Amidst the Economic Pain Lies a Hidden Bull

Adem is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Are you the next Peter Thiel? Just destined to find that “needle in a haystack” stock and strike it rich?

If you’re like many investors, you spend your days trying to find the next Facebook or Google. While these stocks sizzle on headlines, your speculation is unlikely to turn up consistent profits. I’m going to convince you, right now, to change course.

To make money let’s stop looking for the “next big stock”; let’s find the can’t-miss bullish trend and get on the right side of it (hence, my snappy moniker!).

Bulls the market misses

What is the catalyst Mr. Market can’t see today? Believe it or not, it’s high fuel prices. While they may hurt the economy, they sure are great for certain industries -- and therein lies your opportunity.

As Charlie Munger has said, "Go to where there are market inefficiencies. You need an edge. To succeed, you need to go where the competition is low.”

Here are three investments we can exploit, surely making “Poor Charlie” proud.

Time for you to fly

Boeing (NYSE: BA) has been hidden in bull mode, benefiting from airlines who need to replace aging fleets with more fuel-efficient models. It’s humorous how investors see high fuel prices killing airlines and miss the obvious correlation of how Boeing benefits. Airline CEOs, at some point, need to replace those fleets to stay solvent.

Don’t take my word for it; the Chicago Sun-Times just last week reported that Boeing is increasing production 25% over the next 18 months to keep up with rising demand. The company is also receiving orders from emerging economies in the Middle East and Asia that want larger models. Yet Boeing still trades at a lower P/E (13.6) than its 5 yr EPS growth rate (near 15%); amazing, considering it’s beaten the Street’s expectations for 14 straight quarters!

Boeing is not a sexy pick, but rather than scheme on the next Internet IPO, go with this boring growth machine.  It’s smashing Street expectations—and getting ready to fly higher.

Start your engines

Ford (NYSE: F) and GM (NYSE: GM) baffle me. Rarely have I seen such unloved stocks that actually have remarkable growth potential. There are several potential catalysts that may drive these stocks forward.

  • They are both growing quickly and trading at ridiculously low valuations (disclaimer: this is the obvious one).
  • High gasoline prices. Yes, it’s a catalyst, because, guess what?  They’ve gotten the memo and are finally producing higher-mpg cars (the opposite was true in 2007). Both companies have agreed (per the White House’s request) to raise fuel efficiency to 54.5 MPG for cars and light duty trucks by 2025! At some point it’ll be cheaper for consumers to buy a more fuel efficient car than to stick with a gas guzzler.
  • They both will benefit from aging U.S. autos. Depending on the source, the average U.S. auto is somewhere between 9 and 12 years old right now. Consumers held back on purchasing new cars during the recession; at some point this has to break.
  • They both still live with the stigma of the bailout, even though Ford didn’t take funds. You’re probably wondering why this is good. Well, if you trust Charlie Munger (who’s made a boatload of money), the small investor needs not only a bullish edge, but a misunderstood one. The stigma is your friend, as it’s holding the prices down despite catalysts (at the moment) and giving you enough time to hop on board this investment.

I think you can, I think you can

I’ll keep this simple: I still love the rails right now as a long term investment. Let’s do some quick math.

Short term coal concerns hammers current rail prices + global coal output is still expected to rise well over 50% by 2035 + multiple other growth catalysts for the rails = Mr. Market handing the (long-term) investor a serious value opportunity.

Funny, typically, I hate math.

The rails are the essence, of this right side bullish trend on high fuel prices. Shipping by rail is less than 1/3 the price of shipping by highway.  Rails have been able to raise prices on customers in recent years for this reason; ask yourself, are high fuel prices going away? Factor that in with the multiple other revenue sources that rails can rely on (agriculture, housing, etc.) and the vision of a lasting “rail bull” becomes clearer.

Here are 3 top rails and their valuations. Since coal is on everyone’s mind, I’ve included the percentage of revenue that relies on coal to better help you make a decision:

<table> <tbody> <tr> <td> <p>Company name</p> </td> <td> <p>P/E</p> </td> <td> <p>PEG</p> </td> <td> <p>% of Revenue from coal</p> </td> </tr> <tr> <td> <p>CSX Corp <span class="ticker" data-id="203228">(NYSE: <a href="http://caps.fool.com/Ticker/CSX.aspx">CSX</a>)</span></p> </td> <td> <p>11.83</p> </td> <td> <p>0.85</p> </td> <td> <p>26.2%</p> </td> </tr> <tr> <td> <p>Norfolk Southern Corp</p> </td> <td> <p>11.18</p> </td> <td> <p>0.90</p> </td> <td> <p>26.1%</p> </td> </tr> <tr> <td> <p>Union Pacific Corp <span class="ticker" data-id="205900">(NYSE: <a href="http://caps.fool.com/Ticker/UNP.aspx">UNP</a>)</span></p> </td> <td> <p>17.10</p> </td> <td>0.88</td> <td> <p>15.36%</p> </td> </tr> </tbody> </table>

Diamonds are not for Fools

The Foolish investor shouldn’t waste time looking for the next “biotech 1,000 bagger”. Rather than look for the diamond in the rough, you should hunt for corn in the corn fields. Find common sense trends, the ones the world can’t avert , the ones that are misunderstood; once you do, you’ll finally invest with the wind at your back.


 Adem Tahiri owns shares of CSX. As of this writing he had no plans to change his position within the next 72 hours. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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