The Monday Edition: Dollar Revisited - Sector Talk - Opportunities in Poland (Revisited)

By Yaser Anwar, CSC of Equity Investment Ideas

This week I plan to talk about 1) Dollar Misconceptions, 2) Sector Talk & 3) Opportunities in Poland- revisited.

Dollar Misconceptions- Revisited

I would like to re-print an updated version of my thoughts on the Dollar (which I mentioned
on my blog this past Thursday– updates highlighted in red).

• Investors seem to think that growth abroad and a weaker dollar will benefit U.S. corporate earnings, as overseas sales translate into more dollars alongside faster growth in Europe and Asia.

• While a weaker dollar could help US exporters, that often takes a year to generate real benefits. Hence investors should not expect a near term earnings boost.

• In my view business fundamentals are more important than dollar woes. For example- When investing in Big Pharma we need to understand that pricing pressure on branded prescription drugs (read: WMT’s wager and CVS/WAG), loss of patent protection, and the failure of new products (read: Pfizer’s recent woes) count far more than international sales exposure.

• A weaker dollar can cut into international growth that has been propped up by exports to the US. So higher costs to US buyers may eat into sales or margins if foreigners absorb the higher cost in order to retain market share.

• In the 90s despite the semiconductor companies strong sales exposure outside the US a strong dollar did not keep the chip stocks from soaring. When all is said and done- its about industry trends- understanding them leads to optimum asset allocation and investing for success.

• In my view investors need to be more concerned about the impact of a weaker industrial economy and a softer dollar than concentrating on the weakness in the ISM. Corporate bond yields have been signaling it, alongside auto/housing related data have been incontestable, not to forget that some of the major industrial companies have noted a down shift in domestic business [read: CAT & DE]

Sector Talk- Industrials, Telecom, Healthcare, Retailers & more

• When it comes to 1) Capital Goods the EPS estimate revisions are in downward trend, valuations seem unattractive but more importantly I’m expecting upcoming weakness in the ISM. With regards to 2) Telecom Services– improvements in pricing, attractive dividend yields and noticing a pattern of rising estimate revisions.
• Coming onto 3) Banks– low long bond yields should support stocks. 4) Retailers– high short interest, energy price relief resulted in improved outlook for consumers.
  5) Software Co.– The Street expects solid but not overly robust business, hiring and CAPEX backdrops.
• 6) Healthcare– Tends to do well during an economic slowdown. 7) Tobacco– My favorite is Altria as you may know- Looking to utilize the strategy ‘long straddle’ ahead of the Jan. 31 BOD meeting which will decide whether company will be broken up or not (click here to read my analysis)

Global Macro- Revisiting Poland

On October 2nd 06 I had talked about Poland having elections- I thought I’d revisit as I’ve got some more intel. Before I do in the same post I talked about Thailand Funds and the low NAV they were trading due to political risk and bomb blasts.

Happened to check the TTF fund- its up about 30% since then- my aim is not to pat myself on the back just reiterate that "when there is blood on the streets, its time to buy".

Back to Poland- A Polish friend of mine recently told me about the developments in Poland which I’ve tried best to summarize below

• 1) Three-4 years ago there was an exodus of about 2+million Polish citizens, mostly to EU and UK to seek better jobs. These people worked mostly in low end jobs such as construction, and over the past 4 years with the appreciation of the British Pound have been able to save and send back a lot more.
• 2) The property prices in Poland are up 30%+ this year, in some cases even 50%. The Polish elections, from what I’ve told has been satisfactory but the bigger picture view of EU providing them subsidies after Poland joins them seems to be on track.
• 3) It is said that Polish lands are so flat and farming oriented that they could feed the whole EU. The Polish Zolati seems to be very strong too- appreciating steadily against the US$.

One thing I’ve come to learn in macro investing is the time to invest in a country is when its locals do so. The time seems to be just about now.

** Note: Global Macro opportunities are mentioned for my weekly institutional newsletter audience (which caters to analysts, fund managers, traders, bankers etc.) and this blog’s institutional readers who can take the risk and have the means of investing in foreign countries.

These opportunities cannot always be played by ETFs or any other funds, so if you’re an individual investor you can either 1) Invest in that foreign country by buying mutual funds there 2) Ignore it if you don’t have a broker that allows you to invest in foreign companies.

Please note investing in foreign countries is subject to currency, political and unforeseen risks- use your own discretion when doing so. Thank you.

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