The auto parts manufacturing industry in USA has an annual revenue of around $180B, and consists of approximately 4,000 companies. Based on the modest recovery in the US economy, and also the continued low interest rate regime, the auto sales are expected to grow at a high rate in the next two years. As consumer confidence grows, the uptrend is supported by demand both from households and businesses. Importantly, low cost finance is helping auto makers increase their pricing power as they can afford to reduce discounts which were adversely affecting their margins. As per the Global Auto Report of March 6, 2013, sales in North America are expected to increase from 17.07M units in 2012 to around 18.23M units in 2013, a 6.8% rise.
This continued vigor since 2010, augurs well for... Read more
Empirical research by professors Eugene Fama from the University of Chicago and Kenneth French from Dartmouth’s Tuck Business School, has concluded that value stocks have a tendency to outperform growth stocks over long periods of time. In fact, between 1927 and 2011, small cap stocks outperformed large-cap stocks and value stocks outperformed growth stocks. Last year alone, based on the Fama-French research portfolios, small-cap value stocks beat small-cap growth stocks by whole 15 percentage points, whereas large-cap value stocks outperformed their large-cap growth peers by 8.7 percentage points. Value tilts in portfolios have proven to increase returns over time. (Still, investors should be aware that past performances are not guarantees of future results).
There are... Read more
As per a research report by Hoovers, the US Business Services industry generates annual revenue of around $580B. Main segments of the industry include accounting & corporate finance, advertising and marketing, consultancy, IT outsourcing, business outsourcing, human resource, international trade, staffing services, solid waste handling, facilities services, office administrative solutions, travel services, etc. The business services industry index for the US companies has grown by 66% from June 2009 to March 2013, compared with a growth of 69% in S&P 500 during the same period. With improvement in jobs data in the last few quarters and expected turnaround in the US economy, requirement for business services is likely to grow at a reasonable rate. As part of their efforts to reduce... Read more
Master Limited Partnerships (MLPs) in the energy sector provide the highest average yield among the income-oriented securities (see chart below). Their favorable tax structure, whereby MLPs avoid double taxation by passing almost all partnership income to investors and whose distributions are about 80% tax-deferred, makes these investment instruments popular with income seekers. Wells Fargo Securities projects that these instruments, which, on a median basis, yield 7.5%, will see total returns of about 20% this year. Positive catalysts for appreciation will be the prevailing low interest rate environment and the appeal of MLP yields in the yield-starved and economically fragile backdrop. Robust infrastructural capacity expansions that are fueling output growth are also positive factors... Read more
The US freight rail network is a dynamic and robust $60B industry consisting of 140,000 rail miles operated by 7 Class I railroads, 21 regional railroads and 510 local railroad companies. With an average of 40 Tons of freight per person per year, and railroad being a major carrier of freight (nearly 40%), the industry is expected to grow with the population and economy of the country (source: Federal Railroad Administration).
Importantly, more than 40% of the tonnage carried in the industry comprises of coal. An expected uptrend in prices of natural gas is likely to increase the demand for coal, thereby... Read more
Despite the recent UK sovereign debt downgrade, the UK equity market offers a good combination of high yield and solid dividend growth. That combination promises to produce respectable returns over time. Moreover, the strategy based on that combination looks appropriate for investors seeking current income, an inflation hedge, and a margin of safety in possible market downturns. While there are plenty of UK dividend stocks for investors to choose from, a select few called Dividend Aristocrats, which meet the aforementioned investment objective, stand out because of the quality and sustainability of their dividends over time.
Let’s start with the UK dividend yield and growth prospects. While aggregate UK dividends, excluding special dividends and the early payment of... Read more
The Baltic and International Maritime Council (BIMCO) has expressed confidence about the outlook of the shipping industry in 2013. This is despite the challenge of oversupply of tonnage. With the world trade growing by 3.3% in 2012 and expected growth of 4.3% & 4.9% in 2013 & 2014, a turnaround in macroeconomic terms is foreseen (source: UN World Economic Situation & Prospects 2013). This optimism is supported by the fact that the large economies like the US are showing signs of bottoming out. Further, the LNG trade in the world is expected to rise over the next few years backed by improving demand for the commodity. Several new LNG export facilities are in the development / planning stage in the US, Australia, Indonesia and Papua New Guinea to take advantage of the expected... Read more
Income investors in pursuit of both high yields and monthly income have at their disposal securities of U.S. energy-based royalty trusts and Canadian energy-sector corporations that used to operate as income trusts prior to a tax-regime change that eliminated Canada’s royalty trust structure as of January 1, 2011. These securities offer high dividend yields; however, given that some of them pay variable-rate distribution/dividend payouts, they cannot ensure stable income flows over long-term periods. Moreover, high yields of some monthly dividend-payers reflect heightened risks of dividend sustainability, which warrants a careful evaluation of these companies’ fundamentals before investors include them in their income-producing portfolios.
As regards U.S. royalty trusts,... Read more
In the recent years, the publishing sector has started to show modest growth. The global publishing market which was around $244.4B in 2011 is expected to reach $273B levels in 2016, an increase of 11.7% in 5 years (source: datamonitor.com). The industry comprises of traditional print media like books, magazines etc. and the printing business, which is basically physical production of media. The sector has good operating profit margins but the net profit margin is dented due to interest burden of relatively high leverage. The internet boom has forced companies to diversify into electronic printing and other media to adapt and survive. Expected moderate growth in the US economy over the next few years is likely to have a positive rub-off effect on this macro-sensitive industry.... Read more
Academic research shows that ownership flows of institutional investors engaged in active portfolio management –including mutual funds, bank trust departments, pension funds, and insurance companies– are positively correlated with returns. In fact, with the notable exception of small-cap stocks, “the evidence is consistent with a conclusion that institutional trades lead stock prices,” says a 2003 study published in The Journal of Portfolio Management. This means that stocks that informed institutional investors, or “smart money” investors, as a group buy realize positive benchmark-adjusted returns, whereas stocks that these institutions as a group sell produce negative benchmark-adjusted returns. Given that institutional trades are reported... Read more