We are seeing a rare global bull market, a great place for an investor. However, we are also seeing the brakes being put on in the top industrialized economies. Japan, the U.S., Europe and China are all in the process of tightening monetary policy. I can't help but believe that this will contribute to a softening of the market at the end of 2006 -- a softening, not a recession.
We are also in the midst of a terrific commodity bull market, which benefits commodity investors but can hurt the consumer. For example, over 30 million Americans make under $30,000 per year. If gas prices go from $2 to $3, then that becomes 15% of income for those millions, compared with 10%, based on the government's calculation of average usage. At best, we will have a segmented slowdown.
In the late 1990s we had a great bull market with virtually no inflation because of commodity prices remaining unnaturally low. I believe we will continue to see growth, but you will have a lot of companies not able to participate because of higher energy prices.
A lot of sentiment from the so-called smart people suggests that this commodity bull market will last for another five to 10 years. I agree. We are, in fact, "addicted to oil," as the president has said. This will not change in the near future, as I have
chronicled week after week. There are still great investments in commodities in names I have previously mentioned, including oil companies
, coal play
However, one of the great investments is in renewable energy. The major industrialized regions and fast-growing China are pushing renewable energy. The U.S. is pushing ethanol, and most states are mandating that a certain amount of energy has to be derived from green sources such as wind and solar power. Japan and Europe have very little natural resources of their own, and China can't find enough energy to satisfy its needs. Therefore, they are investing heavily in wind and solar, with large tax subsidies.
Imagine the greatest economies in the world all pushing wind and solar, and it is pretty easy to find where money will be flowing.
To view John Layfield's video take of this column, click here
is the best and most efficient low-cost provider of solar power. It is in a great position in a growing and heavily subsidized industry. China gives investors in renewable energy a 50% tax break. California has a $3.2 billion, 11-year program for solar power. Similar subsidies exist in Europe and elsewhere in the U.S.
Solar has grown 37% annually since 2000, from 254 megawatts (MW) of power produced to 1,450 megawatts of power in 2005. Still, this is a nascent industry, with projected revenue to grow from $6.4 billion in 2004 to around $20 billion in 2010, according to Solarbuzz, a San Francisco-based international solar energy research and consulting company. Meanwhile, worldwide electricity consumption is projected to go from 14.3 billion MW hours in 2002 to 26 billion MW hours in 2025.
Suntech has had a great run, with shares doubling from its IPO price of $15 to its current $35. However, Suntech is trading at a forward price-to-earnings multiple of around 31, on the basis of consensus earnings estimates of $1.14. Suntech's projected growth rate is 45%, giving it a P/E-to-growth (PEG) ratio under 1. The main headwind for Suntech is price of silicon, as contract silicon prices have tripled in the last two years. However, in a growing market with governments and consumers behind this technology, this is a great stock to buy.
Archer Daniels Midland
is a company I have
profiled in the past. ADM is up 29% since I first mentioned it, and the company just reported terrific earnings, due in large part to the ethanol story. I still recommend ADM, along with
( XTHN), which I own, a producer of cellulosic ethanol.
being poor is bad, staying that way is stupid.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Xethanol to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication Layfield was long Exxon Mobil, Patterson-UTI, Bronco Drilling and Xethanol, although holdings can change at any time. A former All-American offensive lineman at Abilene Christian University, John Layfield played professional football for the then-Los Angeles Raiders and later in the World League. After wrestling in Japan, Mexico and Europe, Layfield arrived in the WWE in the mid-1990's. A former WWE champion, JBL was a featured wrester at WrestleMania 21 and can also be seen on
Friday Night SmackDown!
on UPN. Outside of the ring, JBL is a self-taught investor who was recruited to write a personal finance book,
Have More Money Now
, which was released in the summer of 2003. He has appeared on finance shows on CNN and Fox News Network. He is co-chairman of the Smackdown Your Vote! Campaign and he has joined both the USO and Armed Forces Entertainment (AFE) for tours through Iraq, Afghanistan and other Middle East countries. He regularly visits the Walter Reed Army Medical Center and the Bethesda naval hospital to meet with wounded troops.