by Carl Delfeld, Global Markets Strategists, The Oxford Club
Thursday, September 20, 2012: Issue #1865
The world is certainly becoming a more complicated and even puzzling place.
What first appears as a great opportunity is sometimes a mirage. And the biggest winners often looked like dead money…
This means you have to follow not only the ripples – but also look below the surface for investment opportunities.
Take the Apple (Nasdaq: AAPL) iPhone 5 rollout. Based on robust pre-orders, analysts are doubling their sales estimates. One has even gone out on a limb, predicting 50 million unit sales before Christmas.
But think about all the ripples from the Apple story. America’s brand as the best place for innovation and technology has been greatly enhanced. The vast majority of value added to Apple products remains in America from top management to the tripling of sales guys in Apple’s flagship San Francisco retail store to handle the iPhone 5 frenzy.
Then, there’s the vast shareholder wealth created by its booming stock as it crosses the $700 level. How many start-ups will be funded from this pile of cash? How many pensioners will benefit from their asset managers loading up on Apple stock?
But the ripples don’t stop at America’s shores. On the back of every Apple device is this label: “Designed by Apple in California. Assembled in China.”
The Shanghai stock market has sharply underperformed U.S. and global markets so it’s both out of favor and very cheap. But Foxconn (OTC: FXCNY), the Taiwanese manufacturer of Apple’s iPad and iPhone, announced that it plans to hire up to 400,000 new workers in China over the next year. This brings Foxconn’s Chinese workforce to 1.3 million and its total revenue jumped almost 50% in the first half of this year. Its stock was up over 11% on Monday.
Meanwhile, recently adjusted U.S. industrial employment declined 15,000 in August.
Then there’s the trade angle. A Barclay’s analyst, Jon Windham, estimates that as much as one third of Chinese export growth in the fourth quarter of this year will be Apple related. Wow.
Following the Ripples Even Further…
Now we can follow the China ripple to a stock that’s likely to get some Apple jet fuel – China Mobile (NYSE: CHL). China Mobile has 655 million mobile subscribers, but is just beginning to roll out its iPhone-compatible 4G service. The company has plans to expand 4G base stations from 900 units to 200,000 next year.
However, a key question I am looking into is this: “Will the Chinese government, which owns 74% of China Mobile, simply give this huge opportunity to Apple or do they have another less welcoming strategy in mind?” I’ll keep you posted with my findings…
Next, let’s look at the sorry state of a Japanese stock market that’s trading at its biggest discount to U.S. markets in more than five years. Global asset managers are sharply underweighting Japanese stocks even though they’re trading well below break-up value.
But the flip side of the equation is that Japanese multinationals are loaded with cash and wielding a super strong yen to go on a corporate buying spree. One example is Japan’s big trading company Itochu’s (OTC: ITOCY) announcement this week of a $1.7-billion deal with Dole Foods (NYSE: DOLE).
We all grew up with the Dole brand at the breakfast table. And, founded in 1851, it is the world’s largest food and vegetable producer best known for its bananas and pineapples.
Just a few weeks ago, I was doing some research on American consumer companies focused on Pacific Rim growth. Dole Foods sure looked like a good prospect since it has strong brand and could tap into a rising middle class eager to improve diets.
I was thinking that the coming decades would be a golden age for Dole and its shareholders. So now, instead of being at the sweet spot of Pacific Rim growth, Dole is simply giving it away. This deal will give Itochu exclusive rights to the Dole trademark on packaged food products worldwide and on fresh produce in Asia, Australia and New Zealand. Dole will use the $1.7 billion to pay down debt.
Stay tuned for more twists and turns.