by Jeff Reeves | March 23, 2011 8:31 am
It’s hard to be an investor these days. Amid social upheaval in the Middle East and nuclear fallout in Japan and a U.N.-backed offensive in Lybia, there is a lot of bad news out there. Oh yeah, and let’s not forget that the housing market is still dead in most of the U.S. and unemployment is still at the highest level in about 30 years.
The famous quote that “the time to buy is when there’s blood in the streets” is much easier said than done. For starters, most folks have a conscience and are reluctant to profit off of someone else’s misery. If your investment philosophy is to cheerlead for world crisis and then become a profiteer, you have much bigger problems than your brokerage account. And for those of us simply looking for a silver lining to the current stormclouds hanging over the market these days, it is very hard to decide what is a calculated risk and what is a flat out gamble.
But allow me to offer some suggestions. After all, the market’s broad rally since September appears to be flagging and longer-term investors looking to safeguard their retirements may find the time is ripe to shake up their portfolios. And frankly, these dangerous places – including, Japan, Libya, and the Middle East – may be as good a place as any in the current environment:
After 33 years in power, Yemen’s president hangs on to his position by a thread. Bahrain is calling in troops from neighbors to fend of a rebellion of its own. Egypt remains in turmoil after widespread protests that began weeks ago. It is almost impossible to stay on top of the protests sweeping through a wide array of Middle East nations, and even harder to predict where they may spring up next.
The one thing that is a constant, however, is the upward pressure Middle East unrest is putting on oil prices. That means investors looking to hedge against crude oil inflation or share in the profits for the energy sector should focus on the Energy Select Sector SPDR ETF (NYSE: XLE), or its top holdings such as Exxon Mobil (NYSE: XOM) or Chevron Corp. (NYSE: CVX).
Some investors have been enamored with investments like the United States Oil Fund ETF (NYSE: USO) that is a commodity pool, or the iPath S&P GSCI Crude Oil ETF (NYSE: OIL) that is pegged to West Texas Intermediate crude oil futures. But don’t be fooled — whatever the marketing ploys, these investments do not track the ascent of oil faithfully. The OIL fund is up 12% since Dec. 1 and USO is up 13%. But light crude on the New York Mercantile Exchange is up 18% in that same period, from $88 to about $104 a barrel. The ETFs just didn’t keep up.
The energy SPDR, on the other hand, is up 20%. And while those other funds have gross expenses near 0.8%, the XLE fund costs just 0.25. Oh yeah, and the Energy Select Sector ETF also pays a small 1.3% dividend to boot.
You may be hearing a lot of bad things lately about Hitachi (NYSE: HIT). Hitachi’s joint venture with General Electric (NYSE: GE) produced the reactors at the Fukushima nuclear power plant that is the epicenter of the current crisis in that nation. (Related Article: 3 pros and 3 cons for GE after Japan crisis)
But Hitachi is much more than a company that dabbles in nuclear power. It makes ATMs, works on IT infrastructure and produces construction equipment among many other things. This diversification helps keep Hitachi stable, and allow it to tap into various revenue streams when opportunity arises.
Before the Japan crisis, it seemed Hitachi was certainly finding plenty of opportunities. HIT stock skyrocketed almost 50% in five months to a new 52-week high on March 7 – a before plummeting in the aftermath of the earthquake with all other Japanese equities. And after posting full-year losses for years, Hitachi is on track to not just turn a profit in 2011 but to turn a profit every single quarter with earnings forecast to be $6.11 a share. That’s a dramatic turnaround from -$3.15 last year and a gut-wrenching -$23.85 loss in 2009. Sales are forecast to grow 18% this year, marking the first positive move in revenue since 2008.
If you want to share in Japan’s recovery over the long-term, share in HIT stock. While there are certainly challenges ahead for this industrial giant and Japan as a whole, there are many reasons to be optimistic 2011 will be a turnaround year for Hitachi.
As Libyan despot Muammar Gaddafi continues to attack his people and a coalition of nations attempt to enforce a no-fly zone, there have been several high-profile launches of Tomahawk missiles. Though not initially developed by the company, defense and aerospace giant Raytheon (NYSE: RTN) is now the manufacturer of the programmable missiles.
These important tools not only allow for precise targeting of locations to avoid civilian casualties, they also are effective ways to keep our brave soldiers out of harm’s way in dangerous places. President Obama has insisted no U.S. ground forces will be invading Lybia, meaning that as long as conflict persists there that Tomahawks will take on a lead role.
Of course, Raytheon is far more than a missile maker – and has broad appeal for investors. It boasts a 2.9% yield and has paid dividends since 1964. Raytheon has seen revenue grow in each of the past four years despite the recession, and is estimating a 4% growth in sales in 2011 despite talk of federal budget cuts. Its forward PE is 9.0, lower than competitors Boeing (NYSE: BA), General Dynamics (NYSE: GD) and Lockheed Martin (NYSE: LMT). The kicker is that Raytheon stock is up about 9% so far in 2011, nearly three times the broader market.
We all hope for a quick end to action in Libya and peace for its people. Hopefully Raytheon and its guided missiles will help bring that about sooner rather than later. And after the conflict ends, Raytheon’s strong upward momentum should continue to pay off for investors.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
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