‘The global semiconductor industry is going through one of the steepest corrections in its history,’ said SIA President George Scalise. ‘While it would be premature to conclude that the sales have hit bottom, there are some indications that the rate of decline has moderated from the final quarter of 2008.’

‘Demand for semiconductors is likely to continue well below 2008 levels for the next few quarters with a gradual recovery to follow as the global economy recovers,’ Scalise concluded.’

There are similar problems within the semiconductor materials market. The materials market was flat in 2008 as compared to 2007. Semiconductor materials market sales reached $42.7 billion globally in 2008. The industry group for the semiconductor materials market, SEMI, reports that “the wafer fabrication materials and packaging materials $24.1 billion and $18.8 billion, respectively.” These sales figures represent a decline from 2007.

“The global wafer processing equipment market segment decreased 31%; the assembly and packaging segment decreased 28%; the total test equipment sales decreased 32 percent. Other front end equipment sales declined by 32 percent”

We believe the market is discounting the recovery somewhat ahead of itself. It remains to be seen if the global economy will pick-up before 2010. Even if it does, the semiconductor market may lag the recovery. The companies we have on our watch list, Altera Corporation (ALTR), Analog Devices (ADI), Intel (INTC), QLogic Corporation (QLGC), Taiwan Semiconductor (TSM), Texas Instruments (TXN), and Xilinx (XLNX), are priced as though the recovery is already here. Sales and earnings will continue to decline through 2010. We would wait until there are signs of recovery before being buyers of semiconductor stocks.

Good Article? Pull it from here:
This is not time to own semiconductor stocks

Cisco Systems [CSCO: 20.40, +0.14 (+0.69%)] Recent Price $17.04 Value Range 21.86 – $38.41
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry, and provides services associated with these products and their use. The Company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate and collaborate. Cisco Systems, Inc.’s products, which include primarily routers, switches, and products that the Company refers to as its technologies, are installed at enterprises, public institutions, telecommunications companies, commercial businesses and personal residences. In November 2008, the Company acquired Jabber Inc. In January 2009, the Company acquired Richards-Zeta Building Intelligence, Inc

CSG Systems International [CSGS: 18.94, +0.12 (+0.64%)] Recent Price $15.47 Value Range $21.39 – $28

CSG Systems International, Inc. (CSG) is a provider of outsourced solutions that facilitate customer interaction management on the behalf of its clients, generating approximately 95% of its revenues during the year ended December 31, 2007, from the North American cable and Direct Broadcast satellite (DBS) communications markets. The Company’s solutions also support a number of other industries, such as financial services, utilities, telecommunications, and home security. CSG’s solutions manage customer interactions, such as set-up and activation of customer accounts, sales support and marketing, order processing, invoice calculation (customer billing), production and mailing of monthly customer invoices, management reporting, electronic presentment and payment of invoices, automated and interactive messaging, and deployment and management of the client’s field technicians to the customer’s home. In May 2008, CSG completed the acquisition of DataProse, Inc.

Forest Laboratories [FRX: 29.19, +1.54 (+5.57%)] Recent Price$26.21 Value Range$51.57 – $64.09

Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products, which require a physician’s prescription, as well as non-prescription pharmaceutical products sold over the counter. The Company’s products in the United States consist of branded ethical drug specialties marketed directly or detailed to physicians by its sales forces, Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare, Forest Ethicare and Forest Specialty Sales. Forest Laboratories, Inc.’s products include Lexapro, the Company’s selective serotonin reuptake inhibitor (SSRI) for the treatment of major depression and generalized anxiety disorder (GAD); Namenda, its N-methyl-D-aspartate (NMDA) antagonist for the treatment of moderate to severe Alzheimer’s disease; Bystolic, its novel beta-blocker for the treatment of hypertension, and Campral, for the maintenance of alcohol abstinence.

Robert Half International [RHI: 22.96, +0.33 (+1.46%)] Recent Price $18.22 Value Range $26.27 – $30.14

Robert Half International Inc. provides specialized staffing and risk consulting services through such divisions as Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields

Advance Auto Parts [AAP: 56.30, +0.82 (+1.48%)] Recent Price 33.63 Value Range 10.02 – 12.07

Advance Auto Parts, Inc. (Advance) operates within the United States automotive aftermarket industry, which includes replacement parts (excluding tires), accessories, maintenance items, batteries and automotive chemicals for cars and light trucks (pickup trucks, vans, minivans and sport utility vehicles). The Company is a specialty retailer of automotive parts, accessories and maintenance items to do-it-yourself (DIY) and do-it-for-me (DIFM) customers in the United States, based on store count and sales. Advance operates in two business segments: Advance Auto Parts (AAP) and Autopart International (AI). The AAP segment consists of its store operations within the United States, Puerto Rico and the Virgin Islands, which operates under the trade names Advance Auto Parts, Advance Discount Auto Parts and Western Auto. The AI segment consists solely of the operations of Autopart International, which operates as an independent, wholly owned subsidiary.

American Eagle Outfitters [AEO: 13.825, +0.785 (+6.02%)] Recent Price 9.64 Value Range 0.63 – $0.75

American Eagle Outfitters, Inc. is a retailer that operates under the American Eagle Outfitters, aerie by American Eagle and MARTIN + OSA brands. The Company designs, markets and sells its own brand of clothing targeting 15 to 25 year-olds. American Eagle also operates ae.com, which offers additional sizes, colors and styles of AE merchandise and ships to 41 countries worldwide. AE’s original collection includes standards, such as jeans and graphic Ts, as well as essentials like accessories, outerwear, footwear, basics and swimwear under its American Eagle Outfitters, American Eagle and AE brand names. The aerie collection is available in aerie stores, predominantly all American Eagle stores and at aerie.com. The collection includes bras, undies, camis, hoodies, robes, boxers, sweats, leggings, fitness apparel and personal care for the AE girl. MARTIN + OSA is a concept targeting 28 to 40 year-old women and men, which offers refined casual clothing and accessories.

