A Look to the Future
08/11/2006 12:00 am EST
Tobin Smith has two new recommendations for investment trusts, plus a preview of several sectors he believes will hold opportunities for investors in the coming months…
“Precision Drilling Trust (PDS NYSE) is an open-ended investment trust operating in Canada. It has two divisions, one focusing on contract drilling services, and the other provides completion and production services. Buy Under $36. Canetic Resources Trust (CNE NYSE) was formed by the merger of two trusts, Acclaim Energy Trust and StarPoint Energy Trust. The new entity produces approximately 75,000 barrels of oil equivalent per day (boe/d), weighted 60% to oil and liquids, and 40% to natural gas and created a trust with an enterprise value of approximately $5 billion and an approximate nine-year reserve life index. The merger makes CNE the third-largest producer of conventional oil and gas in the Canadian royalty trust sector. Buy Under $21; Strong Buy under $20.
“As we create cash in our portfolio we will focus on recycling profits and cash into a few new areas of secular growth:
The diabetes epidemic ravages on. One of our favorites in this sector is the leading candidate to bring out insulin in pill form—a multi-billion-dollar breakthrough. We're also looking at a company that is leading the world in nerve damage testing—a key part of diabetes treatment.
We rode the wave of electronic health records a little early, two years ago, but now the industry has put together a new standard for interoperability, and roll-outs at the physician level are still less than 12%. The entire industry has to get to 100% compliance, and we are looking to ride this wave that's now taking-off.
Intermec's upward revision shows that the RFID train is truly starting to gain momentum. We’re still waiting for the Alien Technology IPO, which may not happen until later this fall.
Solid-state lighting. In addition to Cree, I'm looking at another key player in LED lighting applications, which has just announced upside guidance.
“In addition, we are watching these sectors, too.
“There is a revolution coming in magnetoresistive random access memory (MRAM) chips, and we're looking at a pure play here.
“Titanium wave. The huge order flow for new jets from Boeing (and to a lesser extent Airbus), plus titanium use in energy drilling keeps supply vs. demand in the demand camp.
“With the new console cycle coming from the PS3 introduction, Xbox 360, and the new Nintendo Wii, we are set up for another two-year run for video gaming software upgrades.
“The water business is again starting another wave of spending growth as cities now have money again and there is $20 billion of mandated upgrades in water systems.”