4 stocks to fuel a recovery

Even after the market's powerful rally, few investors have fully recovered from the crash like Tim Siegel has.

By Ken Kam Jan 11, 2010 1:38PM
Siegel's Sector Opportunity Fund I, a Marketocracy.com portfolio I've been tracking for more than five years, was 24% higher as of Jan. 6 than it was at the market high of Oct. 12, 2007.

Since its inception on September 30, 2004, the portfolio has gained 240% -- handily beating the 14% gain by the S&P 500 average. (Click here to see his track record).

Siegel has demonstrated the kind of investment skill that many need to get their portfolios back on track. That's why his portfolio was recently added to Marketocracy's SWAN team. To download a special report on what the SWAN team is doing now, click here.

One of Siegel’s favorite stocks right now is Apache Corporation (APA), the independent oil and gas producer.

China produced automobiles at the rate of 16 million autos per year by last November, according to Siegel. Ten years ago, the yearly figure was closer to one million.

"It is no exaggeration to say that China is filling up with cars. This is why the price of oil has recovered to about $83 per barrel, despite the fact that employment in the industrialized world has been severely reduced. When U.S. and European employment begins to grow again, watch out. We will have strong demand growth, but weak supply growth. The price of oil could move a lot higher."

A patent attorney by day, Siegel uses the same skills that help him to analyze and protect inventions, to analyze the stock market. He says patent knowledge comes in handy in the analysis of many companies.

"A lot of stock analysts pour over corporate financial information, but few are well equipped to understand a firm’s patent portfolio," he says. "For many companies there is a vast trove of data that is largely overlooked in assessing a company’s total worth. This opens up exploitable opportunities."

Siegel analyzes his stock choices in the context of broad geographical and historical themes. "I am interested in everything, and I use that curiosity and the knowledge it uncovers to predict how world trends will affect stock prices."

Siegel also likes AK Steel (AKS), a low cost domestic steel producer with a broad product line. “There are two major reasons I like the domestic steel industry,” Siegel explains.

First, because of an increasing scarcity of resources we must drill and dig deeper into the earth to get the minerals we need. That takes more steel. 

Second, the generation of electricity is more complicated now. Whether it is to reduce pollution from a coal fired plant, or to generate wind power or solar power, more steel is needed per kilowatt-hour produced. 

It is very instructive that during the first half of 2008, while the automobile and building industries were not flourishing, steel demand was very strong and steel prices reached an all time high. That shows the importance of the non-auto and non-building part of the steel supply/demand equation.”

Also, AK Steel does maintain a research and patenting effort, with some patents appearing to be reasonably valuable. For example US Patent 6,929,705, for an Antimicrobial Coated Metal Sheet could have growing value in a society increasingly concerned with stopping the spread of communicable diseases.

Homebuilding is another area Siegel is looking at. He recommends DR Horton (DHI) as being a “best of breed” in the housing industry.

“Homebuilder’s stocks have been sent lower on news that new home sales are down. Although inventories are still high,  Siegel posits that “there must be a great deal of inventory that is mismatched to current demand.” 

“It can take a year to build a house, and even longer for a multi‑unit building. The pattern of demand has changed radically in the last few years. So it would make sense that some of the inventory built in the last few years is badly mismatched either geographically or by price point to what the market is demanding now. That's why its still for sale. I believe that sales would be higher if the builders had more well‑matched inventory available. This is something they will have the opportunity to correct over the coming year.”

On April 17, 2008, Siegel recommended Google (GOOG). Since then GOOG has gone up by 35%, compared with a 16% decline in the S&P 500 index.

"I still recommend Google for the long term," states Siegel, "they have possible revenue generation mechanisms that they have not exploited yet, an enviable position at the top of the web, an innovative corporate culture and a positive public image."

The innovative culture is evidenced by the 147 patents issued to Google in 2009. And they have started off 2010 with what looks to be a very nice patent which appears to do a pretty good job of patenting the option of letting mobile device users search by sending a message (SMS, Email, etc.) with a search query in it and getting a search result message in reply.

This would be a lot easier than using a mobile device to access a website and struggling with the website display, which is really made for a computer-sized screen.

A lot of people claim to do what Siegel does, but few have a long-term track record to back up their claims.

Ken Kam, Marketocracy Data Service's Editor in Chief, also is portfolio manager for mutual and hedge funds advised by a Marketocracy affiliate. Before relying on his opinions, always assume that he, Marketocracy, its affiliates and clients have material financial interests in these stocks and hold or trade them contrary to those opinions. Click here to continue reading for more detailed and important disclosures, disclaimers, limitations and material conflicts of interest.

Tim Siegel is a Marketocracy mFOLIO Master -- the cream of the crop at Marketocracy.com. We've tracked Siegel since 9/30/2004. Over the past 5 years he averaged 26.11% a year. During the same period, the S&P 500 gained 2.48% a year. That's why we started making his portfolio available for registered investment advisors and their clients in a managed account program.

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