Posted on March 24, 2010
The long-term payoff of a patent can be hard to quantify. In industries such as technology and health care, however, many have proved quite profitable. The performance of the Claymore/Ocean Tomo Patent Exchange-Traded Fund, which tracks an index of 300 companies that boast “quality” patent portfolios, has topped the S&P 500 by more than 10 percentage points since its launch in late 2006. Investors looking to profit from patents can invest in this ETF or buy shares of a company like IBM, the top recipient of invention patents in the U.S. in 2009.
Related story: Attention, Shoppers: This Patent Expired
Inventive Industries Tech stocks account for the biggest share of the Claymore/Ocean Tomo Patent ETF
Top Innovators
Although a domestic company tops the list, foreign businesses collected more than half of U.S. patents issued for the second year in a row.
Posted on March 9, 2010
Latin America’s stock markets were among 2009’s top global performers. Many, including Mexico’s Bolsa and Argentina’s Merval, hit all-time highs in 2010. Such a rally may mean there is less room to run. Investments in the region tend to be heavy in the big countries, Brazil and Mexico, and big industries, energy, mining, and financials--by Tara Kalwarski.
Related story: Cereal Socialism in Venezuela
HOT FUNDS
Morningstar analyst William Samuel Rocco warns that Latin American stock funds probably can’t maintain their strong performance—and “they’re likely to suffer a number of blowups in the future.”
Posted on February 17, 2010
The four-story mural of underdressed male athletes at Abercrombie & Fitch’s New York City flagship store is an impressive display of heroic beefcake—at least until you compare it with the 11-story mural by the same American artist, Mark Beard, in Abercrombie’s Tokyo megastore, which opened in December. The prices in the Tokyo store, in the high-rent Ginza district, are grander as well—60% to 80% higher than in Abercrombie’s U.S. stores.
Related story: Urban Outfitters’ Grow-Slow Strategy
A+F’s Tokyo store, opened in December, features an 11-story mural similar to one at its New York flagship store (below)
American apparel makers are accelerating plans to expand abroad. Some are doing so because there’s no room to grow at home. Others see the move as a way to compound strong U.S. growth. Either way, it’s a path to raise their growth profile, says Susie Hultquist, a portfolio manager with Columbia Wanger Asset Management. It won’t necessarily work for all of them.
Abercrombie is the latest big brand to make the move. It opened its first flagship outside the U.S. in 2008, in London. Milan and Tokyo followed in 2009. Copenhagen is next, this year. A+F has 12 Hollister teen jean stores in malls in Europe and will add 30 in 2010. It says the European unit has been a bright spot—and it needs one. As U.S. teens have turned to other brands, including Urban Outfitters, overall same-store sales fell 13% in its fiscal fourth quarter, which ended Jan. 30, the ninth down quarter in a row. There won’t be enough new stores in Europe and Japan to lift its stock anytime soon, says analyst Erika K. Maschmeyer of Robert W. Baird & Co. Shares are around 32, down more than 60% from a 2007 high of 84.51.
While A+F’s revenues are down, Urban Outfitters’ net store sales rose 4% in the year ending Jan. 31. It’s about to open its 20th European store, with plans to hit 200 over the next decade. The company is scouting sites in Asia and still has room to grow at home. Maschmeyer says North America can support 500 Urban Outfitters and Anthropologie women’s apparel stores; currently there are 273. Its stock trades at 31 after clearing 35 on Dec. 29. Goldman Sachs analyst Michelle Tan says shares could reach 40 within six months.
Like Urban, discount retailer TJX isn’t hurting at home, though it, too, is trying to secure its niche overseas. It is Europe’s largest off-price retailer, with more than 260 T.K. Maxx stores (the J becomes a K in Europe) in Britain, Ireland, Germany, and, as of 2009, Poland. Its goal is to double its T.K. Maxx store count. European operations were on track to top $2 billion in sales, or 11% of the total, in the year ended Jan. 31. But those revenues have been declining because of a stronger dollar. Margins have been lower, too, in part because TJX has been spending more than $125 million a year on store construction and other capital expenses. Analyst Kimberly Picciola of Morningstar says profits should rise as TJX gains scale but that merchandising costs will also rise as suppliers unload fewer goods at bargain-basement prices. Shares trade at 38.40 after hitting a record 40.22 in October. Its trailing 12-month price-earnings ratio is 15.7, vs. the Standard & Poor’s 500-stock index’s 18.8. Picciola says the stock’s fair value is 35.
