Friday Aug 18, 2006

How a $1.2 billion IPO in Shanghai could make you rich in New York

Taipan Group's Dynamic Market Alert

-- How a $1.2 billion IPO in Shanghai could make you rich in New York
-- Dow Theory predicts a short-lived rally
-- Healthy Trends

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How a $1.2 billion IPO in Shanghai could make you rich in New York

by J. Christoph Amberger

Back in the mid-seventies, when drug addiction first made frontline news in Germany and "Christiane F. of Zoo Station" was the cautionary tale of the day, the Berlin school board sent "drug educators" into the schools to talk sense into the kids.

I remember ours. She was a middle-aged woman with a grey Prince Valiant 'do. She wore a red t-shirt with the slogan "It's a wonderful day" to which she herself had added the iron-on letters "OK." That was bad enough. But even worse were her attempts to curry favor with her adolescent audience by using "Jugendsprache" -- literally "youth speak" or slang.

She probably took classes in it.

Only that nobody in our suburban high school talked like that.

Accordingly, she was a complete flop: If there had indeed been students in my class who were still on the fence about if they should be shooting up heroin or not, she'd have sent them into the arms of the nearest pusher.

Because it's just plain uncool to talk like you're 14 when you're in you mid-forties.

-- You might think I'd have learned from experience. But during last week's Boy Scout Camp, I made a conscious effort to soak up the lingo of the cool crowd. Allow me to share my findings in a quick crash course, so you, too, can be cool. Because you never can be or say cool enough.

Take my cool rock-climbing buddies: They were a veritable fountainhead of cool. The main words used to appreciate shock, awe, appreciation and consent apparently now are (please take a pencil):

"sick"

and

"burly.”

Throw in the evergreen words “dude,” “totally,” and “like,” and you have the quintessence of cool: “Like, dude, that was totally burly, dude.” Or, “Dude, that was like totally sick, dude.”

Please try these sentences out on the next best teenager in your house this weekend. I did. The expression spreading over my son's face as I cool-talked him was one of revulsion if not outright disgust. And for the rest of the week, I thought I detected a slight Oxford accent in him and his chums.

Who says summer camp won’t learn ‘em anything!

-- Monday is the official publication date for the September issue of Taipan. So please, before you scroll down to the contributions of Steve Lord and Ann Sosnowski, allow me a moment to tease you with our totally "burly" No. 1 Recommendation:

There's one railroad stock on the NYSE set to receive a huge boost after it goes public on the Shanghai stock exchange -- and that could be any day now. Once this undervalued stalwart begins trading in Shanghai, there is a very high probability that the buying frenzy in China will drive up the shares currently trading on the NYSE.

The company’s NYSE-listed ADR could surge 10%, 15%, 25% or higher from its IPO “pop” in Shanghai -- rewarding American investors handsomely who buy in now.

The Shanghai exchange is seeing record-breaking volume this year... after years of near-death languishing. Overnight, China has become the world’s second-largest IPO market after raising more than $24 billion in 2005. With a strong start in 2006, IPOs are expected to rake in a record $30 billion this year.

The IPO frenzy is attributed in part to China’s 400 million newly minted middle-class citizens who covet a piece of the world’s fastest-growing economy. They gobble up IPOs faster than companies can issue them.

But this stock has not just the planned A-share IPO going for itself, the company is set to grow between 15-10% annually on ticket sales and its fright business... its core market being right in the heart of the Chinese manufacturing juggernaut.

Make sure you're on the Taipan subscriber list when we launch this recommendation on Monday!
 

Dow Theory predicts a short-lived rally

by Ann Sosnowski

August is supposed to be relatively weak, according to Stock Trader's Almanac, as it is historically the second-worst month out of the calendar year for blue-chip stocks.

The best Dow gains in August were made when bear markets ended: in 1982, the Dow gained 11.5%… and in 1984 it gained 9.8%.

But if you ask any number of analysts out there, the general consensus is that we’re not in a bear market -- just a flat trading range at a current value of 11,372 that’s attempting to reach January 2000’s high of 11,656.

For the most part, the Dow is abiding by the golden rule of August trading: the middle of the month is the strongest, with the beginning and end lag behind.

Many analysts, including myself, believe this is a false rally, spurred on by expiration of contracts on Friday, August 18.

Simple Dow theory says that the Dow Jones Industrial Average is led by the Dow Jones Transports (DJT), an index that includes such heavy hitters as CSX Corporation (CSX:NYSE), FedEx Corporation (FDX:NYSE), and Ryder System Inc. (R:NYSE). Where the transports go, the products go.

For the year, the DJT is up 2.24%. The Dow Jones Industrial Average is sitting on a year-to-date gain of 6.05%.

It is important to note, that for the long haul, the DJT has fallen victim to one of the worst technical formations: a double-top price hit at DJT 5,000, in May and June of this year. According to technical guru Thomas Bulkowski, an average drop of 20% follows a double top.

From my calculations, DJT 4,000 is the downside support node for the transports, indicated a continued drop on the Dow. The transports’ recent rally is just a rising leg in a still falling trend.

I would buy some index protective puts if I were you…

Healthy Trends

by Steven Lord

As someone who instinctively tries to see underlying trends behind every investment, I spend a lot of time seeking out things that are changing society on a strategic basis, then drilling down to find the investment opportunities they create.

Hands down, one of the most exciting areas for this kind of work is in healthcare, a sector that literally covers the bases in terms of range, strategic impact and investment opportunities. Healthcare trends are going to feature prominently in Trend Investor, our new newsletter.

But before getting into what I think is the single greatest health issue in the world right now, I wanted to comment briefly on a landmark ruling Thursday regarding tobacco companies.

