This from Investment U:

I’ll be the first to confess, I flubbed the extent of the downturn in the financial space. Last April, I recommended “backing up the truck” and playing the rebound via the Financial Select Sector SPDR ETF (AMEX: XLF). Instead of a short-term opportunity, it’s turned into a really long-term rebound play.

But as I told members at our Central American meeting in Nicaragua last week, I’m human. I make mistakes. Both in life and investing. Thankfully, I’m not as bad as Wall Street analysts…

Forget Your Broker, Wall Street Analysts are a Bigger Threat

Most people will tell you a bad broker, motivated to increase his net worth by leeching fees off your net worth, is your biggest enemy. Not so. A blind faith in Wall Street analysts poses a bigger threat.

Forget being wrong some of the time. They’re wrong most of the time. Or as a recent MarketWatch article tells it, “If there’s one group of Wall Street denizens that have performed as poorly as bankers in the credit crisis, it’s the equity analysts who cover Corporate America.”

For instance, well into the credit crunch, they predicted earnings growth of 11.5% for the fourth quarter of 2007. Low and behold, earnings actually plunged 25%, based on Thomson Reuters data. They were off a whopping 36.5%! No rational explanation could explain, let alone justify, such a big miss.

Here’s the most compelling observation, though. According to Ashwani Kaul, the numbers cruncher at Thomson Reuters, the “figures show that analysts tend[ed] to err on the side of the positive when predicting earnings growth.”

But that was then. After being so wrong, for so long, I’m convinced most analysts fear for their jobs… and the pendulum’s swung back the other way. They’re being way too pessimistic now.

Case in point. Analysts’ estimates for the S&P 500 companies rest at their lowest levels for the last four years. In the last month alone, they’ve piled drive expectations into the ground, lowering EPS forecasts for 982 companies.

Companies themselves have even jumped on the pessimism bandwagon. In the third quarter, only 3% raised guidance. While the majority – you guessed it – lowered expectations.

Bottom line, the negative side of the market is getting overcrowded. And for once, I think analysts actually got ahead of the downward spiral.

That’s not so say we won’t have any more repeat performances. But we will certainly get pockets of outperformance. Companies beating expectations, with share prices eventually rebounding to reflect the good news.

Here’s how to play it…

Stock Profits From the Point of Maximum Pessimism

The late Sir John Templeton believed, “The time of maximum pessimism is the best time to buy.” (I agree.) And he did just that.

But he didn’t load up on the market indiscriminately. Instead, he cherry-picked companies trading at cheap valuations, with solid businesses and above average growth prospects.

He was talking about companies like Minnesota-based Fastenal (Nasdaq:FAST). It’s a supplier of nuts, bolts, parts and tools to manufacturers and commercial contractors.

I’ll concede that such a business is unglamorous and mind-numbingly boring. But the fact is, the company’s nearly 700,000 products are vital. They are used to operate and keep up large buildings, campuses and industrial plants, as well as bolt together furniture, appliances and trucks.

Recession or not, demand remains stable for Fastenal’s products. Otherwise, simply put, stuff stops working.

I originally alerted Oxford Club members to this stock in November. It reported earnings yesterday. And guess what? It beat expectations. The company posted a 10% increase in profits and enviable same-store sales growth of 8%.

Moving forward it will continue to grow thanks to four key competitive advantages – unparalleled convenience, market penetration, cost leadership and customization.

Strong insider ownership, double-digit growth opportunities and the most attractive valuation in over a decade (approximately 40% below its historic price-to-earnings ratio) only make the stock more compelling. I still rate it a “Buy.”

Whether you trust my analysis on Fastenal or not, just remember this: Analysts’ earnings estimates resemble a waterfall, cascading lower and lower with each passing week. They’re bound to overshoot the mark.

In many cases, like Fastenal’s, they already did. And that means plenty of bargain stocks exist to profit from the imminent pivot from pessimism to optimism.

Source: Stock Profits from Today’s “Maximum Pessimism”

We’ve always relied on the “Cell Phone Indicator” as a forecasting tool for potential economic growth in emerging economies. Now, based on a recent report, it looks like our long-term confidence in these nascent markets will hold fast despite the current malaise that has gripped the world.

Our informal “Cell Phone Indicator” posits that mobile communications have historically signaled the growth of a new economy. In many countries, cell phones are the only form of communications for an individual. Armed with a mobile gateway to the outside world, cell phones are literally the seeds to entrepreneurial growth. Craftsmen, farmers, fishermen, retailers – just about anyone involved in a small business – can order and ship products, and even exchange money, using these wireless, digital devices.

On a grander scale, widespread cell phone adoption indicates significant investments in national infrastructures. Towers, power stations and repeaters are installed to facilitate economic growth. From these, come the roads, harbors and bridges to help carry the goods from these wireless transactions.

Investors who ignore cell phones as an economic indicator do so at their own peril.

Now we have some new numbers just released that forecast explosive cell-phone growth in emerging markets. If these predictions are even remotely accurate, we can expect more rapid growth in many third-world countries that could harkens back to good old boom-town days of the so-called Commodity Supercycle.

According to Informa Telecoms & Media’s Global Mobile Forecasts, annual revenues from the global mobile market will top $1.03 trillion by 2013, when the number of subscriptions worldwide will have risen to more than 5.3 billion. The implications for investors are truly profound.

It took more than 20 years to reach 3 billion subscriptions, says the report, but another 1.9 billion net additions are forecast in just six years, with the global total nudging past the 5-billion by 2011.

Total annual revenues from mobile operators are expected to grow by over 30%, surging from $769 billion in 2007 to $1.03 trillion six years later.

Informa Telecoms & Media forecasts 78% of global net additions between 2007 and 2013 to come from markets in Asia Pacific, Africa and Latin America.

Five markets — India, China, Indonesia, Brazil and Russia – will account for 47% of those 1.9 billion new users.

By contrast, mature markets in North America and Western Europe will contribute just 8% of total global net adds, reflecting the high level of saturation in these markets.

The underlying message here is that we could see a real grass-roots growth in many of these countries – the kind of economic expansion that often slips under the radar of the major news outlets.

This from Investment U:

President-elect Obama takes office in less than a week’s time. While many will be watching closely to see how he handles the ongoing financial crisis, I’ll be equally interested to see how he handles a far more ominous one: our ongoing energy and infrastructure crisis.

Regular readers know I believe energy and infrastructure are inextricably combined. We need cheap energy to fuel sustained economic growth. And we need infrastructure in place to move and dispense the energy from its source to its destination. Today I’m going to give you a perfect example of how the two are intertwined, and how one can play off the other to create a positive benefit for all.

In the face of gas prices that are less than half of what they were only a few months ago, it’s easy to think the “oil crisis” has passed. We can all return to “business and life as usual” – revert to our old driving habits – and just pay the lower price at the pump, right?