Bed Bath & Beyond [BBBY: 38.49, +1.1825 (+3.17%)] Recent Price$24.00 Value Range $ 8.03 – $9.73

Bed Bath & Beyond Inc. and subsidiaries is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. The Company sells a range of merchandise principally, including domestics merchandise and home furnishings as well as food, giftware, health and beauty care items and infant and toddler merchandise. In March 2007, the Company acquired buybuy BABY. In May 2008, the Company announced the formation of a joint venture with Home & More, S.A. de C.V., a privately held home products retailer operating in Mexico

Brown-Forman Corporations [[BF-B]] Recent Price $48.18 Value Range $8.17 – $10.28

Brown-Forman Corporation manufactures, bottles, imports, exports and markets a variety of alcoholic beverage brands. Its principal beverage brands are Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia Vodka, Herradura Tequila, Gentleman Jack, Jekel Vineyards Wines, Jack Daniel’s Single Barrel, Jack Daniel’s Ready-to-Drinks, Bel Arbor Wines, Bolla Wines, Bonterra Vineyards Wines, Old Forester Bourbon, Canadian Mist Blended Canadian Whisky, Pepe Lopez Tequilas, Chambord Liqueur, Sanctuary Wines, Don Eduardo Tequila, Sonoma-Cutrer Wines, Early Times Kentucky Whisky, Tuaca Liqueur, el Jimador Tequila, Stellar Gin, Five Rivers Wines and Woodford Reserve Bourbon. The Company’s core brand in its portfolio is Jack Daniel’s, which is a spirits brand and American whiskey brand. Its other brands are Southern Comfort and Canadian Mist. Its largest wine brands are Fetzer, Korbel and Bollab.

CLARCOR [CLC: 35.11, +0.17 (+0.49%)] Recent Price $32.82 Value Range $12.18 -$17.86

CLARCOR Inc. conducts business in three segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Company’s Engine/Mobile Filtration Segment sells filtration products used on engines and in mobile equipment applications, including trucks, automobiles, buses and locomotives, and marine, construction, industrial, mining and agricultural equipment.. The Company’s Industrial/Environmental Filtration Segment centers on the manufacturing and marketing of filtration products used in industrial and commercial processes and in buildings, and infrastructures of various types. The Company’s consumer and industrial packaging products business is conducted, through a wholly-owned subsidiary, J.L. Clark, Inc. (J.L. Clark). In May 2008, the Company acquired a 30% share in BioProcess H2O LLC (BPT), a Rhode Island-based manufacturer of industrial waste water and water reuse filtration systems. The Company acquired 100% of the Keddeg Company on December 29, 2008

Cree [CREE: 54.40, -0.90 (-1.63%)] Recent Price $21.84 Value Range $4.51 – $6.20

Cree, Inc. develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The Company focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting solutions. It also develops power and radio frequency (RF) products, including power switching and RF devices. The majority of Cree, Inc. products are manufactured at its main production facility in Durham, North Carolina, in a six-part process, which includes SiC crystal growth, wafering, polishing, epitaxial deposition, fabrication and testing Additionally, it packages certain LED components and power and RF products at its North Carolina facilities, its facility in Huizhou, China and in other foreign countries through the use of subcontractors. It also operates research and development facilities in Goleta, California and Hong Kong. In February 2008, it acquired LED Lighting Fixtures, Inc.

Edwards Lifesciences [EW: 60.0175, +1.0775 (+1.83%)] Recent Price $61.10 Value Range $16.74 – $21.24

Edwards Lifesciences Corporation (Edwards Lifesciences) is a global player in products and technologies designed to treat cardiovascular disease. The Company focuses on specific cardiovascular opportunities, including heart valve disease, critical care technologies and peripheral vascular disease. The products and technologies provided by Edwards Lifesciences to treat cardiovascular disease are categorized into five areas: Heart Valve Therapy; Critical Care; Cardiac Surgery Systems; Vascular, and through 2007, Other Distributed Products

Interactive Data Corp [IDC: 0.00, N/A (N/A)] Recent Price$24.42 Value Range $4.90 – $6.34

Interactive Data Corporation is a global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The Company’s customers use its offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. It markets and sells its services either by direct subscriptions or through third-party business alliances. Its offerings are developed and delivered to customers through four businesses that consist of its two operating segments: Institutional Services and Active Trader Services. In May 2007, the Company completed the acquisition of the assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC. In August 2008, announced the closing of its acquisition of Kler’s Financial Data Service S.r.l. In December 2008, the Company acquired a 79% interest in NTT DATA Financial Corporation

ITT Educational Services [ESI: 55.78, +1.66 (+3.07%)] Recent Price $128.87 Value Range$23.33 – $33.99

ITT Educational Services, Inc. (ITT/ESI) is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2007, the Company offered diploma, associate, bachelor and master degree programs to approximately 53,000 students. All of its institutes are authorized by the applicable education authorities of the states, in which they operate and recruit, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). All of its programs were degree programs, except for a few diploma programs offered at six institutes that are being converted to degree programs. As of December 31, 2007, it offered 29 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. In October 2008, the Company announced that it has opened its first ITT Technical Institute in Mississippi.

Makita Corporation [MKTAY: 28.725, +0.0149 (+0.05%)] Recent Price $22.81 Value Range $1.71 – $2.00

Makita Corporation (Makita), incorporated on December 10, 1938, is principally engaged in manufacturing and sale of a range of power tools for professional users worldwide. Makita’s power tools consist of drills, grinders and sanders and portable woodworking tools, primarily saws and planers. The Company also produces gardening and household products and provides parts, repairs and accessories. During the fiscal year ended March 31, 2008 (fiscal 2008), approximately 85% of Makita’s sales were outside of Japan. The Company specializes in power tools manufacturing and sales, as a single line of business, and conducts its business globally. As of March 31, 2008, Makita had over 100 service depots outside of Japan. As of fiscal 2008, 28 of these service depots were located in the United States, and 19 of these service depots were located in China.

NIKE Incorporated [NKE: 72.94, +1.08 (+1.50%)] Recent Price $48.68 Value Range $15.83 – $21.46

NIKE, Inc. (NIKE) is engaged in the design, development and worldwide marketing of footwear, apparel, equipment, and accessory products. NIKE sells athletic footwear and athletic apparel. It sells its products to retail accounts, through NIKE-owned retail, including stores and Internet sales, and through a mix of independent distributors and licensees, in over 180 countries around the world. Its products include running, training, basketball, soccer, sport-inspired urban shoes, and childrens shoes. It also markets shoes designed for aquatic activities, baseball, bicycling, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and recreational uses. On March 3, 2008, the Company acquired Umbro Ltd. (Umbro). On April 17, 2008, it completed the sale of its Bauer Hockey subsidiary.

Paychex [PAYX: 25.8801, +0.3801 (+1.49%)] Recent Price $26.93 Value Range$4.55 – $6.26

Paychex, Inc. (Paychex) is a provider of payroll and integrated human resource and employee benefits outsourcing solutions for small to medium-sized businesses in the United States. The Company’s Payroll and Human Resource Services product lines offer a portfolio of products and services that help clients to meet their payroll and human resource needs. Its Payroll services are provided through either its Core Payroll or Major Market Services, and include payroll processing, payroll tax administration services, employee payment services, and other payroll-related services, including regulatory compliance. Paychex’s Human Resource Services primarily include human resource outsourcing services, which include Paychex Premier Human Resources and its Professional Employer Organization; retirement services administration; workers’ compensation insurance services; health and benefits services; time and attendance solutions, and other human resource services and products.

