Stocks Are the Place to Be
08/13/2009 11:30 am EST
James Oberweis, editor-in-chief of The Oberweis Report, says stocks should outperform bonds in coming years, and he likes a small wireless technology stock in particular.
[Federal Reserve Chairman Ben] Bernanke, in fulfilling his patriotic cheerleading duties, recently sought to quell inflation worries with a promise to maintain harmony and balance throughout the universe.
How popular will it be to raise rates and curtail economic growth just as the economy edges out of the worst recession since the Great Depression? More important, how will he do that as election season approaches and political pressure intensifies?
Besides the potential for intentional deception, one must also consider the chance for unwillful error, or being too late to the punch. In the same way that an elephant guided by a troupe of chimpanzees might learn to ride a bicycle, it just isn’t particularly likely. The Fed won’t get the equilibrium just right.
Bernanke has himself suggested it is better to err on the side of inflation rather than deflation, and it is inflation we expect to see. Yet significant inflation is not yet in bond prices, likely because the Fed itself is propping up prices for the moment by scooping up bonds to keep yields low.
Inflation is coming. In an inflationary world, stocks outperform bonds, and long-term bonds fare particularly badly. Foreign stocks with undervalued currencies outperform stocks denominated in inflating currencies. For these reasons, equities will outpace fixed income for the decade to come (though not so in every year).
Chinese equities will continue to offer their outsized gains over the next several years, even after [their] amazing run thus far in 2009. That’s not to say there won’t be plenty of micro-cap stocks in the US that have carved out growth opportunities, but don’t ignore the low-hanging fruit.
Interdigital (Nasdaq: IDCC) designs and develops advanced digital wireless technologies for use in digital cellular and wireless IEEE 802-related products. IDCC licenses its patents to equipment producers that manufacture, use, and sell digital cellular and IEEE 802-related products, such as mobile device manufacturers, semiconductor companies, and other equipment producers that manufacture, use, and sell digital cellular products.
The company has built its suite of technology and patent offerings through independent development, joint development, and selected acquisitions. IDCC generates revenues primarily from royalties received under patent license agreements. In January 2009, the company licensed some of its wireless technology to Samsung for $400 million in payments over 18 months. Additionally, an International Trade Commission ruling is expected mid-August regarding a dispute between IDCC and Nokia (NYSE: NOK).
In the company’s latest reported second quarter, sales increased approximately 28% to $74.9 million from $58.7 million in the second quarter of last year. Interdigital reported earnings of [59 cents a share] in the second quarter, versus [13 cents] in the same quarter of last year. (The stock closed above $31 Wednesday—Editor.)