That would be a huge mistake. The real price we’ll pay will be our continued dependence on foreign oil. Last year, U.S. consumers and businesses spent over $475 billion hard-earned dollars for it.

Higher Gas Prices Are Around The Corner

With today’s lower prices forcing the cancellation or postponement of exploration projects around the world – and OPEC threatening more cuts – higher gas prices are just around the corner.

Just imagine for a minute, if – year after year – we took that nearly half a trillion dollars and reinvested it here. We’d have a stronger dollar, less susceptibility to economic downturns and recessions, and perhaps even a trade surplus as opposed to a trade deficit.

Well there’s one state that’s doing just that, setting an example the rest of the country should follow. As a result of their efforts, a growing percentage of money spent on auto fuel stays here. And car sales there are on fire. You see, these cars don’t burn gasoline. They run on a much cleaner fuel, one that’s found in abundance right here in the United States: natural gas.

We’re behind the natural gas as a fuel for cars curve, however. Worldwide, there are about eight million vehicles operating on natural gas. Here in the United States we only have 116,000. But Utah, with its estimated 6,000 vehicles, is breaking new ground. Even Utah’s Governor Jon Huntsman Jr. converted his state SUV to run on the clean burning fuel.

One word: cost.

Gas Prices In Utah – 85 Cents-A-Gallon

Natural gas prices at the pump in Utah are controlled, and are the cheapest in the nation, at the equivalent of roughly 85 cents-a-gallon. The other big advantage Utah has is the infrastructure to fill the cars. It’s fairly scarce in most other areas of the country.

And while natural gas is widely used in Europe at the consumer level, here its use is relegated to a few fleet vehicles. At the consumer level, it’s the classic Catch-22 situation. Carmakers – with Honda as the only notable exception – aren’t willing to make natural gas powered cars with so few filling stations available.

On the other side, filling stations don’t want to fork over the money to install expensive equipment to compress the gas, something that’s required in order to fill the tank on the car.

As is often the case, government intervention in the form of tax incentives or financing will go a long way towards breaking the logjam. California is leading the way, with legislation that offers a minimum $2,000 rebate to buyers of natural gas fueled cars.

Congress has legislation it will be considering this year that offers tax credits to consumers and producers alike, and mandates to install pumps at service stations across the country. The goal? Have the nation’s consumer fleet 10% powered by natural gas within 10 years.

Energy and Infrastructure Plays With a Natural Gas Bent

U.S. natural gas production remained stagnant for nearly nine years, and then in 2007, abruptly increased 9%. Improved drilling technology accounts for a large portion of the increase. Horizontal drilling and fracturing is fast becoming the preferred method of producing gas from difficult geological formations like shale.

And there’s plenty of it: Big shale deposits include the Marcellus, Bakken, Haynesville, Barnett and Woodford. Navigant Consulting, an industry consultant, estimates natural gas production can be ramped at least 50% to 30 trillion cubic feet per year between now and 2020, if necessary.

A simple way to play the gas game is to bet on one of the big producers, like:

• Chesapeake Energy (NYSE: CHK)
• Anadarko Petroleum (NYSE: APC)
• Or BP, PLC (NYSE: BP)

Once the gas is brought to the surface, it has to be distributed through our nation’s pipeline network. And that’s currently being expanded at a rapid rate to meet growing gas demand, primarily from utility customers. Take a look at three of the largest natural gas pipeline infrastructure companies in the United States:

• Kinder Morgan (NYSE: KMP)
• El Paso (NYSE: EP)
• Williams (NYSE: WMZ)

In summary, natural gas-burning vehicles represent a clean alternative to fossil fuels, and a good bridging solution until improved batteries enable meaningful numbers of plug-in electric hybrids. All the companies mentioned stand to score big if a serious natural gas auto mandate gets underway. And we’ll all be the better off for it.

Source: The Gas Prices Rollercoaster: Why Energy & Infrastructure Are Inextricably Combined

This from Investors Daily Edge:

From the government that brought you $1,000 toilet seats and $500 hammers comes the “Great Economic Stimulus Boondoggle of 2009″. Okay, while it might be an appropriate title, that’s not what it is called. President-Elect Obama’s stimulus plan is actually called the “American Recovery and Reinvestment Plan.”

In my article last week, I brought up the distinct parallels to Ayn Rand’s book Atlas Shrugged and what is happening in the financial and political world today. In a Wall Street Journal article highlighting these startling similarities, Stephen Moore tells how Rand pilloried various acts of government futility and their “benevolent-sounding titles”.

There is the:

• “Anti-Greed Act” which is meant to redistribute income
• “Equalization of Opportunity Act” to prevent people from starting more than one business (to give others a fair chance) and the
• “Anti Dog-Eat-Dog Act” to restrict competition between firms and slow the wave of business bankruptcies.

While these acts sound far-fetched, they are not too far removed from what we have seen from Washington in recent months, such as the $700 billion “Emergency Economic Stabilization Act” and the “Auto Industry Financing and Restructuring Act” which followed.

And now we look forward to what will certainly be one of the biggest government-spending programs in history – Obama’s “American Recovery and Reinvestment Plan”.

Will it work? Will it help America to “recover”? Of course not. Let us count the flaws and discuss why this plan not only will not help America to “recover”, but will make the sick patient even sicker.

In a speech before the student body at George Mason University on January 8, 2009, President-Elect Obama stated:

“It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.”

I won’t even go into the assumption that what Obama is looking to do is provide a “short-term boost.” Do you really think this will be a quick in and out procedure? Not hardly.

But the bigger flaw is Obama’s Keynesian assumption that government can fix this economic downturn by increasing spending. In some cases, government spending can boost the economy. But most economists agree that too large an infusion of government spending ultimately slows growth, raises interest rates, and makes tax increases a certainty.

Federal government spending already accounts for one out of every four dollars in U.S. economic activity. This is the highest rate since World War II and it’s only going higher.

Let’s return to Obama’s recent speech:

“Only government can break the cycle that is crippling our economy – where a lack of spending leads to lost jobs, which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”

Now we’re getting somewhere. According to Obama, what is crippling our economy is a “lack of spending” and “an inability to lend and borrow”. So our economic problems have nothing to do with loose monetary policy, the systematic dismantling of prudent regulations by crony capitalist bankers and legislators, and the parasitic expenses of an out-of-control government.

None of those things had anything to do with our current situation. Instead, we got here by not spending enough, not consuming enough and not borrowing enough. Debt is a large part of what got us into this mess. More debt will not get us out.

The President-Elect continues:

“[...] we need to put money in the pockets of the American people, create new jobs, and invest in our future.”