Raytheon [RTN: 45.52, +0.46 (+1.02%)] Recent Price $47.80 Value Range 12.68 – $19.58

Raytheon Company designs, develops, manufactures, integrates, supports and provides a range of technologically advanced products, services and solutions for governmental customers in the United States and worldwide. The Company operates through six business segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services (TS). During the year ended December 31, 2007, the Company completed the sale of Raytheon Aircraft Company (Raytheon Aircraft) and Flight Options LLC (Flight Options), two former operating commercial aviation businesses. In October 2007, the Company acquired Oakley Networks, Inc., a privately held technology company based in Salt Lake City, Utah, which provides cyber security and data leakage prevention systems. In April 2008, the Company acquired SI Government Solutions. In July 2008, the Company acquired Telemus Solutions, Inc

Rockwell Collins [COL: 57.04, +0.69 (+1.22%)] Recent Price $38.90 Value Range $12.94 – $15.93

Rockwell Collins, Inc. (Rockwell Collins) is a player in providing design, production and support of communications and aviation electronics for military and commercial customers worldwide. The Company’s products and systems are primarily focused on aviation applications. Its Government Systems business also offers products and systems for ground and shipboard applications. Rockwell Collins also provides a range of services and support to its customers through its network of service centers worldwide, including equipment repair and overhaul, service parts, field service engineering, training, technical information services and aftermarket used equipment sales. Rockwell Collins operates in multiple countries. Rockwell Collins serves its worldwide customer base through its Commercial Systems and Government Systems business segments. On November 24, 2008, Rockwell Collins acquired SEOS Group Limited. In April 2008, the Company completed the acquisition of Athena Technologies, Inc.

Strayer Education [STRA: 149.55, +2.63 (+1.79%)] Recent Price $222.04 Value Range $15.89 – $23.60

Strayer Education, Inc. is a post-secondary education services corporation. The Company offers academic programs through its wholly owned subsidiary, Strayer University, Inc., both in traditional classroom courses and through Strayer University Online. The Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, and public administration at 47 campuses in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, D.C., via the Internet through Strayer University Online, providing its working adult students a program offering over the Internet. It also owns Education Loan Processing, Inc. (ELP), which was organized to administer the Company’s student loan portfolio. As of December 31, 2007, the Company had more than 32,087 students enrolled in its programs.

- Ronald Sommer

Disclosure: This article was taken from the website Measured Approach with the permission of the original author.  Please refer to the original author for disclosure information. We hold a position in FRX.

How do you put a happy face on that? Easy, according to the folks at Casey Research. “However, the current correction is likely to prove beneficial longer-term with the pullback offering investors a chance to enter the market,” Moore said.

Meanwhile, “The market focus this week will be on the summit of BRIC countries tomorrow,” Barclay’s Capital analysts wrote, referring to Brazil, Russia, India and China by the common acronym.

The meeting in Russia, to which the US was pointedly not invited but did include the “re-elected” President of Iran, is expected to focus on the world monetary crisis and the dollar’s role in it.

Some think the countries may be preparing a call for a new international reserve currency, although whether they would have enough economic clout to push that remains to be seen.

Those interested in accumulating some of the precious metals version of “Natural Resources” might consider the gold and silver ETF [GLD: 122.34, +0.65 (+0.53%)] and [SLV: 19.2278, +0.2678 (+1.41%)] or the Market Vectors Gold Miners ETF [GDX: 53.56, +0.71 (+1.34%)].

Crude oil dipped on Monday and hit an intraday low of $69.58 a barrel on the Globex. On Tuesday as I write this it’s back to $71 a barrel.

One might have expected something of a rally off of the post-election turmoil in Iran, but that was downplayed in favor of concern over the supply glut.

“The first reason [for the oil retreat], of course, is the resurgent dollar,” said Phil Flynn, of Alaron Trading. “Then we got the Empire State manufacturing number that was much worse than expected, and that put pressure on oil.”

The Empire State index fell to negative 9.4 in June from negative 4.6 in May, indicating the downturn is widening to affect more firms, according to a report released yesterday by the New York Federal Reserve Bank.

[We are becoming more of a "Black Swan Investor" which is explained in our special report, "Fives Secrets to Creating Wealth in a Financial Crisis" which you can subscribe to by going to our home page and submitting your name and email in the sign-up section of the right-top quandrant of the home page.]

The bigger picture: “Stocks of oil are high all around the world — which suggests that on a supply/demand basis, oil prices should fall,” said James Williams, of WTRG Economics. “However, crude prices are supported because investors are using oil as a hedge against the dollar and inflation.”

This doesn’t mean we won’t see wild price swings in oil and the oil ETF [USO: 33.41, +0.46 (+1.40%)] in the weeks and months ahead. We might see a trading range develope between $60 on the downside and $75 on the topside.

“Commodities in general are seeing pressure as funds and individuals seem to feel that everything is overbought at this point,” said Zachary Oxman, managing director at TrendMax Futures. And, “Oil specifically seems strongly overbought.”

Commerzbank analysts concurred, writing that, “As the market was pricing in a rapid economic recovery, we think that the probability of a significant correction, taking place as early as in the coming weeks, is very high.”

But, of course, analysts have been saying that for weeks now, and crude has stubbornly resisted any big move to the downside.

Today brings the Energy Information Administration’s closely-watched stockpile report, and inventories are apt to decline again, says Linda Rafield, Platts senior oil analyst.

If you’re looking for a Natural Resources Exchange-Traded Fund that focuses mainly on energy, take a look at the iShares S&P North American Resources Fund [IGE: 33.0381, +0.3181 (+0.97%)].

IGE seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P North American Natural Resources Sector Index.

Over 79% of the holdings are in the energy sector, and includes names like Apache [APA: 90.88, -1.58 (-1.71%)], Canadian Natural Resources [CNQ: 33.585, +0.215 (+0.64%)], Chevron [CVX: 77.27, +0.50 (+0.65%)], ConocoPhillips [COP: 54.2825, +0.2225 (+0.41%)] and Schlumberger [SLB: 56.29, +1.11 (+2.01%)].

As of the end of April the only precious metals company in the “top ten holdings” happened to be Barrick Gold [ABX: 45.15, -0.18 (-0.40%)].
Concerning ENERGY AND THE NATURAL RESOURCES MARKET
Last Saturday Frank Holmes of US Global Investors wrote the following review which is very insightful.

