Related Resources Screen for the best stocks for you See how MSN Moneys StockScouter rates a stock Find out today's big trends Jubak's Journal Recent articles: • 3 guilt-free steps to making money overseas, 1/23/2004 • 5 big winners from the J.P. Morgan/Bank One deal, 1/20/2004 • Now, only cheap stocks will make you money, 1/16/2004 More... | Jubak's Journal 10 stocks for a changed planet Where will you be when globalization stops turning the world on its head? In just the right place, if you pay attention to the shifting tech landscape. By Jim Jubak Last week, I diagrammed a three-pronged global investment style for investors who want international exposure but are uncomfortable with some of the less-than-desirable aspects of globalization -- lost jobs in the U.S. economy, exploitation of workers and policies that put profits in front of ethics. I wrote about the first two principals, Do no harm and Share and create the wealth, in the first part of this two-part column. (See "3 guilt-free steps to making money overseas.") In this column, I tackle the third principle, Work for sustainability. Say what? I know, it all sounds very ecological, very idealistic perhaps, but what does it have to do with making money in the real world? Just this: Someday, in the next 10 or 20 years, if globalization works the way that we should all hope it will, the current period of wrenching change will end. History suggests this period will be followed by slower and more predictable change. The world wont stop changing by any means, but the pace of that change will be sustainable. And all you have to do to know where to park your money most profitably for the next 20 years or so is figure out what China and India will look like when we hit this period of sustainable change. That may seem a daunting task with two very large countries that have tumultuous recent histories and strong cultures that are little understood by most Americans.
Actually, its no problem. Limit yourself to tech This kind of projection is possible right now with a good chance of success if you limit yourself to technology. Recent changes in how China and India are using technology give investors a pretty good idea of what the post-globalization world will look like. And to understand the changes in China and India so you can invest most profitably in technology, repeat these three words:
Leapfrog: Jump ahead to the newer technology Take a look at a company like UTStarcom From one perspective, a U.S. perspective, PAS is a kind of primitive cell phone. The system allows only local service within a single city, and UTStarcom markets PAS as a low-cost solution for developing countries that have few copper wire landlines installed. A mobile PAS phone eliminates the need for a wire connection to make a call on the local phone network. But PAS, which is UTStarcoms version of a global standard called PHS (for personal handyphone service), is not primitive at all. It is, in fact, a leapfrog technology. Since PAS technology is built around Internet protocols for high-speed data transmission, a user of a PAS phone can use it to download music from an MP3 site, send short text messages and send and receive digital photos. Which makes it very hard to define the average UTStarcom PAS customer. Example: In the fourth quarter of 2003, the company signed a $40 million expansion contract with Yahoo! UTStarcom, Id say, is in the business of leapfrogging the population of a country such as China from no phone to Internet-enabled data transmission. Tilt: China and India will move the world to new infrastructures UTStarcom expects to be one of the winners when China announces licenses for third-generation wireless phone service in 2005. That announcement wont be important just for UTStarcom, either. The infrastructure build-out necessary to turn those licenses from pieces of paper into working wireless phone systems will require about $20 billion of orders for telecommunications infrastructure, Merrill Lynch estimates, over the next six to 24 months. That level of spending, especially at a time when telecommunications capital spending is growing so slowly in the developed world, is large enough to tilt the highly competitive technology playing field in favor of some technologies and against others. The third-generation licenses are expected to be a huge boost to the makers of telecommunications equipment that uses the Voice Over Internet Protocol (VOIP) for sending phone calls over the Internet. Sales of conventional circuit switches for old-style carrier voice networks have fallen from $37 billion in 1999 to $11 billion in 2003. When the uptick in telecommunications spending does come, however, dont expect that market to pick up. The new money will be going into VOIP infrastructure. The last upgrade of the carrier voice network took place in the 1980s and lasted for most of a decade. So, this tilt is a big long-term deal for investors. More on global investments
Reshape: The classic PC is becoming a dinosaur China, India and the rest of the rapidly developing world are also big enough markets to tilt the battle over what kind of device will be used to access the Internet. These countries show a decided preference for notebooks over desktop computers. And the coming ubiquity of wireless phones with broadband capability in markets such as China, India and Vietnam makes them a serious challenger for the role of primary Internet access device. But the dynamics and preferences of this developing market are also powerful enough to push entirely new technologies to the forefront. Sonys But a market that is less dependent on PC -biased technology such as China gives Sony a much more favorable playing field. (To give you an idea of the role of the PC in China, the country now accounts for 20% of global TV consumption but is only 10% of the global PC market. Much of that is in notebooks.) So, in China, the PSX is a formidable competitor. The machine comes with a 160 gigabyte hard drive. Thats about twice the storage capacity of the average high range desktop PC. The PSXs built-in recordable DVD, not standard on any but the most current generation of PCs, is priced below the cost of stand-alone DVD recording devices. This is an instance where a product that would, I think, face extremely tough sledding in the United States becomes a force to be reckoned with because of the consumer preferences of these developing markets. Stocks for this new world How about some names of stocks to put on your radar screen? (Again, remember that globalization is a very, very long-term trend, and the smart technology investor will wait until that perfect stock is selling at a decent price.) The other is BYD, one of the worlds leading manufacturers of rechargeable batteries, which already shows a customer list that includes Nokia Both of these stocks should be available through the foreign desk of major full service and online brokerages -- after youve done your due diligence, of course. Both play to the multiple small-access devices trend that I see in the Chinese and other developing markets. This list is hardly exhaustive, so dont treat it as a must-buy list. The real point is to give you examples of stocks that illustrate how to think about technology trends as if the United States weren't the only technology market in the world. Because, you know what? In an age of globalization, it certainly isnt. Changes to Jubaks picks Sell Sara Lee I still believe theres a turnaround somewhere in Sara Lees The profit crunch was especially severe in the companys underwear lines, where Sara Lee faces tough price competition from Fruit of the Loom and private-label brands at stores such as Wal-Mart Buy Oshkosh Trucks Oshkosh Trucks Though the company raised its projections for fiscal 2004 to $2.80 a share, I think future results are still likely to surprise. For example, the companys projections dont include a military wrecker contract that is already in the military appropriations budget, and Oshkosh is counting on remanufacturing only 300 military vehicles this year. That seems low given the wear and tear on military trucks in Afghanistan and Iraq and the companys 6,500 trucks in service there. The stock currently trades at just 22 times trailing 12-month earnings. Im adding Oshkosh Trucks to Jubaks Picks with a target price of $68 a share by September 2004. (Full disclosure: I will be buying shares of Oshkosh Trucks for my personal portfolio three days after this column is posted.) For other earnings-surprise winners, see "3 Stocks with earnings momentum." New developments on past columns 3 guilt-free steps to making money overseas A number of readers with relatives in India with firsthand experience with the Indian banking system e-mailed me to say that I should have been even more positive about consumer-oriented Indian banks such as ICICI. The service at these banks is much better than at the state-owned banks, the consensus said. I neglected to note that ICICI trades as an ADR listed on the New York Stock Exchange under the symbol Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Microsoft. He does not own short positions in any stock mentioned in this column. | ||||||||||||||||||||||||||||||
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