Obama has stated that he plans to create over 2.5 million jobs. But artificially created jobs will not boost the economy. What we need is increasing productivity. And you don’t get that through government programs.

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In a recent essay, Ron Paul wrote:

“A ‘job’ could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. The value in that paycheck ultimately has to come from taxing someone productive.”

It doesn’t take much thinking to reach the conclusion that this closed-circle economic model won’t get us anywhere, and is, in fact totally counter-productive in the long-run.

But the bigger question – one that very few in Washington seem to be asking – is where is all this money going to come from?

On January 6,  the Congressional Budget Office (CBO) released the government’s latest budget forecast. The CBO estimates that the U.S. deficit for fiscal 2009 will be nearly $1.2 trillion!

This level of deficit spending is entirely unsupportable, especially for a nation as far in debt as we are already are. But this figure is not even the half of it… literally.

The CBO estimate does not factor in the spending increases and tax cuts proposed in Obama’s stimulus package. Nor does it include new healthcare promises. And that’s not all. The CBO estimate also includes numerous unlikely assumptions. To wit, that:

• There will be no more bank failures or bailouts (just yesterday Bank of America rattled the cup for a few more billion)
• Federal revenues will remain stable (no rising unemployment or corporate losses leading to falling tax revenues)
• The government will get most of its bailout money back (the assumption is that 75% of the TARP program funds will be paid or earned back)
• Interest rates on government debt will continue to decline (these interest rates are already at more than 50-year lows, and in a recent report I sent to 20th Century Prosperity subscribers, I showed why they will inevitably rise and how to profit)

When Casey Research analyst Bud Conrad accounted for what is not included in the budget deficit along with the goldilocks assumptions, he came up with a 2009 deficit of $3 trillion!

Thankfully, besides Ron Paul, there is at least one other politician in Washington asking the question, where is all this money going to come from. Speaking to the Washington Times, Michele Bachmann (R-Minn) said:

“[...] someone has to pay for [the stimulus package] whether it’s today’s taxpayers or their children and grandchildren. There comes a time when government simply cannot provide enough government jobs to bolster the economy. There comes a time when the taxpayers’ burden to pay for all of the projects is too heavy to carry. With the trillions in bailouts and stimulus packages that have already been passed and that are in the works, that time may be sooner than we think.

“Government should not take on the role of creating the jobs and buying the goods. Government should be in the business of establishing an environment in which businesses can thrive and play those roles themselves. Americans need a stimulus proposal that actually stimulates the economy.”

I heartily agree. But I am also realistic enough to understand that that is not what we are going to get. What we will get is a massive “stimulus” program with an emphasis on infrastructure, similar to the public-works projects of the Great Depression.

If you’re looking for a way to capitalize on the government-sponsored bull market in infrastructure, I expect there will be some upside to the usual cast of companies that benefit from government construction and engineering projects. Companies like Fluor (NYSE:FLR), Shaw Group (NYSE:SGR) and Jacobs Engineering Group (NYSE:JEC).

But the real winners – in the long-term – will be those investments that benefit most from rising inflation… precious metals and precious metals mining stocks.

Source: The Great Stimulus Boondoggle (And How to Profit)

This from Money Morning:

Although ABB Ltd. (ADR:ABB) has been around for 120 years, it’s one of those rare companies that’s kept current with the times. It continues to do so and those efforts are generating tangible results.

Indeed, as Money Morning noted in its July 7 overview of ABB, the Zurich-based industrial giant is a virtual lock to benefit from the many billions in stimulus money governments around the globe will be directing into such infrastructure-related areas as highway, construction and power-generation.

These promising opportunities remain.  In fact – with the $586 billion stimulus China unveiled in early November, and the $825 billion stimulus plan that President-elect Barack Obama is kicking around, ABB’s growth opportunities have probably actually been enhanced, because infrastructure projects and job-creation are at the core of both packages.

In late October, ABB reported strong earnings for its third quarter, beating analysts’ estimates, while reaffirming its strong growth guidance for the firm’s still-to-be-reported fourth-quarter results.

In its third-quarter report, for instance, ABB reported strong (23%) year-over-year revenue growth, as well as a hefty increase in operating-profit margins (as measured by EBIT, or earnings before interest and taxes) to a healthy 14.5%.

So why are we revisiting our earlier report? What’s changed since we last looked at ABB? No surprise here: It’s the increasing uncertainty over the timing of these opportunities, given the ongoing – and, at times, escalating – global financial crisis. ABB took special note of this in the management report that accompanied its third-quarter financial statement.

“It’s too early to say how the recent financial-market turmoil will impact our markets in the short term, but our operational strength and flexibility, leading technology, competitive cost base and solid balance sheet put us in a good position to meet a tougher market. We are on target to deliver on our 2008 growth guidance,” ABB said in a statement that day.

After I published my cautious “Buy” recommendation, ABB shares rallied about 4%, a move that peaked near the end of July – which is right about the time that the Lehman Brothers Holdings Inc. (LEHMQ) saga began exerting pressure on the stock market. That saga – which culminated with the brokerage firm’s Sept. 15 bankruptcy filing – precipitated an entire chain of events, which included the rescue of insurer American International Group Inc. (AIG), and widespread de-leveraging in the hedge-fund sector, all of which we’ve covered closely here in Money Morning.

By October, this financial collapse had evolved into a credit squeeze that paralyzed the world’s key economies – including the United States – in October. As the U.S. financial system ground to a halt, and as the effects reverberated across the world, growth projections for almost every country were revised downward and international-bank financing all but disappeared.  Financing is a key issue in long-term infrastructure projects, since many of those big-ticket jobs could get delayed if financing is not readily available.

Thus, the financial crisis, has affected ABB’s stock price, both because of the forced de-leveraging and because of the downward revisions to estimated earnings per share. The stock came down from about $27 to a double-bottom low of $10 in October and November, and then rallied 50% to close the year at $15.01.

So what’s next for ABB’s shares?

For starters, the company is seeing a slowdown in large contracts: “Large project orders declined significantly, reflecting in part a comparison with a very strong quarter a year ago,” ABB stated when it reported its third-quarter results. “In addition, customers’ decisions on a number of industrial and infrastructure investments have been delayed as a result of the recent market uncertainty.”

ABB will be reporting its fourth quarter results on Feb. 12.  In late December, when it set the date for that report, ABB announced it would be taking a fourth-quarter provision of $850 million for anti-competitive price-fixing, for a legal provision for suspicious payments in the United States, as well as for a tax dispute, restructuring charges and asset impairment.  At the same time, however, the company announced it has found more than $1 billion in cost savings. That latter revelation is consistent with expected continued margin improvements, a conclusion reached in our earlier “Buy, Sell or Hold” column.

Although some issues of concern have arisen, there are a number of mitigating factors. These positive factors might even turn the story completely around in short order and will definitely be a huge plus in years to come.