World oil reserves fell for the first time in ten years, according to BP’s annual Statistical Review of World Energy. Concurrently, the International Energy Agency (IEA) also stated that global energy investment is “plunging.” Projects worth $170 billion have been cancelled so far this year, equating to a loss of 2 million barrels per day (bpd) of oil production capacity. This is a concerning development given that the IEA forecasts global petroleum demand to rise from 85 million bpd in 2006 to 107 million bpd by 2015.
Strength

* The IEA revised its global oil demand forecast upward to 83.3 million bpd. Additionally, the Department of Energy’s EIA recently increased its global crude demand estimate.
* May imports of unwrought copper & copper products into China increased 6 percent sequentially and 113 percent from a year ago to 422,666 metric tons.
* The American Iron & Steel Institute said steel utilization rates increased for the week ended June 6. This is the sixth consecutive week, with the rate at 47.1 percent versus the prior week of 46.2 percent, but down from last year’s 91 percent.

Weakness

* BHP announced that it has settled benchmark metallurgical coal prices at prices around $128 per metric ton, which is approximately 55 percent lower than last year but in line with previous indications.
* Global stainless steel production declined more than a third to 4.8 million metric tons during the first quarter of 2009 according to the International Stainless Steel Forum.
* Gold Fields Minerals Services estimates that China’s consumption of copper should rise by 4.9 percent this year. However, even if that figure were to be 11.2 percent, the world would still face a surplus of copper in 2009.
* Canada’s principal energy producers have lowered their estimate of oil-sands output for the third time in a year, due to project delays and cancellations caused by falling crude prices and scarce available credit. Oil-sands production is now expected to come in at 1.9-2.2 million barrels per day in 2015.

Opportunity

* Iraq is looking to boost the output of its southern oil fields by as much as 500,000 barrels of oil per day by 2011. There are currently ongoing talks with major foreign companies to solicit help in reaching the goal.
* The Nigerian National Petroleum Corporation intends to increase Nigeria’s natural-gas production by 5 billion cubic feet per day or 147 percent by 2013. The country expects to spend $5 billion in the natural gas sector beginning this year in an effort to double its power-generation capacity to 6,000 mega watts.

Threat

* The IEA has calculated that investment in over 2 million barrels per day of oil and over 1 billion cubic feet of gas have been cancelled in the last six months. It is warning that sustained lower investment could lead to a spike in prices in only a couple years.

We are all hoping for a correction in Natural Resources prices this summer. Although I’m trying to be careful what I wish for, in the longer-term any corrections will most likely be looked at as favorable accumulation points.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

- Marc Courtenay

Disclosure: The author is long GLD and SLV. This article was taken with permission from Check the Markets. All other disclosure questions should be referred to the original author.

The challenge for Reliance, and all other metal service centers, is that lower demand for steel and aluminum is expected to continue through the first half of 2009. Perhaps, we will see the beginnings of a pick-up in demand by the end of the year. Data for the first six months is not available yet. However, it seems that pricing for some types of steel may have bottomed out in the first quarter while pricing for other metals has stabilized. There is a disconnect between selling prices and the spot market price of metals. Pricing will remain weak until the overall economy shows signs of recovery.

The Company provides investors a vehicle to invest in a portfolio consisting primarily of the stocks of companies engaged in the exploration, mining or processing of gold, silver, platinum, diamonds or other precious minerals. It may also invest in gold, silver and platinum bullion or securities that seek to replicate the price movement of gold, silver or platinum bullion.

To coax you to read this article carefully, I’m going to reward you towards the end of the article with Mr. Christensen’s prediction concerning the prices of gold and silver going forward. You might be surprised by what he said.

I asked him,”Do you choose the portfolio for ASA Ltd. and serve as the portfolio manager?” His answer was an unequivocal “Yes”!  And he has the experience to do so competently.

Mr. Christensen, before being named CEO in February 2009 was Vice President – Investments since May 2007. Before joining ASA Ltd he served as Vice President, Corporate Development of Gabriel Resources Ltd. 2006 to 2008; was an independent financial consultant from 2003 to 2006;  a former Director of Fundamental Equity Research for Credit Suisse First Boston from 2002 to 2003; and former First Vice President, Global Coordinator of Mining Research at Merrill Lynch 1998 to 2001 and Precious Metals Analyst at Merrill Lynch from 1994 to 1998.

As an analyst, Mr. Christensen earned numerous awards from the Wall Street Journal, StarMine, Institutional Investor Magazine, and Reuters for his research and investment recommendations.

I asked him about the unbelievable volatility we are experiencing in gold and silver investments. He believes one of the big reasons is that the US dollar doesn’t have the same benchmark status it has had in the past. “The rise in the commodity prices reflects in part, the decrease in the demand for the dollar. Commodity prices have become a sort of surrogate currency, especially gold. China is a buyer of commodities, and they are diversifying foreign reserves into gold and metals.”

Then I explored with Mr. Christensen the subject of silver and asked about the silver exposure in ASA’s portfolio. He said they invest in silver more indirectly by owning shares of companies like Agnico-Eagle [AEM: 65.15, +0.69 (+1.07%)] and Goldcorp [GG: 43.73, +0.32 (+0.74%)] which produce a great deal of silver, often as a byproduct.

Concerning silver miners he said, “We don’t own a lot of primary silver companies. We don’t own any Silver Wheaton [SLW: 23.12, +0.61 (+2.71%)] either because it’s more like a bank… they purchase royalty rights. They finance upfront promising silver development projects. We’d rather own the iShares Silver Trust [SLV: 19.2278, +0.2678 (+1.41%)] which reflects directly the movement of the price of silver.”

I asked, “Does ASA directly own the physical metals ? He surprised me by saying “There is no physical metal in the ASA portfolio right now. From time to time we own some Spider GLD ETF [GLD: 122.34, +0.65 (+0.53%)]: it is easier to move in and out of and simplifies our operating costs and custodial requirements.”

I was curious to know if he felt safe using ETFs, so I asked, ” Do you have any “trust issues” with ETFs like GLD and SLV?” Mr. Christensen answered, ” For short-term needs, very few. none at all. It’s the most convenient way to buy and sell in relationship to the underlying metals.”

He reminded me that, “the gold that GLD own and has stored is segregated in a similar manner to The Central Fund of Canada [CEF: 15.742, +0.172 (+1.10%)]. CEF and GLD both have quality custodians.”

Back to ASA, I recommend you read its web site’s explanation of its history. The web site is easy to read and nicely designed. Go to http://www.asaltd.com/about/company.asp to learn more.

Then I asked Mr. Christensen, “Why do ASA shares often sell at a discount to NAV?” He replied, “A better question is ‘Why do all closed-end funds seem to trade at a discount to NAV? With ASA, it is because many investors now prefer to buy gold and precious metals stocks directly, so our share price reflects a built-in discount to reflect that factor.”

He went on to say, “The board and management review the discount each meeting and are working to reduce it. Clearly, we would rather it didn’t trade at a discount. The Company has committed to conduct tender offers during the next two years to buyback shares close to NAV when the discount exceeds 10%.  Last year, the company repurchased 25% of its shares at 98% of the NAV.”