Another overseas veteran is Polo Ralph Lauren, which owns 58 stores outside the U.S. (An additional 151 Ralph Lauren and 60 Club Monaco shops are operated by licensees; Ralphwear is sold in nearly 3,900 other stores in Europe alone.) Foreign sales are a third of revenue, up from less than 25% a decade ago. Long-term, the company wants two-thirds of revenue to come from abroad. Polo Ralph Lauren’s same-store sales are up, and its net income increased 6% in the quarter ended Dec. 26. An impressive showing, but Steven M. Rogé, a portfolio manager of R.W. Rogé & Co., says the stock is too expensive now. At 79, it trades at about 17 times trailing 12-month earnings. Rogé would buy it if it fell to 40—it slumped to 31.94 last March—or 12 times earnings.
Posted on January 20, 2010
An infrastructure logjam has stymied the economic growth of Indonesia. But the country’s gross domestic product is still expected to expand by about 5.6% in 2010, more than double the U.S. forecast of 2.7%. An exchange-traded fund (ETF) that tracks Indonesia’s equity market has returned significantly more than a broad emerging-market ETF since its 2009 launch.
Related Story: Indonesia's Unfinished Highway to Growth
A CUT OF THE ACTION
These diversified mutual funds offer exposure to Indonesian companies.
INFRASTRUCTURE BOOM
Sectors including materials, industrials, and utilities—which make up more than a third of the stock market—stand to benefi t from increased spending.
SLIM PICKINGS
Only two Indonesian companies are widely traded on U.S. exchanges.
Posted on January 13, 2010
The heated rivalry between Google and Apple extends to the stock market, where their shares jostle for pride of place in many technology investors’ portfolios. With Bloomberg data showing the price-to-earnings ratios of both stocks higher than 85% of the companies in the Standard &Poor’s 500-stock index, they may struggle to meet investor expectations.
Related story: Why Apple And Google Can't Just Be Friends
Investors flocked to Google and Apple in early ’09 as it became clear that even a severe recession wouldn’t stall them. Last year, Google’s share price doubled; Apple’s shot up 147%. Apple may be more likely to support its premium valuation. A long record of successfully jumping into new products leads many tech experts to see it as a pricey, but less risky, play. Google, 22 years younger, is still trying to expand beyond its core expertise in Net search.
Alan Lancz, of wealth manager Alan B. Lancz & Associates in Toledo, Ohio, started buying Google and Apple shares in December, 2008. He stopped buying when Google, now at 600, passed the limit of 365 he had set for the stock last April. Apple, now at 210, passed his limit of 130 last May. Lancz raised his six-month price estimates in November, to a range of 620 to 680 for Google and 215 to 235 for Apple. “We like the companies but definitely wouldn’t be buying them now,” he says.
Google may prove more vulnerable to a weaker-than-expected recovery. In 2009, it maintained earnings growth by cutting costs, but sales growth over the past 12 months has slowed to 8.4%, from 31.4% a year ago. (Apple’s sales rose at a 12.5% rate over the past year, about half the growth rate of a year ago.) “So much of Google’s business model is based on advertising,” says Michael Shinnick, a portfolio manager at Wasatch Advisors in South Bend, Ind. Web competition is pushing ad rates lower at the same time that the economic downturn has forced advertisers to slash their budgets. “It’s going to be tougher for Google to put up the type of revenue they have had in the past few years,” says Shinnick. The average analyst prediction for Google’s sales growth is 16%, according to data compiled by Bloomberg, and 23% for Apple.
ECONOMIC WILD CARD
Apple has shown a bit more resistance to the slowdown, and some analysts predict a bump from strong holiday results when it reports earnings on Jan. 25. Its advantage has been a steady rollout of new products that customers love. “I cannot point to another tech titan that has been able to innovate outside their primary product area,” says Michael Pytosh, a technology analyst for the ING Growth & Income Fund. (His fund holds Apple but not Google.) Apple investor Ankur Crawford, vice-president and analyst at Fred Alger Management in New York, notes that despite the popularity of Macs and iPhones, Apple still has a tiny share of the market in personal computers and handsets. “[Apple] can essentially double their share in PCs and handsets,” she says.
PRICEY TECH PLAYS
As dominant players in fast-growing markets, both Apple and Google have advantages that justify paying more for their stocks than for those of rivals. In mobile phones, for example, competition could benefit both companies as they win market share from more established players. Still, serious challenges remain, and the markets they’re in are changing rapidly. Tech consultant John Metcalfe frames the ongoing drama this way: “Google doesn’t know what it’s going to be yet. It’s like [a batch] of corporate stem cells–genes trying to arrange themselves. Apple on the other hand, knows exactly what its game is. That’s what makes this so fascinating.”
