Wednesday, September 12, 2012

The next big thing

The next big thing means that when discovered early a patient long term investor could out perform the broader stock indices. Some past next big things were technology 1980 to 2000 and commodities 2001 to 2011.

Aerospace is a next big thing contender with U.S. PowerShares Aerospace & Defense (PPA), Honeywell International Inc. (HON) and General Electric Company (GE) pushing to new 52-week highs and perhaps with some – all time highs. Some small Canadian aerospace related names, Heroux-Devtek Inc. (HRX) and Magellan Aerospace Corporation (MAL) were also printing new 52-week highs. The Canadian laggards remain CAE and Bombardier. Aerospace is currently under-owned and devoid of investment sheep. I need to re-visit this group in a few weeks. 

Another “next big thing” contender is the lumber space with names like Acadian Timber Corp. ADN Ainsworth Lumber Co. Ltd. ANS, International Forest Products Limited (IFP.A), West Fraser Timber Co. Ltd. (WFT), Canfor Corporation (CFP), Norbord Inc. (NBD), Weyerhaeuser Co. (WY) and Rayonier Inc. (RYN) all printing recent new 52-week highs.

I did a Google on lumber seasonality and found on a site called Equity Clock and I quote “Lumber Futures Continuous Contract Seasonality, Analysis has revealed that with a buy date of October 23 and a sell date of November 19, investors have benefited from a total return of 45.44% over the last 10 years. This scenario has shown positive results in 8 of those periods”.

If you do some Bill Clinton arithmetic you find that a 10 year 45.44% total return works out to only a 3.78% annualized return – clearly not worth all the trading work . We know lumber prices have declined 70% from a May 2004 peak to a March 2009 low and then subsequently doubled in price from a deeply over-sold condition. The 2009 low of Weyerhaeuser seems to be positioned where the gold miners were back in mid 2001.


dh12 said...

If the lumber stocks are making 52 week highs sounds like the investment sheep are indeed already in that space. Why not look towards some beaten up European and Greek stocks.?

Piazzi said...

seems like Larry Berman was cautious right around a low point of the S&P :-) said...

Hello dh12

Good point - but these 52-week highs in the wood space are youthful and overlooked by most I would think your point valid if we were into year 2 of new highs

Bill C