From an investors perspective, when we buy shares of ASA we get to buy the same quality portfolio of holdings at a discount, plus we receive the professional management of the portfolio. Also,institutions and companies like ASA Ltd have the ability to participate in private offerings, convertible offering and can purchase investments with  lower commissions than retail investors receive.

Mr. Christensen explained, “We have securities in the ASA portfolio that are difficult for retail investors to acquire. Also, because ASA is a closed-end fund, we aren’t vulnerable to the ‘volatility of our cash position’ and to liquidation pressures in the same way an open-ended fund is vulnerable. Open-ended funds have a lot of turnover of their portfolio. We have a much lower turnover of our portfolio.”

ASA has never issued new stock since initial offering back in the late 1950s, when it began with approximately $25 million worth of shares. Mr. Christensen said that ASA has no plans currently to offer new shares going forward.

So with ASA shares we the investor don’t have to be concerned with what I call “the dilution factor”. The value of our shares won’t be “watered down” by secondary offerings.

As mentioned, ASA’s directors are more likely to do tender offerings whenever the value of the shares are selling at more than a 10% discount to NAV. Thus reducing the number of shares outstanding and making those shares that are left in the marketplace more “precious”.

Now concerning Precious Metals Prices:  I asked Mr. Christensen for his best educated guess—where will the price of gold and silver be a year from now.

He answered by mentioning that at the annual shareholder meeting they sponsor a “where will gold’s price be in a year game”. Mr. Christensen said the same investor has won for three years in a row and “shes a long-term retail investor”.

He didn’t want to give a numeric guess himself as far as where the prices of gold and silver will be a year from now, he just said he had every reason to believe it will be “considerably higher”.

Mr. Christensen concluded our interview by reminding me of an old saying and an insight about himself.  “I’m not a gold bug …gold bears make money, gold bulls make money, but gold bugs get squashed”.

“The global spending levels by governments, declining production globally, longer time periods needed for new projects, increased investment demand, and rising production costs, are all favorable for the price of gold”, he added.

The CEO of ASA is both intelligent and experienced, and to top it off he’s a good communicator. He told me that the current board of directors will continue their tradition of being “pro-shareholder and investor-friendly”. The company is becoming much more active in portfolio management, careful research and investor relations.

I also asked him about his “selling disciplines”. After helping me to remember that ASA has an obligation to stay invested, when it comes to individual holdings “I take it on a case-by-case basis” he said.

So I just had to ask him, “How do you determine that an individual stock’s price is getting ahead of itself?” He said there are a number of fundamental factors, but he added one I hadn’t thought of.  “When companies themselves are issuing additional shares, it’s not because they think their shares are under-priced.” Hint, hint !

ASA is a PFIC (passive foreign investment company). So Mr. Christensen stated, “Investors should know that the best place to hold an investment in ASA is in an IRA or a retirement account.” For more concerning this see their web page on that topic http://www.asaltd.com/investor.asp .

Having been an investor in ASA Ltd. shares on-and-off for more than 25 years I was already very impressed by this closed-end fund. To be able to buy a diversified portfolio in the precious metals sector at a nice discount to its Net Asset Value and to also receive the professional portfolio management that someone like David Christensen brings to the table makes ASA a very compelling investment.

If you are interested in more information or would like to receive email notifications on ASA Limited financial information and disclosures you can go their link at: http://www.asaltd.com/Tools/ContactManager/frontend/contact_register.asp?reset=1

Mr. Christensen said they plan on sending out regular updates, and if I heard correctly, perhaps a newsletter for interested investors and shareholders.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will

-Marc Courtenay

Disclosure: Due to the shares of ASA recently hitting my price target of $70 a share, I decided to sell the shares in my personal accounts. I have placed orders to buy the shares back as soon as a correction I’m anticipating occurs. If that correction doesn’t materialize I’ll be sorry I sold. The 52-week high and low prices for ASA are $89.88 and $31.03.

Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content. This article was taken with permission from CheckTheMarkets.com.

Lawrence Williams, writing from London for Mineweb.com opined recently that “…President Obama is known to be a Roosevelt disciple and he must be well aware of what was done at the time, given the parallels of the U.S economy between the present time and the 1930s.”  There must be a temptation to try the same tactic, and then raise the gold price dramatically in a move which would certainly support reserves within those nations which still have major gold holdings.

“Indeed, if monetary authorities worldwide see the gold price really start to take off, this kind of process has to become even more of a temptation as a big global move into gold could exacerbate the global financial crisis in that it would show that people no longer have faith in the economic status quo (it can be argued that already they don’t) and the the current crisis of confidence could be severely worsened by such a rush.”

As I’ve often said, it is the black widow spider that we don’t see that bites us, not the one before our very eyes. The “obvious” conclusion on this subject might not be the most accurate one. Yet it is an important subject to discuss and debate.

In an article published late last year, Mark Mahaffey of Hinde Capital argued that such a possibility (that an economic crisis could trigger drastic government action) existed and pointed out that “the fear for anyone who is in credit is that the financial system could become geared towards negating debt which, in turn, would destroy the value of their assets.”

“One way of bypassing this threat is to buy gold (and obviously a lot of people are doing just that at the present time).  However a general shift to gold would undermine the power of central banks and their influence on the economy.”

Of course the monetary situation nowadays is completely different and the banning of gold holdings, and subsequent revaluation would be much harder to accomplish domestically – and even more so globally.

As Lawrence Williams pointed out, “Back in 1933 the dollar was on the gold standard which meant that, in theory at least, each dollar could be exchanged for the same value in gold.  Nowadays all currencies are effectively fiat money with no solid backing (except perhaps of a fiat dollar), and to revert to a gold standard would require an upward revaluation of the gold price beyond belief.”

But, there is a precedent out there and while we think the idea is unlikely, it might appeal to someone who is prepared to try radical means to stabilize the economy if all other measures fail.

“And – consider this thought – are shortages of gold coins from national mints due to a total underestimation of demand, or part of government policies to control gold flows into private hands.  We think the former, but the conspiracy theorists no doubt have other views.”

Whether it is demand, manipulation or government interference the results are inevitable. Investors want to own what they believe will go up and value and what has a historic reputation of holding its value during times of unusual uncertainty.

Gold and silver meet that description. This is “the description” of what investors want to own during times like these, and current buying trends are making this more clear than ever.

In the title of my article I also asked if the government might outlaw the ownership of a company like Silver Wheaton [SLW: 23.12, +0.61 (+2.71%)]. “Don’t be ridiculous Courtenay”, which obviously I’m trying to be in order to make a point.

Whether we speak of gold, a gold-producer like Goldcorp [GG: 43.73, +0.32 (+0.74%)], silver, or the “new and improved ” Silver Wheaton Corporation, the government is capable of taking over, outlawing, or endorsing anything that it wants to.