As the company stated above, ABB has a number of very strong positives working in its favor. Sales in emerging economies outpaced sales in advanced economies for the first time in the company’s history in 2008. The afore-mentioned $586 billion China stimulus is heavily focused on infrastructure projects, as well as consumer spending (For an excellent overview of the overall investment opportunities China presents, take a look at my colleague Don Miller’s recent “Money Morning Outlook 2009 Series” installment on China. To read that report, which is free of charge, please click here).

But this infrastructure theme is not limited only to China. It’s a common threat that runs through virtually all the stimulus plans announced by countries all around the world in recent months. Even President-elect Barack Obama, in unveiling his own stimulus plan, made it clear that infrastructure will be a central component of his job-creating stimulus plan. One key goal: The modernization of the aging-and-inefficient U.S. energy grid.

Europe’s infrastructure is likewise old and in dire need of a major makeover. And emerging economies such as India, Brazil and Chile will continue to use their new-found wealth to stimulate their economies by staying on course with their ambitious infrastructure plans.

There’s an important point to understand here. Anytime major infrastructure investments are planned, investors can be assured that major investments in power-generation and power-transmission will be a central element of the billions in economic infusions. It has to be that way. You see, investments in power generation (and transmission) have a direct correlation with gross domestic product (GDP) growth. What’s more, as much as 90% of the world’s growth this year will come from emerging economies around the world – markets that are already driving sales for ABB.

For example, Chile’s stabilization fund has reached some $24 billion dollars, or 14% of GDP.  This type of savings by countries that pursued sound economic policies during healthy periods is now enabling those same countries to mitigate the effects of the worldwide financial crisis, even as they continue to grow.

There are relatively few emerging markets to totally steer clear of, although Argentina is certainly one to be avoided.

In sum, while the financial disruptions have slowed down the pace of infrastructure spending, stimulus packages are keeping those projects from disappearing completely – and are perhaps even serving to stretch them out.

ABB may be one of the few companies positioned to benefit from all these trends. The company has a bullet-proof balance sheet, strong margins and solid cash flow. These strengths will mitigate the fallout from the financial crisis and over the long haul will keep propelling this giant to higher profits.  The market has already discounted the slowdown, but has not discounted the cost-cutting efforts, whose details have been sketchy so far.  We continue to be very upbeat about ABB’s prospects and will look at any market weakness in the year’s first half as a buying opportunity.

Action to take:  Buy shares of ABB Ltd. (ADR: ABB). The stock has been buoyed in anticipation of the so-called “January Effect,” although the U.S. stock market has badly misbehaved since then.

Given the uncertainty, if you haven’t already established a position in ABB shares – as I urged in my prior column – then I would split my purchases so that they are made before and after the mid-February earnings report. But I would not “chase” it, and I would save some cash in order to possibly add the last 20% towards the end of the first quarter, as visibility about the U.S. and Chinese infrastructure plans improves, and as the company’s legal hassles become more clear.

Source: Buy, Sell or Hold: A New Look at ABB Spotlights a Company That’s Poised to Benefit From Global Bailout Plans

This from Fleet Street Invest:

If you’re looking for a new investment trend for 2009, look no further than infrastructure.

Around the world, diggers are mobilizing, cement lorries are loading up, and armies of road and rail workers and builders are gearing up for action.

From America to London, China to Chile, governments are ready to build their way out of the global recession with huge stimulus packages which will focus to a large degree on new infrastructure.

On 6 December, US President-elect Barack Obama outlined a plan to create millions of jobs in the U.S. by “making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.”

Obama’s plans include investments in roads and bridges as well as work to make public buildings more energy-efficient, modernize schools and improving Internet-based communication and its availability around the country.

Meanwhile, here in the UK the government has also announced a £18 billion stimulus plan – with huge chunks of money for infrastructure. News agency, AFP, also reports “a massive public spending plan to pump more than $32 billion into Argentina’s infrastructure.”

A dominant investment theme for 2009

And as American colleague Chris Mayer puts it, this is a dominant theme for 2009: “Think of it as a kind of contagion. Soon every government with a slowing economy from Capetown to Moscow, from Brasilia to Bangkok, could follow suit.”

Robert Markman, portfolio manager of the Markman Global Build-Out Fund, concludes that Governments around the world “are making plans to jump-start their economies by throwing hundreds of billions of dollars at infrastructure projects”.

This could lead to a great 2009 for companies that make cement, steel, asphalt, and anything else you can think of that goes into building things. Not to mention the companies that supply the machinery which the many infrastructure projects will need to get things built.

Now’s the time to start looking for ways to play this emerging mega-trend, especially as share prices for these kinds of companies have – along with everything else – corrected so sharply in the past year, many of them now look very cheap.

So, how to play it? Well, we’ll be conducting some in-depth research here at Fleet Street on the best ways to profit from the coming infrastructure boom. We’ll pass on our best ideas when we’ve worked things through.

But we have some early thoughts that we’ll be following through to see if they stack up…

Long-term investors keen to buy into the market might consider the kind of companies that will be at the forefront of the building projects. Companies like US-listed Caterpillar (NYSE:CAT) should be in great demand as building gets underway.

According to a recent report from Associated Equipment Distributors, a construction industry body, for every dollar spent on highway construction, an estimated 6.4 cents will be used toward the purchase or lease of equipment or on major repair and maintenance. The report also predicts that, 12 cents out of every dollar spent on water infrastructure projects will go towards construction equipment. That’s good news for companies like Caterpillar.

Eight months ago, Caterpillar was trading at over $85 dollars, but you can pick up shares now for a little over $45. With this kind of planned demand, Caterpillar looks pretty cheap on its current single-digit P/E ratio – one certainly worth taking a closer look at.

Closer to home, another beneficiary could be Zurich-based ABB ltd (ADR:ABB) The company is the global leader in the business of building, refurbishing, and creating the supplies for industrial, municipal, and national power supplies. It should also be a huge beneficiary of China’s $586 billion stimulus package, which is aimed at infrastructure build-out. We’ll be checking that one out, too.

As I said, we’ll be looking closely at this growing trend in the months ahead. When we have found the individual shares that we believe are best placed to deliver solid gains from the global infrastructure boom, we’ll let you know.

Battered ETFs offer an easy way in

In the meantime, consider some of the many tracker investments that have been created for exactly this kind of investment story. In recent years, there have been lots of infrastructure-related exchange traded funds (ETFs) launched. This was as a direct result of investor appetite for an easy way to play the long-term global infrastructure boom driven by emerging-markets countries.

Of course, this boom looked like it had been derailed in 2008 following the credit crunch and the huge slowdown in global growth. Suddenly, emerging markets fell out of favour.

