Agora Financial’s Rude Awakening

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Laguna Beach, California

· How Obama’s unquantifiable plan saved America from depression…so far,
· One rock solid infrastructure play for your consideration,
· Selected readers qualify for account upgrade and dividend check, plus more…

Eric Fry, reporting from Laguna Beach, California…

Even though no one has yet seen Barak Obama walk on water, the President-elect undoubtedly possess supernatural abilities. Just yesterday, he caused the Dow Jones Industrial Average to awaken from the dead. The stone-cold Dow had been dead-and-gone for months…And neither the bullish incantations of Wall Street strategists, nor the monetary shock treatments of Treasury Secretaries and central bankers had managed to bring the venerable index back to life.

Instead, the stench of financial rot seemed to intensify day by day. But that was before Obama stepped onto the scene…

During the weekend, the President-elect announced the biggest public-works spending package since the 1950s…or at least since the 1960s…or maybe the 1970s.

You see, we can’t really say for sure because Mr. Obama didn’t really say for sure. Instead, sounding more like the Oracle at Delphi than the President-elect, Obama vaguely declared, “[My advisors] are busy working, crunching the numbers, looking at the macroeconomic data to determine what the size and scope of the economic recovery plan needs to be. But it is going to be substantial.”

So, net-net, the plan will be bigger than a bread box.

Obama’s Delphic declaration electrified investors worldwide and jolted the Dow back to life. The blue chip index jumped nearly 300 points, as infrastructure stocks of every shape and size led a great, big rally on Wall Street.

U.S. Steel Corp. soared 24%, its biggest one-day move in nearly two decades. Likewise, Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, and Alcoa Inc., the largest U.S. aluminum maker, both jumped nearly 20%.

Anything and everything construction-related celebrated Obama’s plan to spend not-yet-quantified sums of money on not-yet-identified projects in not-yet-identified locations.

As it happens, a few of yesterday’s big winners were stocks that Chris Mayer favored, even before Obama announced his intention to throw some money their way. Details below…

— Agora Financial Reserve Is Open Again —

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Shooting Stocks in a Barrel
By Chris Mayer

“Men must follow a dream no matter what. If fortune does not favor the old, it is, perhaps, because they can no longer believe in those chimeras…which the young go for helter-skelter, so sure of being able to reach them that obstacles fall under their unheeding feet, before their existence has been suspected.”

– Henri de Monfreid, Smuggling Under Sail in the Red Sea (1935)

Henri de Monfreid was a smuggler, pearl diver, gunrunner and all-around adventurer. Fortunately, he was also a writer and set down his tales in his many books. Monfreid, who lived a long and full life, died in 1974 at the age of 95. In his Red Sea adventures, Monfreid describes how quickly the weather can change, and the problems and challenges such changes can create for sailors. In this, there is a good metaphor for the stock market, which can also change dramatically from day to day.

Monfreid writes about what’s called the “khamsin,” which is an oppressively hot wind that fills the air with sand. Sailors particularly fear this wind, because the dry and burning heat makes the wood of the ship less pliable and more brittle.

Sailors, then, are on pins and needles when the khamsin blows, fearing the sound of cracking in their rigging. In fact, Monfreid writes: “This noise of snapping wood is so dreaded by navigators in these parts that when the cabin boy is preparing wood to heat his oven, every time he breaks a branch, he cries out, ‘Hatab’ (firewood), as otherwise this sound would cause a state of alarm.”

In the market, of course, we have endured a sort of destructive khamsin blowing through the market and economy in recent months. The longer it blows, the more it seems to make brittle and destroy. The severe drop in commodity prices, for example, is worrisome for commodity investors. But more worrisome is how long it goes on.

Financial strength is not an unlimited reservoir, and many companies never had much to begin with. Even those that looked okay months ago are now scrambling. So even though the market crash has created a lot of bargains, I think the market still looks treacherous. The biggest risks now are financial, such as the inability of a company to finance itself through this crisis.

Something might look dirt-cheap, but if it can’t make it through the credit crisis, it’ll get a lot cheaper…and might even go out of business. So investors should be looking to buy stocks that are like camels – creatures that can cross the desert without needing to refuel. At least with these stocks, even if the prices go down a bunch, you have a good shot at making your money back, and then some, later. You could still wind up with a good return over a period of years. You can’t do that if the thing dies in the desert.