If you would have told me even 12 months ago that the US government would “nationalize” Fannie Mae [FNM: 0.00, N/A (N/A)], Freddie Mac [FRE: 0.00, N/A (N/A)] and virtually take-over the largest insurance company in North America [AIG: 35.59, -0.07 (-0.20%)], while “outlawing” the existence of companies like Lehman Brothers and Bear Stearns…I wouldn’t have believed you.

I use Silver Wheaton as an example to also draw your attention to the fact that they have completed the acquisition of its rival Silverstone Resources, emerging as the number one and only pure silver stream company.

The deal was approved  last Thursday with 0.185 shares of Silver Wheaton being issued to Silverstone shareholders for every share held. The all stock deal was valued at $190 million. (Thanks to Dorothy Kosich at Mineweb.com for bringing this to our attention).

During Silver Wheaton’s annual general meeting President and CEO Peter Barnes said the acquisition increases the company’s total reserves and resources to 1.4 billion ounces of silver and 405,000 ounces of gold. The company forecasts sales of 17 million to 19 million silver equivalent ounces this year.

Noting that 70% of mined silver is produced as a by-product, Silver Wheaton management said acquisition also provides three new silver streams from low-cost copper mines: Minto in Canada, Cozanin in Mexico, and Neves Corvo in Portugal.  The three operations will generate 4.5 million ounces of silver equivalent this year.

The merger gives Silver Wheaton a total of 12 silver stream agreements with eight operating partners.

In a presentation to shareholders, Barnes said the silver stream from Goldcorp’s Peñasquito gold, silver, lead and zinc mine will add significant growth to Silver Wheaton. He estimated that approximately 70% of Silver Wheaton’s revenue will come from four mines, Luismin, Yauliyacu, Zinkgruvan and Peñasquito.

During the past four years, Barnes noted that Silver Wheaton has almost tripled the ounces of silver backing every share.

Final question: What is more likely to happen? 1) Gold and Silver Wheaton are outlawed by the US government, or 2) Gold eventually goes to $1,300 an ounce and Silver Wheaton goes up to $20 a share?

My best guess is #2, and the likelihood of option #1 is probably slim to none.

Whether you own the physical stuff or a gold and silver proxy (think GLD, SLV, or [CEF: 15.742, +0.172 (+1.10%)]) the future is looking brighter with each passing week for patient and rational investors.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

- Marc Courtenay

Disclosure: The author does not currently own any shares of SLW or GG. I do own shares of the gold and silver ETF (symbols GLD and SLV) and CEF. This article was taken with permission from Check the Markets. All other disclosure questions should be referred to the original author.

Steel production, like copper, is the backbone of all economic expansion and economists often monitor its consumption as an indication of industrial growth. During 2007, a growing appetite from BRIC nations caused a record climb in spot prices. This movement was an impetus for capacity buildup among many players in the industry during which steel flat-rolled products peaked above $1,000 per ton (currently trading around $500 per ton). However, the current recession has erased demand for many metals. According to Standard and Poor’s, U.S. GDP is expected to shrink by 3.0%, nonresidential construction is expected to decline 21.5%, and auto sales are expected to contract 25% for the year. Lower production has already taken hold as the World Steel Association reported production in China, the EU, and North America have plunged -8.9%, -43.8%, and -52.1% respectively for the first quarter. So…with earnings being pressured not only by lower volumes, but also lower sales on those volumes, why are we talking about steel?

Steel will undoubtedly be at the heart of the rebound and U.S. Steel is at the heart of American production. Economic prosperity is driven by the very factors mentioned above: GDP, nonresidential construction, and auto sales. Therefore U.S. Steel should be at the forefront of the turnaround once these numbers bottom. It is the largest producer in North America, and the fifth largest producer worldwide with a total 31.7 Million tons of steel-making capabilities. What bodes well for U.S. Steel is the need for consolidation in these difficult times. Steel production is much more fragmented than other base metals. The three largest aluminum producers control almost half of production whereas the top ten largest steel producers control less than 30% of production. The weaker players are going to get forced out of this market but U.S. Steel has stayed busy making sure it does not follow suit.

Its flat-rolled products will ebb and flow with the overall state of the economy, but its oil country tubular goods (OCTG) provides an interesting take on the commodities market which increased 114% last year. OCTG imports in the U.S. last year doubled 2007 sales as U.S. Steel acquired Lone Star. This acquisition, along with Stelco, added $1.6 Billion to goodwill and increased its OCTG capacity by more than 50%.  In addition, it increased its North American steel making capabilities by 25%. U.S. Steel stands to benefit not only from an increase in more infrastructure spending, but also from increased energy and chemical production. It should also benefit tremendously from U.S. fundamentals, as North America becomes a low-cost supplier to manufacturers abroad due to a lower-valued dollar.

What is most promising about U.S. Steel and why we are comfortable recommending it for the dollar-cost-averaged buy over the next 9-12 months is its capital structure. U.S. Steel currently has $723 Million cash on hand, an untapped $750 Million five-year revolving credit facility and a $500 Million receivable purchase agreement. Scheduled maturities are $81 Million and $183 Million in 2009 and 2010 respectively, which are more than manageable. What is going to separate all of the commodities producers in the long run is their ability to gain ground on competitors in down markets and with its ample liquidity, U.S. Steel will be able to do just that.

The rest of this free research report “Stocks For An Economic Recovery” which includes commentary on all sectors is available for download at the following link.

- Darrell Reid

Disclosure: The fund the author manages has interests in X.

Allow me to share with you an email message I sent to my family today that focuses in on my concerns on this topic. Although this will not be a long article, it is intended to motivate us to think “outside the box” as we slide into the “Sell in May and go away” time of the year. Here’s what I wrote my family today:
“Realizing it is only the middle of May, it might be too early to say “it’s going to be different this year”
when it comes to gold and silver.

“During the past seven years gold and silver always corrected between May and October, sometimes just
a little and sometimes a lot. So I’m suspicious that it hasn’t made some meaningful downside move yet, but I don’t want to be clue-less either.

“Notice the comments from Casey Research which I received today. It addresses the tension and the high level of uncertainty that is floating out there in the world of investing, especially in the precious metals arena.

“It was a second straight day of minor change for the precious metals (Friday), with silver and platinum submitting losses, while gold somehow managed to eke out a modest finish in the green.

“However, gold aficionados had to be satisfied with the results, given that the usual suspects were lined up in opposition, with oil selling off and the dollar moving strongly against the euro. Gold likely got a lift from declining equities.

“For gold and silver, we are going into a win-win situation,” said Ashraf Laidi, the chief market strategist at CMC Markets in London. “When we will have a retreat in the financials and the rest of the stocks, we will have some rotation into metals.”

