A "Junior" and "Senior" View

04/22/2005 12:00 am EST

Focus:

James Oberweis

President, Oberweis Asset Management, Inc.

It’s a rare opportunity to share commentary from both James Oberweis, Jr., who offers us some top stock ideas, as well as Jim Oberweis, Sr., who offers his insights while taking a break from his Illinois gubernatorial campaign. Indeed, both will appear at the upcoming Money Show.

"Just when you’ve gotten used to low interest rates and low inflation due to a relatively muted economy and excellent productivity increases, the world begins to change," notes Jim Oberweis, Sr. "There are no guarantees or ‘sure things’ in the investment business. But for what it is worth, from a guy who has watched markets closely for almost 40 years, the likelihood of interest rates rising and gold prices rising over the next few years is as high as ever. It seems inevitable to me that the recent substantial boost in oil prices will spread through the economy, causing a general and not insignificant increase in commodity and manufactured goods prices. Such an increase is likely to be followed by increasing prices for services as well. I expect general price increases of 3-4% a year for the next several years.

"The substantial trade deficit that the US is running is likely to cause continued weakness in the dollar as well. Weakness in the dollar, if substantial enough, will eventually help boost our exports and limit our imports, bringing trade back into balance. But that weakness in the dollar will tend to increase inflation as the cost of imported goods rises. Dollar weakness and rising inflation will, at some point, spook savers (foreign and domestic) into demanding a higher price for their capital. That price is the interest rate. I expect 10-year rates to rise from the 4.6% area to the 6% area over the next few years. Of course once such trends get started, they tend to go further than anyone expects, so rates might in fact carry much higher. Similarly, I expect gold to rise from its current $425 area back towards its old highs in the late 1970s of over $800 per ounce. Once again, such trends, when in place, can carry much further than one might rationally expect. Perhaps gold will reach $1500 to $2000 per ounce over the next decade. We’ll see."

"Where does all of this speculation leave us? I believe investors should be cautious about buying long term fixed income securities unless they intend to hold them for the long term and need the income. If not, cautious investors should buy laddered fixed-income securities with one to five year maturities to enable reinvestment at higher rates in the future. Some small gold or gold mining share hedge might make sense. In a higher inflationary environment, stocks may do better than fixed income securities for those able to accept the volatility and risk. Real estate may benefit also, but home prices, especially on both coasts, have already risen to somewhat precarious levels. Oil stocks and other commodity producers may benefit as well. Alternative energy plays may have another run. Rapidly growing small companies may do well as they are frequently more flexible and more able to adapt to rapidly changing economic conditions. So that light you see at the end of the tunnel? Be careful. It may be a train. Don’t get run over!"

Meanwhile, James Oberweis, Jr. , offers some of his latest stock ideas from the latest issue of The Oberweis Report:

"Cogent (COGT NASDAQ) provides fingerprint biometrics to governments, law enforcement agencies, and other commercial customers worldwide. It’s solutions allow customers to encode fingerprints into searchable files and accurately compare a set of fingerprints to a database containing millions of fingerprints in seconds. In its recently reported fourth quarter, revenues grew to $31.8 million, a 36% increase. Earnings per share grew to $.08 per share versus a loss in the same year-ago period. Clients of Oberweis Asset Management own 31,000 shares.

"Lazare Kaplan International (LKI ASE) sells diamonds and jewelry products through its worldwide distribution network. In November 2004, the country of Angola agreed to supply Lazare Kaplan with up to $300 million annually of rough cut diamonds. The company has also recently enhanced its relationship with DeBeers and has established a joint-venture with a supplier in Russia. In the company’s latest reported second quarter of fiscal year 2005, sales increased 78% to $93.2 million. Earnging per share were $0.12 in the quarter versus $.01 in the same quarter of last year. Clients of Oberweis Asset Management own 60,000 shares.

"Ctrip.com International Limited (CTRP NASDAQ) is a leading consolidator of hotel reservations and airline tickets in China, operating much like Expedia.com in the US. Ctrip targets primarily business and leisure travelers in China. In the company’s latest reported fourth quarter, sales increased approximately 45% to $12.6 million. Ctrip reported earnings per American Depository Share of $.31 in the latest reported fourth quarter versus $.19 in the same quarter of last year. Clients of Oberweis Asset Management own 235,000 shares."

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