| Leeb's Market Forecast Analysis and Tips

ChevronTexaco

Another Energy Bet From China

CNOOC is a dominant offshore oil and gas company with a strong yield

With expectations of inflation on the rise, long-term bonds and REITs have sold off sharply. This makes it smart to further balance our interest rate-sensitive holdings by adding another energy company to our portfolio. Energy companies are well positioned to benefit from what will be one of the strongest trends in coming years, rising oil and gas prices. Keep in mind that Wall Street consensus estimates still use $30-a-barrel oil as the basis for valuing energy companies. So even if oil prices pull back from the recent highs of $40, valuations of energy companies will remain exceedingly reasonable. (See December TCI, “The Street Gets It Wrong Again”; also, see p.11 of this issue.)

The major oils, such as Income Portfolio recommendations ChevronTexaco and ConocoPhillips, continue to offer attractive stock valuations, relatively low risk, and a steady stream of dividend payments. Our two overseas energy holdings, which are more speculative, have seen their shares sell off in 2004.

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Quality at a Discount

ICAP scoops up a lagging oil company and a drug maker

On the preceding page, in recognition of the rising level of insecurity in the world, we urged fund investors to make sure they own at least one large-cap growth fund. By the same token, we were eager to add a high-quality large-cap stock or two to our Fund Finds portfolio. As we searched, we stumbled upon a relatively young, small five star-rated Large Cap Value fund: ICAP Select Equity fund (ICSLX). With just a little more than $140 million under management, the fund has been an outstanding performer. It is in the top 10 percent for the category year to date and in the top 11 percent for the past five-year period. The fund selects its holdings from a group of 450 large-cap U.S. and European names, focusing on stocks with attractive valuations, consistent to improving earnings, and clear catalysts for growth, such as new product launches. Recently the fund was featured in an article “Great Funds at Bargain Prices” in SmartMoney.com as one of 58 actively managed funds that have delivered impressive returns at a low cost over the past five years.

We’re not recommending that our subscribers buy ICAP Select Equity fund itself, though, for two reasons.

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Calibrating Our Picks

With REITs turning a bit frothy, we’re selling CBL Properties

With yearend earnings in for all our holdings, this is a good time to review our portfolio. We’re making one sale—a REIT, thereby lightening our overall exposure to this area—and everything else remains a buy.

First, our REITs. REITs have been hot so far in 2004, easily outperforming the S&P 500 as their high yields in an era of low rates have attracted investors in droves. As a result, by any measure you can cite—price to funds from operations (FFO), price to net asset value, and dividend yield spread vs. 10-year Treasuries—most REITs have been pushed to the high end of historic valuations. In addition, fueled by funds flowing into the sector, equity issuances have been climbing. While on the plus side this is providing cheap capital to pay for future acquisitions, it also suggests possible frothiness in the sector.

The key is to make sure you’re in REITs that can continue to generate solid profit growth. For most of our picks that’s no problem.

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Profits in Kazakhstan Oil

Two top energy funds favor the same small Canadian company

Each issue we’ve steadily added to our Fund Finds portfolio. As of last issue, three major categories were represented—financial, tech/defense, and franchises. Just one key sector was missing: energy. Our newest find remedies that lack, making the portfolio a fully diversified collection of some of the most exciting holdings culled from some of the best-performing funds.

Our latest find lives up to the standard set by our prior picks. It’s called PetroKazakhstan, and it’s a small independent integrated Canadian energy company that has been operating in the Republic of Kazakhstan (formerly part of the Soviet Union) for more than six years. The company is a favored holding of two top energy funds. The State Street Research Global Resources Fund has been an outstanding performer. For instance, its class A shares, traded under the symbol SSGRX, had the second-highest total return for its category for the past five-year period and won third place for both the past one- and two-year periods.

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Weekly Update 04-11-05

Image via Wikipedia

Last week the world mourned the passing of Pope John Paul II.

Pope John Paul II was a deeply admired and sometimes controversial figure. He took a hard stand on moral issues – sometimes against the wishes of many Catholics – because he believed his stance was in the best, long-term interests of humanity.

While I didn’t always agree with his positions, there’s no denying he was a man of unquestionable integrity and nobility. He was willing to endure criticism for the sake of his moral beliefs. And he had an unwavering integrity and consistency that is rare in these times. These are traits we must applaud.

Even when I disagreed with his opinions I took comfort in the fact that there was still one leader in the world not motivated solely by self-interest. Someone who was willing to sacrifice some momentary popularity in order to do what he felt would benefit people for centuries to come.

So we bow our heads to the passing of such nobility.Read more...

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