But the smart investor will realise that this is only a temporary setback. Emerging markets will get back on track and keep emerging. And the coming stimulus shock from all around the world will keep countries building new roads, railways, bridges, schools and broadband internet infrastructure.

ETFs investing in industries including construction, engineering, utilities, building materials, industrial equipment and metals may have been battered in recent months. But they could be due a very powerful rebound in the months and years ahead.

Source: Revealed : The Biggest Investment Trend Of 2009

This from Money Morning:

The Chinese word for crisisis weiji.

But get this – when translated literally, wei means danger and ji means opportunity.  So to the Chinese, a crisis – or danger – represents an opportunity.

Of course, you don’t have to actually speak Chinese to understand what this mindset means for investors.

What you’re seeing in China today is nothing less than the classic definition of a crisis presenting the profit opportunity of a lifetime.

While investors in U.S. markets are mostly concerned about saving their necks, China has been stacking the deck in favor of those who have the guts to pull the trigger on the most undervalued market in memory.

Here’s why you should consider taking an early position in China in 2009.

The Mother of All Stimulus Plans

While it’s not old news, the current crisis in U.S. financial markets is all too familiar.  The Standard & Poor’s 500 Index is down almost 40% from its 52-week high and there seems to be no end in sight.

Worse, the malaise encompassing the United States has clearly spread to the rest of the world, including China.

So it appears that what investors once considered to be the greatest investment opportunity of our lifetime has imploded – just another financial black hole where portfolios go to die.

Truth be told, however, there is ample evidence that China’s economy and markets will weather the storm and ultimately thrive in the year ahead.
The Chinese economy has been the fastest growing in the world for the last three decades, averaging double-digit growth for the last seven years.  And while the credit crisis has slammed on the brakes in terms of growth in the West, China is still on track for a solid 8% growth in 2009.

But the Red Dragon isn’t about to take any chances.  With $2 trillion in foreign exchange reserves available, China can increase the growth rate of its economy – even as it works to boost economic recovery efforts elsewhere in the world.

And that’s just what it’s about to do.

The People’s Republic of China has already announced a $586 billion (4 trillion yuan) spending package.  To put that in perspective, this plan amounts to a staggering 20% of China’s gross domestic product (GDP).  Compare that to the $1 trillion in U.S. bailouts, which equate to about 8% of GDP.

And China’s reserves won’t be doled out in dribs and drabs. The plan calls for spending the whole amount in just a few years.

To further grease the recovery skids, China has reduced interest rates five times in the last three months, and loosened lending rules.  Now China’s banks are perfectly positioned to get the ball rolling, flush with cash from a world-leading savings rate of 35%.  And because they are state-owned, the cash will flow quickly from the banks to government projects.

The convergence of the recent market swoon and the stimulus plan means you now have the opportunity to buy great companies at the dawn of the Chinese century.

But specifically, where should you look to park investment capital in the Chinese market?

Well, there are solid plays across all spectrums of China’s economy, but the best are in infrastructure, consumer goods and energy.

Infrastructure Paves the Way to Profit

The first place to look is infrastructure development, which has been the main engine of China’s explosive growth over the past two decades.

While most believe China’s economy is export driven, statistics show public works spending accounts for 4%-6 % of the country’s GDP growth. From 2007-2010, China will spend a whopping $725 billion on infrastructure improvements in a race to accommodate its rapidly migrating populace.

By 2030, 1 billion of its people will live in cities, up from 600 million today.  About 170 mass-transit systems will be needed.  Another 40 billion square meters of floor space will be built in 5 million buildings – 50,000 of which could be skyscrapers.

And all of these developed regions will be connected by new roads. Shorter transport times drive down costs, and smooth the transition to city living for China’s exploding middle class.

Plans for China’s road system call for 12 major routes across the country from north to south and east to west connecting millions to new routes of commerce, according to The Wall Street Journal.  The system will stretch 53,000 miles by 2020, surpassing the 47,000 miles of roadways in the United States.

It will take massive amounts of steel, cement, and bulk transportation to build those roads.

Money Morning Contributing Editor Martin Hutchinson believes one big winner from the infrastructure boom will be Vale (ADR:RIO) the world’s largest producer of iron ore. As the world’s leading producer and consumer of steel, China is also the world’s leading importer of iron ore, which – along with coking coal – is a key component in steel production.

And while prices and demand for Chinese steel fell sharply in the second half of 2008, they are already beginning to pick back up.

In fact, steel production in the Chinese city of Tangshan, in the Hebei province, has risen to more than 70% of capacity as companies resumed output after prices stabilized, the Tangshan Evening News reported Dec. 26. About 39 out of 57 iron and steel factories in Hebei, China’s biggest steel-producing province, are operating now, compared with 25 in August.

Tangshan is an industrial-level city in that steel-rich region.

“The iron-ore stocks have been overly poorly treated in the past couple of months with all the fear over China,” Michael Heffernan, a client adviser with Austock Securities Ltd., told Bloomberg News.

“Negativity over the Chinese situation is overdone,” Heffernan added. “In the past couple of months the Chinese may have been posturing to get the best possible deals they could when negotiations over contract prices reopen.”

That’s good news for Vale, which looks attractive with a Price/Earnings (P/E) ratio of only 8.6.

A big source of China’s iron-and-steel demand has to do with the country’s commitment to railroads. A full $100 billion of the stimulus package will be spent on rail services.

That makes Guangshen Railway Co. Ltd. (ADR:GSH) a good play.

Guangshen Railways is the biggest rail operator in China with cargo and passenger operations between Guangzhou and Shenzhen, as well as Hong Kong.

There is an acute shortage of rail capacity to carry raw materials from China’s western provinces to manufacturing centers on the Red Dragon’s East Coast. Right now, cargo capacity is only 35% of demand, according to the Chinese Railway Ministry.

That helped revenue at this $94 billion company to jump 17% in the first three quarters of 2008, despite a crippling snowstorm in January.  Guangshen also yields about 3%, rewarding investors who are willing to hold the shares as they wait for the stimulus to kick in.

China’s Urban Migration and Growing Consumer Class

The opening of new highways is providing greater mobility to China’s population, accelerating the massive move from the hinterlands to the cities. Incredibly, China will have 221 cities with more than one million inhabitants by 2025 – compared with 35 in Europe and nine in the United States today.

Quite simply, that urban migration is responsible for creating the largest consumer class the world has ever seen – a middle class greater than the entire population of the United States.

Retail sales in China are estimated to have risen about 21% in 2008, according to the Ministry of Commerce. And now that weakness in the global economy has dented exports, the government is making an even greater effort to boost domestic consumption.

That’s why Money Morning Contributing Editor Horacio Marquez likes China Life Insurance Company Ltd. (ADR: LFC).