So financial strength is going to be very important in 2009. I also think it will be crucial to stay in essential industries and/or industries that have a well defined, long-term future, as opposed to businesses that can grind to a near halt.

One such company is Astec Industries (ASTE:nasdaq). It has no debt at all. And it’s in an area — infrastructure — in which there are clear needs and a bright future. Astec, like most of the stocks of companies that build highways, bridges, water pipes and wind towers, should perform very well, even in a sluggish economic environment.

Astec Industries (ASTE:nasdaq) is in great position to benefit from the rebuilding effort just announced by President-elect Obama. The company just released an outstanding earnings report, posting a 39% increase in earnings per share. Backlog remained healthy. Astec’s “green” lineup of products, like its asphalt recycling equipment, plays well to politically minded buyers – besides saving folks some money and making better asphalt. And remember, Astec is also an international story. Overseas sales grew 37% in the third quarter and made up 43% of total sales.

Then there are natural gas pipelines that require products from Astec. Gas pipelines are not suffering from years of neglect or poor maintenance. Rather, the building boom in natural gas pipelines reflects all the new supply from America’s new shale regions and the nation’s growing appetite for natural gas. This year, we added some 4,400 miles of new pipeline. That’s more than 2.5 times last year’s figure. It is the biggest addition to the network in the 10 years in which we have data.

Those additions help meet a greater reliance on natural gas for fuel. But the pipeline companies are struggling to keep up. It’s not easy building new pipelines, especially in the dense and developed Northeast. Earlier this year, El Paso Corp. canceled plans for a 7.8-mile pipeline in Massachusetts because it couldn’t win approval from local authorities.

Other companies have had similar problems. Take Islander East Pipeline. Local authorities rejected its 50-mile pipeline that was to stretch across the Long Island Sound. Where folks expect to get natural gas, I’m not sure. No one seems to want to build anything, but people complain when prices rise. Anyway, this situation makes existing right of ways and pipelines enormously valuable.

In addition to repairing roads and bridges, the Obama plan will almost certainly direct funding toward water infrastructure projects as well. That’s just one more reason to like a company like Northwest Pipe (NWPX:nasdaq), which makes large-diameter water pipes.

But even without any help from Obama’s new infrastructure spending plan, Astec and Northwest Pipe are two solid examples of companies that can withstand the khamsins that stock market blow our way.

Check in tomorrow for a few more ideas that can do the same.

Joel’s Note: Right now, members of Mayer’s Special Situations qualify for a $1,500 one-time dividend check when they consolidate their existing membership into the Agora Financial Lifetime Reserve package. If you are an existing subscriber, please read on here for instructions on how to grab your check.

P.S. This offer also applies to other selected readers, including members of Options Hotline and the Breakthrough Technology Report, among others. To find out if you qualify for an account upgrade and the one-time dividend check mentioned above, read on here.

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[Rude Endnote: If government economic committees were general practitioners, we’d all be dead.

Can you imagine you doctor saying to you, “Well, looks like you’ve come down with a inoperable case of recession-itus. This disease is treatable, but only if detected during its infant stages and, unfortunately, you’ve actually had it for a year now.”

Following the late diagnosis trend in the U.S., the Australian Business Economists executive committee warned yesterday that the country is 40% likely to contract recession-itus…if it has not already done so.

Australia’s All Ordinaries Index (ASX) has lost almost half its value over the last year, closing today at 3,533 – a whopping 3,200 points off its 52-week high.

Adding insult to injury, Prime Minister Kevin Rudd’s prescription for recession-itus is easily as absurd as the diagnosis is unreliable.

To stimulate the flailing retail sector over the holiday season, for instance, Rudd has promised a $1,000 Christmas bonus for pensioners and low-income families. To qualify for your share of other people’s money, in other words, you need to be old or broke.

Thieving from the rich to give to the poor may be an effective way to win over credulous voters, but it does nothing to fix deeper problems facing the economy.

Until next time…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com

P.S. If you’re an Executive series member, there’s a pretty good chance you’ll qualify for the $1,500 check we mentioned above. Find out here