|
My four best picks for 2000 and beyond:
Airplane tires, plastic wood, battle-hardened computers, and candybars for fat boys
Hang on a minute: I know what you're thinking. "This combination makes absolutely no sense!"
Well, it really does.
Because each of my Top Recommendations for 2000 not only involves a real company with a real product and real profits -- each and every company also capitalizes on a major trend that I see materializing in the months ahead:
The complete recovery of Asia.
The trend toward synthetic building materials in a burgeoning construction market.
The trend toward personal electronics, especially in high-stress non-office environments (such as elementary schools and combat zones).
And last, the ongoing aging of the Baby Boom generation.
Forget about Y2K, what about R2K?
As I pointed out earlier, for the past year and a half, small caps have not enjoyed the across-the-board successes of their bigger compadres. The market has been too fascinated by the promise of the bloated dot.coms to put any money in the only reliably explosive market segment.
That glum picture may finally be turning around. The Russell 2000's chart clearly indicates a change of heart, with a strong breakout at 425 that may give us our first new highs since April '98.
In fact, 2000's picture is beginning to form quite clearly. Asia is returning to prominence (or at least sanity) and this return will continue to put upward pressure on gas prices and downward pressure on the price of Nikes. As the former Asian tigers make themselves felt, I see an increased amount of travel to the Eastern Hemisphere.
However, most of the Asian stocks are already too expensive for my tastes. Common sense dictates that we find a cheaper seat.
Stuck in Seoul
An old friend of mine is a troubleshooter in the international import-export business. He's the guy they call when they need it here yesterday and it's stuck on the tarmac in Seoul. And the guy I talk to when I want to get a sense of what's really going on outside my little dog-patch corner of the world.
He and I got together recently to tip a pint or three and catch up with each other. He was telling me about a particularly hideous situation: His best customer in Europe wanted to close a deal on widgets from South Korea. The customer's flight from Paris was stacked up somewhere over the Atlantic. The vendor's agent was stuck in Osaka in a mile-long queue for his flight to Dulles International.
Meanwhile US$2 million of widgets were languishing on a runway in Kuala Lumpur, while the pilot waited for a left-handed johnson rod for a 29-year-old 727 to show up before he could fly on to the next stop.
Faxes flew, the e-mail ether sizzled and before the dust settled, Eric managed to get each piece of this Chinese puzzle to the right continent in something close to the right time.
Through the roof
It's clear to anyone in the biz that the Asian Flu is over, with a capital O. Asian goods are in high demand around the globe. China's GDP is expected to climb 7.3% per year over the next 10 years and Southern Asia is expected to pick around 4.85% during the same stretch. This growth is pushing business travel and airfreight is through the roof, both around the Pacific Rim and between Asia, Europe and the United States.
 This increase in air flights is going to be a huge shot in the arm for the ailing aerospace industry. Boeing expects the world's air fleet to more than double over the next two decades, from 12,300 planes in 1997 to 17,700 planes in 2007 and 26,200 planes in 2017.
This is sweet news for investors in Boeing and Airbus, if they don't mind waiting a few years for retooling, hiring, training, construction delivery and payment. A soul could grow old and die waiting for what will probably amount to a 20% increase in Boeing stock.
Cheap seats for a hot ride
The way to get in on the boom now, before any more gray hairs show up, is to invest in the companies that will fill the gap in the meanwhile. It's anticipated that over 70% of the future fleet will be older, refitted aircraft--limpers, kept aloft by companies like American Aircarriers Support (NASDAQ: AIRS).
AAS sells and leases what breaks on beat-up old airplanes. They supply airlines and air freight companies with virtually any part from nose to tail, from rebuilt Pratt and Whitney and GE engines and engine components to overhauled airframe components from Boeing, McDonnell-Douglas and Airbus.
In a pinch, AAS can even change the tires on your landing gear (can't you just picture a pilot kicking a flat on a runway somewhere in Hanoi? Eric can. It happened to one of his flights last week). They do it fast, they do it globally and they do it for less.
With agents operating in Asia, Europe and the States, AAS is in position to capitalize on the incipient Asian boom long before Boeing or Airbus can deliver new planes to operators or new profits to investors.
 Tough guys
There are relatively few operators in this field with the capital, organization and know-how of AAS. Most of the trade is fragmented and specialized. Led by the remarkably charismatic CEO and 40% owner, Karl Brown, this is a crew of tough-minded competitors.
Already one of the most profitable companies of their size operating in the sector, with a 21.07% operating margin and a 11.49% net margin, AAS plans on becoming a major player in the international arena.
To achieve this goal, it has focused on bulk purchase of excess airline inventory as well as simply buying competitors outright. AAS has engaged in a yearlong acquisitions binge, buying up smaller companies for their product lines, service areas, customer lists and inventories. In the last 12 months, it bought:
- Global Turbine Services and Turbine Inspection Inc, both total engine management companies
- all the operating assets of American Jet Engine
- Global Air Spare and Atlanta Airmotive's inventories
- Condor Flight Spares (one of the four non-airline companies certified by the FAA to overhaul commercial aircraft landing gear)
- and Complete Controls Inc. (FAA-certified for flight controls).
Flying high
Now AAS is enjoying the fruits of its efforts. Sales were up 256.45% last quarter over the same quarter last year and 207% for the last 12 months over the previous twelve months. Income is up 72.44% over the same quarter last year.
 Last May, AAS tied down an extremely favorable US$100 million five-year revolving credit line with its bankers. And in September, it hired a gunslinger, The Investor Relations Company, to get the word out. IRC is doing its job, too. In October, Laidlaw Global Securities initiated research coverage on the company with a strong buy recommendation.
Keep in mind that the float is only 2.4 million shares. That means that AIRS will be vulnerable to sharp rises and dips relative to our actions. But there are no planned insider sales and the short interest is minimal at 1,000 shares or .08%. And it also means that we can lock up a substantial portion of the outstanding shares.
AIRS is a strong mid-term play on Asia's return. With a P/E of 11.41 and price to sales of 1.32, it's a solid value and dirt cheap between US$8 and US$9, with a 40% initial trailing stop.
As I said earlier, old-fashioned horse sense tells you that good companies are companies that make real bucks selling stuff folks need. This is a lesson that my best friend has been trying to teach me for years.
Please read on...
|
