Japanese companies with a durable competitive advantage

Warren Buffett emphasizes buying companies with a durable competitive advantage, while Peter Lynch talks about finding companies that aren't well known but are run well, and poised for growth. I am currently in Japan visiting my brother and I wanted to mention a few companies that I see fit those molds. I haven't had time to look up stock information, or see if they are publicly traded companies, but maybe there are a few gems in here.

First up are beverage companies in the Coca-Cola realm. In Japan, there are two main beverage companies, Asahi and Suntory, that have a monopoly on the beverage industry, be it soft drinks, beer, or fruit juice. Japan is litered with vending machines, and you are guaranteed to see a Suntory or Asahi product on every street, usually for 20-30 yen ($.20-$.30) more than you can buy them in a regular store.

Second are the convenience stores, in the vain of 7/11, which they actually have in Japan. The two other main stores are FamilyMart and AmPm. Most of these stores are open 24 hours and you can't go a few blocks without seeing one. There have always been people in these stores, regardless of the time I have entered one.

Finally, there is the grocery chain Daiei, similar to a Meijer or Kroger (for you Michiganders) or a smaller Wal-Mart that has a full grocery section. This seems to be the best place to do all in one shopping, although I have heard there are a few Costco stores in Japan, for those bulk shopping trips.

I don't know if anyone of these companies have stock that can be purchased, but for those looking at companies within Asia, those are a good place to start.

Water, water everywhere, but not a drop to drink

After weeks of laziness, I'm finally getting around to reviewing the water industry. Unlike solar energy, which has been promised as the way of the future for several decades now, the water industry has been stealthily sneaking up on everyone and could be a major player in the next decade. Water stocks are typically in two forms, companies that will provide the infrastructure to deliver water to its customers (in the metro Detroit area, we get our water from the city itself) and companies that provide the treatment of water, such as desalinization or sewage treatment.

Some experts see clean, drinkable water as the next commodity to incur global shortages, potentially even scarcer than oil. While water might be something most Americans take for granted, happily sipping our VitaminWater and other bottle water products, in much of the world potable water is hard to come by. In any area where the climate is very hot or arid, clean sources of water are few and far between. And if they become contaminated, either by human waste or parasites in the area, typical in Africa, the quality of life in the region is severely diminished. In most third world countries there are frequent water shortages, and even in places like California, water is often at a premium. Costal cities have plenty of salt water, but current desalinatization technology is expensive and slow.

Enough doom and gloom, how can one profit from the need for clean, potable water? First, and probably the safest bets are on infrastructure companies (that could benefit by Obama being in office) that provide the water directly to the customer. Some examples mentioned in Men's Health BestLife are American Water (AWK), Badger Meter (BMI), Nortwest Pipe Company (NWPX) and the index fund PowerShares Water Resources Portfolio (PHO). The second is desalinization and treatment companies, such as Energy Recovery Inc. (ERI) (there are many more start-ups, but many are privately held at this time).

Note: Most of the information for this analysis came way of two magazine articles, Get Flush With Liquid Assets by Rana Foroohar in the November 2008 issue of Men's Health BestLife and Blue is the New Green by Adam Bluestein in the November 2008 issue of Inc. Magazine. Yes, these both are not finance magazines, but what our club is finding out is that to be a successful investors, you have to know what others don't. Outside reading is a great place to find that information.

2008 in review, 2009, and random thoughts….

The following is a guest post from Bob Costello (not his real name), a financial consultant in Michigan.

Much could be written about the events of 2008 but in a broad sense, an economy fueled by debt met its limits. As reported in the Wall Street Journal, GDP grew 5.9% annually since 1983 while total debt grew 8.9%. Disturbingly, GDP increased $10.9T and debt rose $45.9T. At the least, a period of adjustment is in order. A new approach to growth will have to be found. Thus far, Washington’s response has been to pour on record debt.

Who knows what the long-term consequences will be, but some thoughts for piece of mind: Currency values are based upon relationships with other currencies. The U.S. is not the only government throwing money at their flailing economy. Also, if Asian currencies appreciate in value relative to the dollar, it will make Asian goods and services more expensive, which is good for U.S. industries.

All things considered, long term, I side with Warren Buffet and agree that we have a tremendous long term opportunity.

In the short term it should be positive for gold, a traditional alternative to “funny money” and financial trickery in general. Precious Metals funds jumped over 70% since November 21 as investors may have pondered the same long term implications.

Most pundits and professionals agree that a well managed portfolio should have at least 10% in non correlating assets. Whether that is REIT’s, commodities, or interest rate plays, take a page out of the Ivy League Endowment playbook and add some non correlating assets.