China Life is experiencing continued growth for reasons unique to government regulations.  Without a social security system, Chinese consumers must fund their own retirement – one reason the Chinese save an amazing 35 cents of every dollar they earn.

Also, China Life’s investment portfolio hasn’t been hit by the market meltdown, because government regulations prevented the company from owning subprime-related mortgages and securities. With 43% market share, Moody’s Corp. (MCO) expects premiums to grow between 30% and 40% in 2008.  And right now, only 3% of China’s consumers own life insurance, leaving plenty more room for growth.

Another company worth looking at is China Mobile Ltd. (ADR: CHL).

With 443 million subscribers, China Mobile is the dominant provider in the world’s largest mobile telecom market.  And in terms of growth, an additional 3 million to 4 million consumers become mobile phone subscribers in China each month, according to the Chinese Ministry of Information.

The company’s earnings per share (EPS) increased 31% in the first three quarters of 2008 and China Mobile stock yields a healthy 3.2%.

Now, the mobile services giant is in talks with Apple Inc. (Nasdaq:AAPL) to introduce the iPhone to the burgeoning Chinese market.  And with the global slump hurting smaller players, it’s on the hunt for acquisitions with attractive valuations in emerging markets.

Soaring Energy Demand = Growing Profit

Despite a slight slowdown in the economy, China’s energy appetite continues to grow at a ravenous pace. And even though the country is building one coal-fired power plant a week, China’s unable to keep up with exploding demand.

China’s electricity consumption rose 5.2% in 2008 and investment follow.  A total of $84 billion (576 billion yuan) was invested in the sector in 2008 – a 1.52% over to 2007.  Power grid spending rose 17.69% to $42 billion (288.5 billion yuan).

As with other forms of infrastructure, China plans to up its investment in electricity over the next several years. China has already announced $29 billion in new energy projects, including a new natural gas pipeline, construction of 10 new nuclear power plants, and a new coal mine, set to produce 14 million tons of coal a year.

Here are two solid profit plays on the new infusion of cash:

Money Morning Investment Director Keith Fitz-Gerald likes Yanzhou Coal Mining Co. Ltd. (ADR:YZC).

China burns more “black rock” than the United States, Japan and Europe combined, and this company is one of China’s biggest coal suppliers. It produces lots of high-grade, low-sulfur coal, which burns cleaner and fetches a premium price.  The company also boasts profit margins of 22% in an industry where the margins average about half that amount.  For the first three quarters of the year, the company posted profits that were up 364% from a year ago.  This kind of growth, in a stock that’s trading at three times earnings, is a big time potential bargain – especially given its dividend yield of 4.3%.

Both Fitz-Gerald and Hutchinson recommend like Huaneng Power International Inc. (ADR:HNP), as well.

Huaneng is the largest utility in China, and is a virtual lock to benefit from growth in any form. It owns 16 operating power plants, and has controlling interests in 13 others. As a state-owned enterprise, it has the contract to produce the power for the entire eastern region of China, including Shanghai and Beijing.  Although it’s been generating losses lately due to high coal prices, the power company is likely to increase output and profits with any economic expansion.

If you’re leery of investing in individual stocks you might want to look at the Templeton Dragon Fund Inc. (NYSE:TDF). Over 80% of the closed-end’s assets are directly invested in China. And with roughly 50 positions, it provides ample diversification.

PS. This is the tenth installment in Money Morning’s “Outlook 2009” series, which looks at the global investing outlook for the New Year.
Source: China’s Red Dragon Turns Financial Crisis into Opportunity

This from Smart Profits Report:

Six weeks from today, Barack Obama will take the oath as 44^th president of the United States.

Since his election victory, the more he’s said about “getting to work immediately” and having “no time to waste,” the more I think the inauguration ceremony will be a time-consuming inconvenience, distracting him from fixing America’s problems!

One key area in which he’s pledged to spend his way out of the mire is by tackling the country’s aging and rapidly deteriorating infrastructure. He plans to make the largest investment to repair and upgrade the country’s public works systems since Dwight Eisenhower spearheaded the nationwide interstate highway system in the 1950s.

In short, this means utility industries like electric and water will receive huge cash infusions. Roads and bridges will be repaired and rebuilt. Schools will be modernized, part of which will include improving Internet access to a nation that ranks 15^th in the world in broadband adoption. Energy efficiency, particularly in government buildings, will be increased. The healthcare industry will make greater use of technology to streamline and computerize medical records to cut costs.

That’s the plan anyway. And Obama says it will create 2.5 million jobs by 2011. But we want profits. Read on to find out how you can grab some…

It’s The Economy, Stupid… Six Weeks Away From $500 Billion Rescue Plan

Obama’s economic brain trust is currently “busy working, crunching the numbers… to determine what the size and scope of the economic recovery plan needs to be. But it’s going to be substantial.”

Kinda vague right now, I know. But early estimates put the economic recovery bill at $500 billion. In terms of infrastructure upgrades, 5,000 road and bridge projects could get underway immediately after Obama puts his autograph on the bill.

Here are some investments that could revel in the building boom…

Brick By Brick… Bridge By Bridge

When the U.S. infrastructure sets to have a sweaty wad of cash lobbed in its direction, construction firms are lining up to grab a share of the spoils, as the need for equipment and raw materials rises.

Appropriately, we start in Obama’s home state of Illinois, which is also home to the world’s largest manufacturer of construction and mining equipment, engines, and industrial turbines. Founded in 1986 and based in Peoria, Caterpillar (NYSE:CAT) has shot up from $37 to over $43 over the past five trading days, as it feeds off the infrastructure buzz.

One of Caterpillar’s fellow Illinois-based construction equipment manufacturers, Deere & Company (NYSE:DE), could also be set to extend a share price boost that has seen the price surge from the upper $20s on November 20 to over $38 today.

If you want a more diversified way to play the industrial and construction sector, take a look at the ETF, the Industrial Select Sector SPDR (NYSE:XLI). ETF’s are a smarter investment choice in a rollercoaster market; our Guest Editorial on Good ETF Investments tells us why.

On the engineering front, head west and look no further than California’s Jacobs Engineering Group (NYSE:JEC), which is the largest publicly traded engineering firm in the U.S. The infrastructure love is spreading across the sector, as the stock shot up today on news that it has secured two more contracts…

1. A five-year, $17.5 million contract from the Peninsula Corridor Joint Powers Board (JPB) that will see Jacobs serve SamTrans and the San Mateo County Transportation Authority (SMCTA) agencies to work on three programs. This includes project management, scheduling, budget management, and more.
2. A contract from Pima County, Arizona to provide project management and construction inspection services for the Ina Road water reclamation project. Construction costs here will total about $200 million.

Jacobs pulls in a whopping $11 billion annually and employs more than 57,000 workers – a number that could grow under Obama’s bold plan.

