSJ's "Heard on the Street" column, now that energy and other commodities are down, the fortunes of a number of co's are looking up. The drop in commodity prices has spurred investors to search for stocks that might benefit. Airlines are obvious candidates. Major airlines around the globe continue to see strong passenger demand, so profits could climb if they are able to raise prices while their own costs drop, as fuel prices fall. A study of trading patterns during the past 3 years by Bianco Research points to airlines as the sector most inversely correlated to oil prices. Some investors, such as Appaloosa Mgmt, a $4bn hedge fund, bought airlines such as AMR (AMR), the parent of American Airlines, in recent days. Retailers also are likely to benefit if a drop in energy helps consumers deal with the impact of a housing downturn. Target (TGT) has been among the most sensitive to oil prices in recent years. Some traders say the recent surge in shares of Wal-Mart (WMT), Home Depot (HD) and Costco (COST) is a result of shorts, who now are scrambling to buy back shares. Other stocks mentioned include: APPB, GT, PG, DD, IP, GM and TMC.

According to the Barron's Online, it's too soon to presume that Americans, relieved of energy burdens, will buy pricey gadgets in droves this winter. A safer bet is that consumer gadgets will become more and more popular over the very long term, and that it pays to own the stocks of co's that have a time horizon of at least 2-3 years in which to exploit those trends. One such group is the chip-equipment makers such as Applied Materials (AMAT) and Cymer (CYMI), whose tools must be purchased by Intel (INTC) and other chip makers to keep their factories going whether or not the latest iPod sells well at Christmas. Chip-equipment stocks are up 6.3% on avg this year, slightly ahead of the S&P's 500 index's 5.2% rise. Bullish investors have started bidding up shares in order to get in on what could be a jump in equipment orders next year, writes JP Morgan chip-equipment analyst Jay Deahna in a note. But worries over consumer demand could yet cause chip makers to cancel equipment orders, which makes owning the stocks outright very tricky right now. A backup strategy is to sell put options on equipment makers, which yields a tidy premium upfront and positions investors to buy shares at prices below the current mkt price in the event the put is ever exercised. "We like to own co's that are dominant in the equipment mkt, regardless of what the chip sentiment is out there at the moment," says Kevin Landis, of Firsthand Funds. "Equipment stocks trade a lot on sentiment, but there's still a lot of unmet need for the technology they bring to chip makers."

"Inside Scoop" section reports that 3 execs at Thornburg Mortgage (TMA) have resumed building up their stakes after a nearly yearlong lull in insider buys at the co. Most notable is purchase by CEO Garrett Thornburg, who spent $2.2m for 93K shares. With his latest purchase Garrett Thornburg holds 1.3m shares, a 1.2% stake in the co. President and COO Larry A. Goldstone also bought 12K shares for $291K. The purchases by Garrett Thornburg and Goldstone are the largest in dollar value that either has made over the past 5 years, notes Jonathan Moreland, director of research at, and bode well for the stock despite anxiety over the co's dividend warning. "I view the insider purchases as indicating that at the very least the double-digit indicated yield is sustainable," says Moreland.

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