“In addition, “The core inflation number helped stabilize gold and helped gold up $930,” said George Gero, of RBC Capital Markets.

“That could be meaningful heading into next week, according to Ralph Preston, of Heritage West Futures in San Diego, who predicted that, “A close above $930 could be explosive.”

“Yet more positive statements came from Tom Pawlicki, of MF Global, who noted that, “Gold has been the object of affection for hedge funds and also has paid increasing attention to the dollar lately … That helps explain why gold has rallied both when stocks have risen and fallen.”

“If the funds are moving back into the yellow metal, that bodes very well indeed.”

I was looking at the 6 month technical chart on the Gold ETF [GLD: 122.34, +0.65 (+0.53%)], especially the 50 and 100 day moving averages. Perhaps we’ve already missed the correction, or it happened early this year (notice the downward move that occurred in the beginning of April and has slowly righted itself upward).

It is too early to say that the upside reversal that began at the start of May is going to bring us an “explosive” upward move from here. The message from the major gold mining stocks has been mixed at best.

Companies like Barrick Gold [ABX: 45.15, -0.18 (-0.40%)] and Goldcorp [GG: 43.73, +0.32 (+0.74%)] seemed to have topped out over the past few days and corrected on Friday. Others like Newmont Mining [NEM: 61.41, +1.09 (+1.81%)] are acting more ebullient, but it also started seeing selling on Friday (on lower than average volume which might be another positive).

BOTTOM LINE: This year it actually could be different. There are some very sobering pieces of economic reality that are hanging over the stock market’s (and bond market’s) head such as the horrendous problem with the Credit Default Swaps (super derivatives) market, the little-publicized debacle with the Commercial real estate sector, and the impending collapse of some good-sized banks that people aren’t expecting.

Any or all of these impending and relatively under-anticipated financial nightmares could suddenly cause gold, and perhaps silver also, to take off like an Atlas rocket. Remember, the rush to gold as a hedge against economic “shock-and-awe” can happen faster than we can anticipate or respond to.

“It’s the pit bull-dog you don’t see that bites you, not the one you see” said one trader years ago. Let’s make sure we have enough exposure to gold and silver to benefit just in case it is different this year and just in case the “worst case scenario” becomes our “real world reality”.

How’s your supply of The Central Fund of Canada [CEF: 15.742, +0.172 (+1.10%)], ASA Limited [ASA: 27.84, +0.19 (+0.69%)] which pays a small dividend and the Silver ETF [SLV: 19.23, +0.27 (+1.42%)]? Can a smart investor afford to have too little of such investments (although the answer may be “yes” if you own enough of the physical metals and if you have them safely stored).

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: This article was taken with permission from Check the Markets. The author is long CEF, ASA, SLV, and GLD. Further questions on disclosure should be referred to the original author.

My favorite mid-size gold miner, IAM Gold [IAG: 18.62, +0.45 (+2.48%)] has virtually quadrupled off its low last November and almost doubled in the past 5 months. It’s been a feverish frenzy, an overdue bubble that might be ready to burst.

On March 8th I tried to provoke the gods of Wall Street to create a huge stock market rally by conjuring up the term “Contrarian Contango” as a new term for paradoxically pretending you think the markets are going to keep going down when you sense they are about to go up. It worked beyond my expectations.So now I will create a commodities-based potient called the “Commodities Contrarian Contango” by throwing out the outlandish notion that precious metals, oil and natural gas are going straight up from this point till the Spring of 2010.

In this fantastic proposal, I see the Silver ETF [SLV: 19.23, +0.27 (+1.42%)] racing up to $20 a share, the Gold ETF [GLD: 122.34, +0.65 (+0.53%)] breaking through the $120 mark and the Central Fund of Canada [CEF: 15.742, +0.172 (+1.10%)] going straight up to $15 a share without skipping a beat.

Why it wouldn’t amaze me if the United States Oil ETF [USO: 33.41, +0.46 (+1.40%)] keeps on rising to around $50 a share, and the United States Natural Gas ETF [UNG: 6.32, +0.051 (+0.81%)] surprises everyone and hits $35 a share by December. How about the share price of Exxon Mobil Corp. [XOM: 60.91, 0.00 (0.00%)]? It’s going straight up to $80 between now and the end of the year.

Why am I making such an absurd group of predictions? Because I’m one of those fools who doesn’t want to buy anymore of those great commodities, companies or names until we have an untimely correction. With my predictive track record (even a broken clock is right twice a day, and I was spot-on once, on March 8th, 2009) if I write that some investments are bound to keep shooting higher and higher it means a correction is imminent.

Just in case my ” Commodities Contrarian Contango” backfires and we find gold, silver, oil and natural gas doing a moon-shot from current levels, I’m going to hold on to what’s left of my portfolio, not to mention the “physical stuff” I’ve accumulated in depositories over the past 10 years.

But for those of us who want to buy more SLV, GLD, CEF, UNG, USO, USL, and DBO, not to mention more ABX,GG, AEM, KGC, GDX, SLW, SSRI, PAAS and my little darling IAG, let’s hope I’ve aroused and angered the Commodity gods on Mount Arrogance and they drive prices lower starting real, real soon.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! – Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

- Marc Courtenay

Disclosure: This article was taken with permission from Check the Markets. The author is long SLV, CEF, USL, GLD and some IAG. Further questions on disclosure should be referred to the original author.

Consumer Discretionary – [APOL: 44.595, +1.205 (+2.78%)] YTD: -25.52%, [MCD: 74.96, +0.42 (+0.56%)] YTD: -11.69%, [COH: 38.17, +0.73 (+1.95%)] YTD: 25.32%, [XLY: 31.72, +0.49 (+1.57%)] YTD: 11.22%

Our consumer discretionary sector has lagged thus far in 2009, and this was mostly due to having two very defensive and conservative type plays in Apollo Group and McDonald’s.  Coach has been a great surprise this year with consumer spending down so drastically, but the fundamentals at year end were much healthier than the stock price and as you can see from the price appreciation it was a screaming buy.  McDonald’s has reported good earnings and carries a solid dividend but hasn’t kept pace up to this point, but that is likely to change if the recession is prolonged through the end of this year.  As more people are laid off each month, Apollo stands to benefit from individuals going back to school for new skills who are looking for an affordable education.

Consumer Staples – [SJM: 59.62, -0.13 (-0.22%)] YTD: -5.41%, [KR: 20.34, +0.28 (+1.40%)] YTD: -17.38%, [WMT: 51.6701, +0.4701 (+0.92%)] YTD: -10.56%, [XLP: 27.06, +0.11 (+0.41%)] YTD: -4.65%

Consumer staples has been one of the quieter sectors this year after it steadily outperformed the market in 2008.  Smuckers has been in line with the composite while Kroger has fallen sharply due to competition with other grocery stores like our third pick, Wal-Mart.  Wal-Mart was getting very expensive at the end of last year, but there is a premium on the cash flows of a company that is arguably the most stable and consistent in the world.  Our consumer staples is another sector that would benefit from a sustained recession.