And speaking of water, if you’re looking to cash in on this critical industry amid a surging global population, increasing pollution, and a depleting, finite amount of water resources, check out leading firm Watts Water Technologies Inc. (NYSE:WTS) or the sector ETF, PowerShares Water Resources (NYSE:PHO), which tracks the price and yield performance of the Palisades Water index.

Be sure to also pay a visit to our own free Smart Profits Report research section, where you can read much more about the water problems facing the world – and the vast profit potential that the industry holds. We’ve got two in-depth (pun intended) water reports up there. An earlier issue titled, The Water Industry analyzes how the economics of this increasingly scarce commodity are shaping our world.

Get Raw

On the raw materials side, several firms spring to mind as potential winners of the Obama Infrastructure Initiative (I just made that term up). And as Jim Cramer might say, they’re “best of breed” in their industries.

Cement: South of the border – in Garza Garcia, Mexico, to be exact – you can find Cemex (NYSE:CX), a world leader in producing, distributing, and selling cement. And when it comes to infrastructure rebuilding and repairs, you don’t get many more commodities more important than this one. Its market cap of almost $8 billion is evidence of this.

Steel: Talk about a liftoff. U.S. Steel Corp. (NYSE:X) shares have surged from the mid $20s on November 20 to a current price around $37, having enjoyed its biggest daily jump in almost 20 years on Monday.

Copper: Its 52-week high on May 21, 2008 was $127.24. Its price now sits around $20. Quite a slump for what is the largest publicly traded copper producer, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). You can blame the prolonged commodities sector slump for that, in addition to the stock market’s woes. But in an Obama-fueled infrastructure rebuilding rampage, I’m betting on a resurgence here.

Aluminum: Go large. The leader here is Alcoa Inc. (NYSE:AA). Like FCX, Alcoa has endured a rocky year. Having traded at a 52-week high of $44.77 in May, the stock market’s tank job has whipped this stock into submission. Shares are currently trading around $9.50 and with a 0.37 PEG ratio (Price/Earnings-to-Growth), the market thinks it’s ridiculously undervalued.

The bottom line here is that companies like these could all stand to profit from a huge ramp up in infrastructure spending. What’s more, they’re all solid, well-established, industry-leading firms in strong cash positions, doing business in areas where there are clear, critical needs. If you’re looking for outperformers, infrastructure stocks are set up well for 2009.

Source: From Eisenhower To Obama… The Firms Poised To Cash In On The New U.S. Infrastructure Revolution

This from Investment U:

Consider that your computer could contain up to 38 separate chemical elements and that all of those elements needed to be mined and refined. Everything from cell phones to housing supplies requires massive amounts of raw materials.

Our modern lifestyle encourages us to buy the latest products, all made with increasing amounts of technology – and more raw materials.

But industrialized nations aren’t the only players clamoring for these commodities. Developing nations around the world are pounding the table for more of everything. They want what the industrialized west has had for years. And they want it now.

And that’s just the problem. There isn’t enough of it being produced fast enough to satisfy everyone. An imbalance exists between producers, supplies and the market. It means that there will be an inevitable correction.

Prices will skyrocket for base metals and commodities. And for investors aware of this “supercycle,” the rewards and returns could be immense. Here’s what you need to know about the international demand for commodities – and how you can profit from their price explosion.

Supplies Are Low – And Demand Remains High

The whole idea of a supercycle, of higher commodity prices, remains well intact. Even with the recent slowdown, a massive supply/demand imbalance exists in the marketplace right now.

And nothing has emerged to change that story.

“It is a mistake to assume that current volatility within the commodities sector is proof that the prolonged rally in commodity stocks is running out of steam,” says Ian Henderson, manager of the JPM Natural Resources Fund.

“It is also misrepresentative to attribute it to a change in the basic fundamentals of supply and demand… In reality, it is the self-perpetuating irrational market sentiment in itself which is causing a sell off…”

In the short term, however, we’ll likely continue seeing a softening of commodity demand, along with a decline in prices. But that’s okay because stock prices already reflect the new paradigm in which mining companies are operating.

Mining companies sit at extraordinary valuation levels right now. So buying now ensures that you’re grabbing shares at rock-bottom prices.

But in order to make the most of the opportunity, you need to look above the forty-ninth parallel, to Canada – the world’s investment hotspot for profits from the bull market in metals.

Simply put, Canada is the preeminent leader of the world’s mining sector. According to Paul Stothart, Vice President of Economic Affairs at the Mining Association of Canada,

“About 19% of the total global spending on mining exploration was for exploration within Canada’s borders, well ahead of Australia at 13% and the U.S. at 8%…”

Consequently, Canada’s mining industry will be crucial to satisfying the world’s needs because of its experience and technological capacity. And Canada’s mining-friendly laws only add to the country’s investment appeal – a far cry from other resource-rich countries where regulators are downright hostile. But it’s not just the producing nation that we need to worry about.

Fact is, the United States, Europe and Japan are no longer the only countries vying for the world’s resources. Other countries with young, blossoming economies are now demanding an increasingly larger piece of the pie.

The BRICs (a conceptual coalition of emerging superpowers, which includes Brazil, Russia, India and China) encompass over 40% of the world’s population and hold a combined GDP of $12 trillion dollars, which makes it the largest entity on the global stage on almost every scale.

These countries are in the midst of an unparalleled building boom that is consuming resources like never seen before.

In China right now, a city the size of Philadelphia is springing up every 30 days. (It is estimated that China will need enough structural steel to build a Manhattan’s worth of new buildings every year for the next two decades.) And within another 20 years, China’s economic output is likely to be greater than Japan’s, greater than Germany’s, greater, even, than the United States’.

In short, these countries are going to be fueling international growth for years to come. They’re hungry for the new resources needed to continue their astronomical growth.

Solid Growth at a Deep Discount

Now that you see the potential, there are plenty of ways to profit from this commodities boom. You could trade futures… stockpile gold coins… even buy a copper mine. Unfortunately, none of these approaches – for obvious reasons – are very practical. They don’t make sense for the majority of investors.

But that doesn’t mean that we can’t profit like the titans of Wall Street. The recent turmoil in credit markets – and corresponding volatility in the stock market — has handed us an extraordinary profit opportunity for a number of companies

So we’re advocating a more direct approach to mineral profits. With such a pure supply-and-demand opportunity, a more pure play on precious metal prices is warranted for the largest gains. Accordingly, we’re going straight to the source and recommending buying shares of the mining companies themselves.

Lundin Mining Corp. (NYSE:LMC) is a Canadian mining company with facilities located around the world, which is run by its namesake, the Lundin family. They are easily the most important family in mineral and energy exploration finance around the world.

