ChangeWave Trends

05/27/2005 12:00 am EST


Tobin Smith

Founder and Chief Research Analyst, Transformity Research LLC

"We look at secular growth waves throughout the world," says Tobin Smith, an audience favorite whose investment skills are matched by his talent as an entertainer! "We look for companies that will grow irrespective of the economy." Here, he highlights some favorite trends.

"ChangeWave trends can be in any area, from energy to high technology. For example, energy has been one of our biggest investment areas over the last two years. It’s been a wonderful thing because it’s easy to forecast and the stocks are so inexpensive. That’s what we are looking for. The world has not come to grips with the shift to energy, and the ascension of China and India and other energy users. Whenever we see a gigantic ChangeWave shift it takes a long time for people to figure it out. The disruptions we see with energy, oil, natural gas, and coal, are a long-term secular shift. It is still time to build energy positions in your portfolio, particularly when people get scared as oil drops below $50.

"Our energy income stocks such as  Pengrowth (PGH NYSE) have been chugging along, month after month. Every month you get a dividend, which is 85% tax-free. If you think oil is going to $35, then you are missing one big issue. People say oil is overpriced because of hedge funds and speculators. Hmmm. Hedge funds are down this year; they are not making any money. Oil is up this year. How does this correlate? China used to export about a million and a half barrels of oil a day. What did they import last month? Almost four million barrels. India used to import 10,000 barrels a day and now they are importing 1.2 million barrels.

"Another related big transformation wave we are riding is in nuclear energy. In China, every afternoon, there is an electricity brownout. They do not have enough electricity. The only answer to this is nuclear power. For the last 20 years, uranium has been in a bear market. But now we have a new type of reactor a pebble bed reactor is going to be the wave of the future for nuclear power. Forget about the old days when people worried about Three Mile Island. It’s a whole different technology, with no chance of a meltdown. There are some outstanding investments in nuclear energy. USEC (USU NYSE) takes uranium and turns it into slightly enriched uranium. It was actually spun off from the government.  Cameco (CCJ NYSE), based in Canada, is the largest pure play on uranium in the world. It is the third largest producer.

"With the technology sector, one ChangeWave that we’re investing in high definition television, or HDTV. This transformation is happening. It’s here. And if you think hi-def TV is exciting, wait until you see high–def DVDs. This trend has been slowed due to two competing formats, as Sony and Toshiba were warring camps. But they recently put their technology together, and this Christmas will be the first year that you can buy a high-def DVD. This will be the type of product that consumer will feel they must own. One way to play this trend is Silicon Image (SIMGE NASDAQ). When you buy your HDTV, you will see a connector on the back. This HDMI connector is what allows you to take the digital image from your new DVD player to your TV and not have it have to go through an analog circuit, which degredates the sound and picture. Silicon Image owns the technology behind HDMI. And eventually, every personal computer is going to have an HDMI connection, as PCs increasingly become digital entertainment servers within your home.

"Another player in the field is Sigma Designs (SIGM NASDAQ), which is about two years ahead of the curve when it comes to taking Microsoft’s digital system and putting in on silicon. To increase the speed of software, it needs to be put on a chip. This is the system with which Internet protocol television, or IPTV, will be transmitted. This involves taking any TV show and moving it to a storage device. In Switzerland, they have two cable systems, and both are sending out all of their content via IPTV. You can choose the content from the Internet and it is available in you home, or on your Treo, or your PC. IPTV will allow you to search any station, any channel, and show, etc. and it will be downloaded to you. Sigma is two years ahead of everyone in putting this software technology on a chip. It must be encoded in a chip, or it is too slow. So the IPTV wave is beginning to happen how.

"PanAmSat (PA NYSE) is going to deliver the high definition programming to the local TV stations. Why? Because they own enough satellites, they have the right spectrum, and they have the right equipment to do this. The company will provide 1,600 high-def channels to DirectTV, which has 17 million customers. They will also deliver these channels around the world, as high-def is not just a US technology. We want to find those in this industry who will make money no matter what. PanAmSat, which just went public, also pays an 8% dividend."

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