I know this will come as a great shock to many readers, but did you know that the executives at our largest tobacco firms have actually been maneuvering their marketing so as to de-emphasis the health risks of smoking? And to entice younger people to pick up the habit?

Shocking! I never would have guessed it…

Specifically, the court ruled that “over the course of more than 50 years, tobacco companies lied, misrepresented and deceived the American public, including smokers and the young people they avidly sought as ‘replacement smokers,’ about the devastating health effects of smoking and environmental tobacco smoke.” This resonates strongly with me, having lost a close family member to smoking-induced emphysema recently.

I am all for a person’s right to smoke, but for my money, the management of every tobacco company in the country should be locked in irons for the damage wrought by years of deceptive advertising designed specifically to lure younger people to smoke. I suppose they had no choice -- you have to be creative when your products kill off your customers.

Significantly, the judge’s ruling included a finding of racketeering. Over decades, she found, tobacco companies have been colluding in ways to minimize public knowledge of smoking risks. I doubt we will ever see a repeat of the fine performance by the then-Phillip Morris CEO testifying to Congress that “had no idea smoking was becoming so popular among teenagers again.” Yeah, right.

OK, enough about that. Smoking is here, and so are its health effects, so aside from an outright ban on the stuff we’re stuck with it.

The real healthcare trend that should interest all of us from both a lifestyle and an investment perspective is diabetes. Largely due to our high-sugar diets, our more sedate lifestyles (think GameBoy instead of kickball), the incredible rise in obesity in our society is turning diabetes into the largest single health challenge facing us today. It is a locomotive heading straight down the tracks, and at this point it is utterly, totally destined to happen. From a pure cost-to-society perspective, diabetes and its complications are the greatest health risk facing our nation, far beyond West Nile, bird flu and even AIDS. Nothing else even comes close.

Twenty million Americans have diabetes, and an estimated seven million of those are undiagnosed. Another 41 million have pre-diabetes, two million of which are teenagers. The vast majority of this latter group has no idea they are in the formative stages of the disease, which is why diabetes has been called the silent epidemic. Worldwide, the International Disease Federation estimates 195 million people have diabetes, a figure expected to reach 330 million by 2025 -- only 20 years away.

The economic cost of treating diabetes and its complications, which include significant, debilitating and often fatal heart, vision, circulation and central nervous system issues, is already massive, reaching $132 billion in 2002. This includes $92 billion in direct medical costs and another $40 billion in indirect costs such as disability, work loss, etc. Per capita that is $13,243, a figure growing by 30% per year.

Want more? One out of every seven healthcare dollars is spent on diabetes or its complications today, making it the most expensive of any disease category by far.

The good news is that there are a lot of very smart people trying to solve this problem, and as investors, there are a large number of alternatives to look at when trying to establish portfolio exposure to this massive trend.

As with any strategic trend, there are some investment opportunities better than others, and some with higher risk than others. And diabetes by its nature has a wide variety of complications that each represents their own “channel” of drugs, therapies and treatments. These factors make diabetes one of the most intriguing and promising long-term trends in the stock market today.

We’re going to be focusing on this trend specifically in Trend Investor, and are preparing an extremely in-depth report on diabetes and the single best way to play the trend. It is huge; it is complex; and it is going to make smart investors a fortune. Stay tuned.

***Watch Diligent Investor’s Todd Schoenberger tomorrow on Fox News’ “Cavuto on Business” at 10:30 EST

As a former Merrill Lynch broker and Legg Mason institutional trader, Todd Schoenberger knows exactly how to tap the unpredictable market for safe, conservative and most importantly, consistent gains.  He’s already brought readers solid double-digit winners in just a short time.

And the media is catching on fast!  Todd has already been featured on shows such as Forbes on Fox, and CNBC’s Kudlow & Company and Squawk Box.

If you've missed his interviews to date, here's a chance for you to hear him firsthand.  Catch Todd live on Fox News’ Cavuto on Business tomorrow at 10:30 a.m. EST.

To learn more about Todd’s newsletter, Diligent Investor, please click here.

Earnings Announcements for Monday, August 21, 2006

Bob Evans Farms, Candela Corporation, Hastings Entertainment, Lowe’s Companies, and Tandy Brands Accessories Inc are releasing earnings.

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Unlock Dates for the Remainder of August 2006

8/21/06 – Mariner Energy is unlocking 33.3 million shares.
8/22/06 – Liquidity Services is unlocking 7.6 million shares.

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Upgrades and Downgrades

Aeroflex downgraded by Deutsche Securities from Buy to Hold.

Casual Male downgraded by Raymond James from Outperform to Market Perform.

Dell downgraded by Goldman Sachs from Neutral to Sell.

Gap Inc. downgraded by CIBC World Markets (from Sector Outperform to Sector Perform), by Susquehanna Financial (from Positive to Neutral), by Prudential (from Overweight to Neutral), and by Jefferies & Company (from Buy to Hold).

Allscripts downgraded by UBS from Neutral to Reduce.

CACI International upgraded by Stanford Research from Sell to Hold, and by Morgan Stanley from Underweight to Equal Weight.

China Mobile upgraded by Citigroup from Sell to Hold.

Johnson Controls upgraded by Matrix Research from Hold to Buy.

The Knot, a profitable and FREE pick from AmericanCapitalist team was upgraded by Merriman Curhan Ford from Neutral to Buy.

Mills Corporation upgraded by RBC Capital Markets from Sector Perform to Outperform.

STMicroelectronics upgraded by Prudential from Neutral to Overweight.

Brought to you by the Red Zone Profits.
   

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Quote of the Day

"In a sense, though, Iraq is a diversion from the war of terror: It has diverted terrorists who would otherwise be occupied elsewhere to Iraq, where they are killed by the hundreds."

- Aaron Keith Harris, August 18, 2006

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