Energy – [NE: 32.935, -0.395 (-1.19%)] YTD: 40.07%, [NOV: 39.69, +0.50 (+1.28%)] YTD: 47.46%, [APA: 90.85, -1.61 (-1.74%)] YTD: 14.13%, [XLE: 53.48, +0.37 (+0.70%)] YTD: 8.52%

One of our best performing sectors has been energy.  After oil and natural gas prices dropped more than 70% from their highs, it was very evident that many of the names in the sector were oversold, especially the smaller names and the names in the services sub-sector.  Noble and National Oilwell Varco both fall into this category as companies with excellent free cash flow that were oversold when the markets priced in oil staying at $30 for a sustained time period.  Apache bring excellent Southeast Asian natural gas exposure to the table, and the companies recent earnings and the rebound in natural gas prices has done wonders for the stock.

Financials – [GS: 139.14, -0.60 (-0.43%)] YTD: 65.41%, [MS: 25.49, +0.08 (+0.31%)] YTD: 78.26%, [TRV: 50.13, -0.18 (-0.36%)] YTD: -14.12%, [XLF: 14.15, +0.0685 (+0.49%)] YTD: 3.99%

By far our best sector relative to its benchmark has been financials, and this has been due to our index having no exposure to the big banks.  Goldman Sachs and Morgan Stanley both passed the stress tests with flying colors and are in line to be two of the first companies to pay back the TARP funding when the government allows firms to capitalize privately again.  Travelers has outperformed many of its insurance peers as their real estate exposure is less toxic than its competitors.

Healthcare – [ABT: 50.39, +0.12 (+0.24%)] YTD: -15.21%, [TEVA: 51.41, +0.30 (+0.59%)] YTD: 3.43%, [GILD: 33.18, +0.16 (+0.48%)] YTD: -13.94%, [XLV: 28.825, +0.075 (+0.26%)] YTD: -3.62%

Another sector that has lagged in 2009 is healthcare, although this could turn around very quickly.  Teva is the world’s largest generic company and stands to benefit a lot under President Obama’s new healthcare spending plans.  Abbott and Gilead are both leaders in their respective sub-sectors, and any rebound in healthcare will see these names outperform some of their smaller peers.  Gilead’s work on HIV drugs has been groundbreaking, and its exposure to this market will help them to be one of the fastest growing large healthcare companies for years to come.

Industirals – [NOC: 57.34, +0.77 (+1.36%)] YTD: 12.21%, [FLR: 47.35, +1.01 (+2.18%)] YTD: 0.67%, [AME: 44.45, +0.25 (+0.57%)] YTD: 9.47%, [XLI: 29.64, +0.33 (+1.13%)] YTD: 0.38%

The industrials sector took it on the chin in 2008 but is starting to show the signs of an early recovery in 2009.  Some of the rebound was due to President Obama’s stimulus plan, as seen with Fluor, while another portion of the rebound was due to fundamentals sitting at historically attractive levels.  Ametek’s strategy of using acquisitions for growth obviously won’t play out in 2009 but in the near future the company could find smaller competitors at extremely cheap valuations.  Northrop Grumman remains one of the big four defense contractors and has a number of reliable government contracts to help its revenues remain steady over the next few years.

Information Technology – [CERN: 76.36, +0.63 (+0.83%)] YTD: 48.32%, [SY: 0.00, N/A (N/A)] YTD: 32.66%, [WU: 16.42, +0.18 (+1.11%)] YTD: 24.83%, [XLK: 21.33, +0.11 (+0.52%)] YTD: 10.90%

Information technology has been one of the best sectors to be in during 2009.  The rebound in IT started before all of the other sectors and has only slowed recently.  Our index had exposure to many smaller names that have skyrocketed in 2009 because of their exposure to niche sub-sectors.  Cerner stands to benefit tremendously from President Obama’s healthcare plans and could see growth rates well over 25% for years to come.  Western Union has safe revenues from transaction services and Sybase excels in their small niche as demand increases for mobile information solutions.

Materials – [PX: 86.09, -0.56 (-0.65%)] YTD: 23.25%, [GEF: 57.92, -0.15 (-0.26%)] YTD: 47.29%, [AGU: 71.32, +0.70 (+0.99%)] YTD: 32.43%, [XLB: 32.26, +0.29 (+0.91%)] YTD: 17.85%

By a wide margin the best sector so far this year has been materials, which coincidentally was one of the worst performing sectors in 2008.  This is another sector where depressed commodity prices led to valuation that made no sense even in a severe recession.  Packaging company Greif gave our index exposure to a small portion of the composite that well outperformed its peers in 2009 based on fundamentals alone.  Praxair is one of the two most profitable companies in the gases space and Agrium has made aggressive moves in 2009 to boost shareholder confidence.

Utilities – [WGL: 36.17, -0.22 (-0.60%)] YTD: -5.51%, [ED: 48.08, -0.16 (-0.33%)] YTD: -2.03%, [FPL: 0.00, N/A (N/A)] YTD: 13.57, [XLU: 31.3775, -0.1025 (-0.33%)] YTD: -6.13%

Even with their lofty dividends, the utilities stocks were able to keep pace through the first third of 2009.  WGL and Consolidated Edison have chugged along steadily, but Florida Power and Light has been the real star this year.  They are owners of the most envious wind generation portfolio in the country and have extensive build-out plans over the course of the next few years.  Again, this is a company that will no doubt benefit from President Obama’s stimulus plan and his plan to move to renewable energy sources as quickly as possible.

Outlook

We will continue to track this picks for the rest of the year and by no means are chalking this one up as a win just yet even with our hot start.  At this point we remain cautiously bullish on our companies and fairly neutral on the market over the short term mainly because the rally has occur so quickly.  If you want to read extremely detailed analysis about these 27 companies you can visit the following link and download our newsletter free of charge.  We will be releasing a new newsletter later this week entitled “Stocks For An Economic Recovery” that will highlight stocks that stand to benefit the most when the economic data begins to turn around.  Lastly, we would like to thank all of our readers and newsletter subscribers for their continued support through these tough economic and financial times.  Best of luck investing!

- Charles W. Petredis

Disclosure: The mutual fund the author manages has long positions in MCD, WMT, NE, APA, GS, XLF, ABT, TEVA, GILD, FLR, AME, CERN, PX, ED, and FPL.  The authors family has long positions in MCD, WMT, NE, NOV, APA, ABT, CERN, XLY, XLP, XLE, XLF, XLV, XLI, XLK, XLB, and XLU.  The author has long positions in APA, and NE.