| | Where Have All the Big Spenders Gone? By Andrew Gordon 
How do you feel about getting physical? I mean, of course, companies that are expanding physically or plan to expand.
Is it a good thing or a bad thing?
The answer isn’t so simple.
From family to tribe to nation to empire, bigger traditionally means better.
It’s the same with equity investing. One of the first questions I ask myself when looking at a company is, “where is the growth?”
Now, revenue and profit growth doesn’t necessarily require physical growth – that is, the expansion or building of facilities, additional equipment, hiring more workers, etc. In fact, if you can increase revenue and avoid paying the inevitable costs of physical growth, isn’t that preferable?
Companies know this turns investors on. For example, the CEO of Esterline Technology (ESL – an aviation parts and equipment maker) recently boasted about “holding down additions of bricks and water.”
These days such declarations resonate with investors. Companies are conserving resources for the looming recession. Just last Friday a Bloomberg article said that “Employers are cutting back to protect profits as raw-material costs soar and sales slow...”
Retrenchment is in the air. But how can you invest in retrenchment?
Wall Street wants companies to grow, but it punishes them when they increase spending too “aggressively” with the economy on such shaky ground.
So how the heck can companies please investors? Seems like they’re smack in the middle of “dammed-if-you-do-damned-if-you-don’t” territory. There are a few ways though. - Increasing factory shifts as opposed to building or expanding facilities
- Showing the ability to raise prices without losing customers or sales
- Making low-cost tweaks to products that generate significant sales
- Increasing productivity through training, technology or restructuring.
But not all companies can do this. More to the point, not all companies want to do this. For example, Bucyrus (BUCY), a mining equipment manufacturer, is expanding capacity to meet rising demand for its equipment in China and elsewhere. And the market isn’t punishing it. Since Bucyrus has been in my Wealth Advantage portfolio, it’s gained 218 percent. INTERNAL ENDORSEMENT 152% Overall Return Last Year... 13 Winners Between 46% and 173% in the Last 90 Days Forget what you've heard about how tough it is out there - how the market is falling, and the sky is too! In the last few months, subscribers to Rick Pendergraft's K.IS.S. Investing had an opportunity for gains of 159% on Continental Airlines... 173% on the ETF that tracks the Dow... 129% on the ETF that tracks the Nasdaq... 89% on Verisign and another 71% on XM Satellite Radio. And here's the REALLY good part... for a limited time you can gain access to Rick's research FREE for life...
keep reading for all the details. | Bucyrus is an example of a company expanding in a high-growth sector – commodities and mining – which doesn’t follow the general economy.
There are other examples where the outcome is more mixed. Suntech Power (STP) expanded its facilities in China while the solar sector was hot. Now it’s cooled a bit. But Suntech is still expanding and has barely begun to sell products from its expanded production capabilities. The stock has recently been volatile.
The lesson? If a company is expanding to meet demand in a fast-growing sector, it better be certain that high levels of demand will still be around by the time the build-out is finished.
If expansion involves risks, it follows that expensive expansion involves greater risks. Companies that follow this path can win big... or lose big. Let’s look at another example – Zoltek (ZOLT). Zoltek makes carbon fiber – mostly for wind turbines. Wind power is another one of those sectors where demand is rising faster than supply. Zoltek expanded its facilities more quickly than any of its competitors – perhaps too quickly, because it suffered delays and other execution problems. Its stock subsequently declined. Now, it’s executing better and its stock has risen since March – despite recession worries deepening.
Another lesson? Even when physical expansion makes sense, poor execution trumps trying to keep up with a fast-growing market.
And that’s at least part of the reason why Verizon (VZ) is finding it so hard to climb up the charts. It has a great technology in its fiber-optic FiOS system. But the rollout has been maddeningly slow and more expensive than first envisaged.
So, if a company must expand physically in order to grow its sales and profits, what’s the least risky way of going about it?
How about knowing that your new assets will be immediately used/leased/bought at a handsome profit – maybe even at a record profit. That pretty much sums up the situation offshore rig-maker Ensco (EVS) and onshore rig-maker Helmerich & Payne (HP) are in.
How about a big backlog? It practically begs for physical expansion. It was one of the main reasons why Bucyrus decided to build out. But Esterline Technology – despite its big backlog – has resisted going this route.
Okay, it’s time to ask the key questions: which is the better investment? Is it a company like Bucyrus – in other words, a company which is physically expanding to meet growing demand in a bullish market? Or is it a company like Esterline -- in other words, a company which is successfully meeting robust demand by focusing on productivity and efficiency? 
The chart shows that up to now investors have preferred Bucyrus. As one of the people who recommended Bucyrus a couple of years ago, who am I to argue?
But the ESL model – growing production without spending money on expensive expansion projects – seems to me to be a great business model for the tough times ahead.
You’ve of course heard the saying – “you’ve got to spend money to make money.” But why spend more than you need to ... more than your competitors ... if you really don’t have to?
For companies like Esterline... their time has come. Good Trading, Andrew Gordon P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com. [Ed. Note: The Investor's Daily Edge Wealth Society is now open to new members. You can get all of our investment research newsletters: INCOME, K.I.S.S. Investing, Wealth Advantage, Resource Windfall Speculator, Global Profits Hotline, The Optionist, Rising Tide Letter, Asia Business & Investing. On top of that you'll get more than a dozen timely reports. And you'll get everything... for life. Keep reading for all the details.] The Last Stand of the American Pesos? By Andrew Gordon The economy got a double punch in the gut Friday with oil prices spiking and job data continuing to deteriorate. In theory, commodity prices should ease in the face of an economic slowdown and softening demand. But oil and other commodities aren’t cooperating. With structural shortages plaguing a number of natural resources like copper, nickel, and crude, they probably won’t. We all know by now that it takes more dollars to buy oil if the value of the dollar is dropping. Sure enough, the price of oil seemed to be moderating until the dollar’s little rally ended. Then oil exploded higher. 
The chart shows the dollar meeting double resistance late last week and failing both tests. It was flirting with prices above its 100-day moving average, but at the end of the day finished decidedly below its 100-day. And all it could manage to do was touch its downward sloped trendline before falling sharply. What’s more, the Slow Stoch shows that the dollar is overpriced. Add it all up and we should see the dollar continue to fall this week. A falling dollar, rising inflation and rising oil prices are all signs that gold should start moving up. As tracked by GLD (streetTRACKS Gold Shares), gold is oversold and its 20-day moving average is about to cross above its 50-day. But wait until it does before buying. If you enjoy IDE's daily investing advice, you'll definitely be interested in checking out our sister publication, Early to Rise. Each morning, you'll get powerful wealth-building advice covering real estate, entrepreneurship, personal finance, marketing, and much more.
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