All the negative aspects aside, odds strongly favor the bear market ending in 2009. After the technical washout that occurred during this past October and November, it would be desirable for stocks and commodities to gradually build a base over the next three to six months in preparation for a sustainable advance. Any improvement in the economy
later this year could help to establish new uptrends that result in meaningful gains before year end. I believe that the worst might be over for stocks and commodities for now—and that worthwhile opportunities could appear later this year.

With the amount of money being distributed by the world governments, a positive reaction seems almost certain. It’s like a man taking an entire bottle of Viagra and then nothing happening…

But you never know!

Is that the sun I see…or are you just happy to see me?

To follow up on my previous post (see the Fast Company article here), the solar energy sector is going to be interesting from an investment perspective in the near future. Solar energy has been touted as the future of energy for some time now, but has always been relegated as a minor energy source. There are a few reasons for this, a major one being the cost for solar has been significantly higher than other sources such as coal and oil, the latter resources being extremely cheap up until the run-up in cost at the end of 2007/beginning of 2008. The second being that comparatively small sums of money have been invested in solar as opposed to oil, making it more difficult for companies to reach the economies of scale needed to really reduce the cost of solar technology. And while solar technology is a heavily subsidized industry, those subsidies are peanuts compared to those given to the oil companies, about one-twentieth worldwide according to the Fast Company article. I can’t help but wonder that if more people knew about this, they would be even more furious with the oil companies that have been taking in record profits the past few years.

Why then is solar an industry to look at now? Firstly, most of the world’s major countries (western Europe and Japan) have rules in place that require companies to get a certain percentage of their energy from alternative sources, thereby increasing the demand for solar products. With Obama coming in and stating alternative energy is a priority, the demand in the US is likely to increase. And as demand increases, larger companies will start to realize there is a profit to be made and might join in, thereby increasing competition and lowering the price of solar future. Second, as the price of oil increases (the recent drop in prices is not likely to stay; it is likely more a result of the recession, in my opinion) and the price of solar decreases, there will reach a break point where solar is equal to or less expensive (and increasing more accepted) than other common energy sources, at which solar energy usage would likely skyrocket.

So as an investor, what stocks are available to take advantage of these treads? Investors should keep in mind that over the long-term, solar energy stocks have the ability to skyrocket. However over the short term, the stocks are quite volatile. Therefore an index like Market Vectors Solar Energy (KWT), Claymore/MAC Global Solar Index (TAN), or PowerShares WilderHill Clean Energy Portfolio (PBW) would be good as a long-term investment, while companies like SunPower (SPWRA), Applied Materials (AMAT), Q-Cells (QCE), First Solar (FSLR), and Dyesol (DYE) might be good in the short term if you can get them at a good price and hope for a run-up on good news.

Side note: One should not discount the lack of acceptance of the aesthetics of alternative energy sources, and not solely the higher costs, as a major factor in why more money has not been invested in them. When the economy was booming and people were doing well, factors unrelated to the actual usefulness of the technology keep alternative sources down. How many times did you hear people filing lawsuits against wind companies for putting up windmills along the coast, claiming it ruined the view of the ocean? Or hear people decry that a solar panel is an eyesore when placed on a roof? Or that a nuclear power plant or even power lines reduce the property values? But now that people are hurting financially, I think those arguments will start to lose hold, and people will gradually accept the aesthetics of alternative energy sources.

Solar energy

Fast Company magazine had a great article in their most recent issue with regards to the various companies in the solar industry throughout the world. An interesting note is that a city near Berlin in what used to be East Germany is a major center for producing sola panels. This industry is interesting because everyone knows that we need to develop alternative energy sources in the US; Obama has said that this is one of his priorities. However with the recession, the money to do this might no be there, according to many analysts, and therefore solar energy stocks have been beaten down quite a bit recently (even more than other sticks). I hope to do a more thorough review of this industry shortly. Stay tuned.....

Infrastructure stocks... you pick 'em!!!

On the heels of a more detailed plan regarding infrastructure investments to be made under the new Obama administration (http://www.nytimes.com/2008/12/07/us/politics/07radio.html?bl&ex=1228798800&en=8a47220b90bc54e4&ei=5087%0A), I've got internet, road work and dollar signs on my mind.

This leads me to my current conundrum; how and where to put money to capitalize on this plan? I've done a little looking and haven't yet found that golden nugget in the internet or road construction infrastructure areas.

Companies like Cisco (CSCO), 3-Com (COMS), Alcatel-Lucent (ALU) and Nortel Networks (NT) are all interesting, but all seem to have their own warts. Many of the cement, asphalt and materials companies like Vulcan Materials Co. (VMC), Martin Marietta Materials (MLM), Texas Industries (TXI) and Ready Mix (RMX) are equally compelling, but also have their issues.

So, here's your shot... take a stance for or against any and all of these stocks, as well as others in these sectors, and let's formulate a plan to cash in!!!