They amassed a fortune in commodities – valued in excess of $4 billion – when oil cost about $20 a barrel and gold traded for $300 an ounce. By having an innate ability to spot value. In fact, just about everything this family associates with ends up being a massive commercial success.

The Lundin family’s flagship mining operation is trading in the $1 to $2 range, which is about 70% off of its October 2007 high, thanks to the recent commodity cool-off. That means that investors who buy now will get this incredible mining operation for less than half of its book value. Even better, our analysts say that the book value should be much higher than it is, which makes the case for investment here even stronger.

Furthermore, LMC has no debt, which gives it an incredible edge over most other industry players. It can fund its growth entirely on the cash it generates from operations – and not have to rely on the credit markets.

Fact is, the credit crunch is far reaching. And tighter lending practices have meant fewer loans to risky mining ventures. That leaves most miners in a pinch – but not LMC.

Lundin Mining is a phenomenal play on base metals, specifically copper, nickel, lead and zinc. Its operation includes six mines around the world, including five key mines in Portugal, Spain, Sweden and Ireland. Here are some highlights of these massive and highly productive mines:

• Zinkgruvan, Sweden: The primary metal produced is zinc, with lead and silver as byproducts. Costs have been reduced by 22% over the last year and new copper production is scheduled to begin in 2010.
• Neves-Corvo, Portugal: It’s an underground copper and zinc mine. Last quarter’s sales surged 52% over the same quarter a year ago. And it just approved a new program to profitably process mine tailings, which should substantially improve margins. (Mine tailings are the materials left over after processing the ore.)
• Aguablanca, Spain: This nickel and copper mine recently bumped operating efficiency up 46%.
• Galmoy, Ireland: About 100 miles from Dublin, the lead and zinc mine benefits from having a sound infrastructure already in place.
• Aljustrel, Portugal: The lucrative zinc mine is still ramping up capacity, which gives us an opportunity to get in on the ground floor.

What’s more, Lundin Mining has a few up-and-coming operations in the pipeline that are showing incredible promise, too.

One is the world class Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo. It’s being touted as the largest and richest known copper/cobalt discovery in the world, covering almost 600 square miles of the Katanga Province. This blockbuster mine has an expected life of 40 years. And is projected to be in the lowest quartile of operating costs for copper producers.

The reasons for owning Lundin are numerous, but in spite of its enviable (and growing) inventory of proven reserves, shares can be had for a steep discount. The company is valued at $2 billion, which is only 0.63 times its book value. Even better, the forward price-to-earnings ratio is a measly 5.73, despite the company’s mines having a growth rate around 30% to 35% a year.

The market’s been noticing Lundin’s value as well. In recent days, a takeover bid has emerged that could drive share prices higher if it’s approved. However, in light of the number of merger agreements that have gone unfulfilled, there may not be a takeover.

Regardless, of whether it happens or not. These developments should serve to remind you that while the market may not see the value in Lundin, it’s competitors do. And so do we.

Source: Unearth Big Gains from the Commodity “Supercycle”

This from Investment U:

The other day, a neighbor knocked on my door to ask me if I could do a welding repair on his riding lawnmower. Welding is tricky business, and it’s more art than science. Making a good strong weld takes many hours of practice making bad ones. I can personally attest to this.

My wire-feed welder surrounds the welding area with carbon dioxide gas (CO2), which keeps oxygen away from the weld site. This results in a strong professional looking weld.

As I started the job, I realized I was out of CO2, and would have to make a quick trip to my local distributor, Airgas Inc. (NYSE:ARG) for a refill. The reasons I go there are the same as why you need to take a look at this unique company.

I’ve never been when they weren’t busy – this visit was no exception. And for good reason: Airgas is the largest distributor of packaged medical, industrial and specialty gases in the country. The company sells over 43 specialty gases from nearly 1,100 retail and service stores nationwide from their base in Radnor, Pennsylvania.

Airgas Inc. – The Largest Producer of CO2 & Nitrous Oxide

Founded in 1982, Airgas is the largest producer of CO2 (both liquid and gas), dry ice (frozen CO2) and nitrous oxide (more commonly known as laughing gas). Airgas maintains over 30 regional specialty gas research and development laboratories and operates more than 150 gas filling stations.

• CO2 in its various forms is used in the medical, industrial and food preparation industries.
• Nitrous oxide is used in the medical and dental industries as an anesthetic and also as an aerosol spray propellant.

Airgas manufactures its various gases at 14 air separation plants located around the country. They operate 19 plants that manufacture acetylene – a highly explosive, specialty gas used primarily by the chemical industry to synthesize other chemicals or for high temperature welding and cutting.

In addition, Airgas also sells gas related products such as regulators, flow meters, check valves, gauges, purifiers and gas detection equipment. It maintains a full line of welders and welding equipment as well.

Business Couldn’t Be Better For Airgas Inc.

Business couldn’t be better for Airgas Inc. – even in this tough economic environment. On October 23, Airgas announced record earnings and strong growth in sales and operating income for its second quarter ending September 20.

Quarterly earnings were up 44% to $72.8 million on a sales increase of 15% to $1.2 billion – fueled by acquisitions, an increase in same-store sales of 8% and a 12% hike in gas sales and cylinder rental.

Peter McCausland, the company’s CEO since its inception, said, “We are performing very well in a moderating economic environment, and our expanded offering that targets infrastructure construction has been successful in gaining new business, particularly in the power and energy sectors.

“About 40% of our sales come from our strategic products, which posted 11% organic growth in the quarter and are focused on the medical, life sciences, research, environmental and food and beverage markets.

“Acquisition activity has been strong in the first half of our fiscal year, with a total of six acquisitions and $142 million of acquired annual revenue to date. We are expanding returns by effectively integrating acquisitions and leveraging our extensive distribution infrastructure.”

Airgas Inc. Increases Quarterly Dividends

Things are going so well, in fact, Airgas Inc. reiterated its 2009 full year earnings guidance of $3.30 to $3.40 per share, and increased the quarterly dividend 33% to $0.16 per share.

The company continues to generate strong free cash flow, even while funding numerous plant projects that will be operational in the next year. Airgas is somewhat insulated from the economic slowdown since many of its products are used in maintenance and repair of aging infrastructure, and in the medical and food industries.

Shares of Airgas hit a 52-week low of $27.09 on October 24 and have soared 37% in just the last week. At present levels, the stock trades at a very respectable P/E of 12 and sports a 1.72% dividend yield.

As many of you who’ve been regular Investment U readers know, I’m a big fan of the infrastrucutre and energy sectors. As we wait for the broader markets to recover, the infrastructure service sector looks like it will be a great place to invest. Investors who want more exposure to this sector might want to consider adding a few shares of Airgas to their portfolio.

Source: Airgas Inc. (NYSE: ARG): This Company’s on Fire…