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The 6 biggest surprises of 2006
Restless weather, unrest in South America and Google at $666. Those are just a few of the stunning events coming in the new year -- and you heard it here first.
By Jon D. Markman
If you thought Mother Nature was a crazy ol lady this year, you aint seen nothin yet. By the time 2006 is done, the term weather volatility will replace global warming as the primary catchword of fearful investors, environmentalists and politicians.
While hurricanes are likely to return in force as a threat to Gulf of Mexico residents and energy producers in 2006, volcanoes will be the new hurricanes; South America will become the new Middle East; Google (GOOG, news, msgs) will boggle; Canadian gas shale will become the new oil sands; the dollar will droop; and defense will be the new offense.
If you dont believe it, step with me into my time machine, where we can get a sneak peek at the six news events that will most surprise investors in the coming year.
Surprise: Howling
Wind will stir up nearly as much trouble in 2006 as it did this year, as a long-term cycle of heightened cyclone activity in the Atlantic Ocean and Caribbean Sea intensifies. Count on six major hurricanes with winds over 120 mph in 2006, with three making high-impact landfall on the U.S. Gulf Coast and impairing efforts by seaside dwellers and oil-platform owners to rebuild from this years storms. Major oil-services companies, such as Schlumberger (SLB, news, msgs), will benefit, as will smaller and much more obscure players, such as Allis-Chalmers (ALY, news, msgs). For cleanup work, keep in mind the post-Katrina 100% advance of Home Solutions of America (HOM, news, msgs).
Related news and commentary on MSN Money
Surprise: Gringo go home
In 2005, we got a taste of the new tide of anti-capitalist fervor gripping South America governments from the flamboyant President Hugo Chavez of Venezuela. He imposed retroactive taxes on foreign oil companies, threatened the nationalization of U.S. shareholders assets and wrapped his socialist message in an anti-American flag. In the past several decades, the United States became accustomed to dealing dismissively with hemispheric neighbors, like Nicaragua and El Salvador, because they had scant resources or trade to offer. But the raging global demand for oil, copper, nickel, tin, bauxite and grain has shifted the balance of power slightly south. Now, when we really need Venezuelan petroleum and Bolivian base metals, new leaders with treasuries fattened by Chinese commodity buyers are giving us the cold shoulder. On Monday, Evo Morales, the newly elected president in Bolivia -- a former coca farmer -- put the Bush administration on notice that there was a new sheriff in town. He has vowed to hike state control of Bolivias natural gas reserves -- reportedly the largest in South America after Venezuelas -- and cut the exploration and production role of multinationals like ExxonMobil (XOM, news, msgs). If U.S. access to landlocked Bolivias 53 trillion cubic feet of natural gas is cut off, it might be a positive for North America-focused producers. So, consider laying in shares of leaders like Chesapeake Energy (CHK, news, msgs) and Ultra Petroleum (UPL, news, msgs). For a serious sign of change, watch the upcoming re-election campaign of staunch U.S. ally Vincente Fox of Mexico. A setback could bring turmoil to the energy market. And if you dont mind one last issue, consider that state-sponsored, anti-American terrorism from the south is not a factor today -- but is something experts consider an increasing possibility.
Surprise: Googlessence, the scent of success
The ascent of Google shares captivated investors hearts, minds and portfolios in 2005 for a lot of good reasons. The company figured out how to monetize the process of discovery. We were lost, and now were found. As Google pressed forward, it surprised skeptics by revealing that the combination of unobtrusive, relevant text ads with e-mail, search queries and video is a legitimately disruptive technology. Over the next year, Google is likely to introduce free, ad-supported competitors to the Microsoft Office suite and push its ad-supported Web e-mail solution into much broader circulation. There should be little doubt that it will offer a music service to rival Apple's (AAPL, news, msgs) iTunes and Real Networks' (RNWK, news, msgs) Rhapsody. The advance of Google shares to the mid-$400 area has discounted a lot of the expectations for this growth. Yet strangely enough, it may not yet be wildly overvalued. Its 2006 earnings multiple is 50, which growth managers do not consider ridiculous for a premier, well-managed company with solid earnings and strong prospects. Expect the price to move substantially higher by midyear on enthusiasm for the market-share devouring beast of the Googleplex, where it will stall at the $666 level after achieving a $200 billion market cap and the mark of the devil.
Surprise: Shale for sale
Last year, I proposed that $40 would become the new $25 for those who buy their oil in barrels rather than cans. That was an out-of-consensus guess, yet underestimated the strength of the commodity this year. As $50 became the new $40 as a minimum for per-barrel oil prices, the vast and obscure oil sands of Canada became big news for investors, as I forecast it would back in August 2004. Companies with major oil sands exposure, such as Suncor Energy (SU, news, msgs), were up as much as 100% this year, as the sands only become profitable to mine and refine with average oil prices at $30-plus. The next big play in Canada is likely to be natural gas trapped in shale formations. Now, everyone already knows that Canada is big in gas -- but most of its production now comes from gas found in sandstone formations. Shale gas is big in the United States -- where the Barnett Shale formation in East Texas and the Pinedale Shale formation in Wyoming have made billion-dollar companies out of Ultra and Chesapeake -- but not in Canada. According to fund manager David Anderson, whose Palo Alto Investors has been an early institutional owner of these outfits, Canadian shale and coal beds will become a rich target for gas exploration and development over the next year. Top players are megacap EnCana (ECA, news, msgs), mid-cap Quicksilver Resources (KWK, news, msgs) and Canadian-traded small-cap Ember Resources (EBRRF, news, msgs). Service companies that should have a shot at success with the shale surprise are Canadian outfits Trican Well Services (TOLWF, news, msgs), Calfrac Well Services (CFWFF, news, msgs) and the American drilling fluids provider Flotek Industries (FTK, news, msgs). Key areas of interest are the Mannville coals and the Horseshoe Canyon coals in the province of Alberta.
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