Profit from Population Growth: 7 Billion People on Earth

You may have seen the most recent headline that the World Population is now 7 Billion Human Individuals.

Can we profit from this?

1. Water Infrastructure:
   
   Water Infrastructure will be needed to support the growing population.
   You can play this with the PowerShares Global Water Portfolio ETF (PIO) or the Powershares Water Resources ETF (PHO). Individual company names can include companies such as Tetra Tech (TTEK).
   
   
2. Agriculture
   
   The growing population will require more food and more efficient food. You can play this with companies such as Monsanto (MON), the Bio-engineering stock of agriculture. Monsanto even has drought resistant crops, and can also be a play on Global Warming / Climate Change.
   
   Or, you can invest in companies such as Potash (POT), a fertilizer company.
   
   ETFs include Powershare's Global Agriculture ETF (PAGG).
   
   
3. Infrastructure
   
   Infrastructure will need to support the growing population, and there may be more urbanization in the future.
   
   There are many infrastructure companies out there such Siemens (SI), General Electric (GE), and ABB Ltd (ABB)
   
   
4. Environmental Cleanup and Waste
   
   More people means more waste and more industrial waste.
   
   Companies in this sector include Waste Management (WM), Clean Harbors (CLH), and U.S. Ecology (ECOL).
   
   

Build Your Own High Gain Stock Portfolio, One Sector At a Time

There are many ways to construct your own stock portfolio.

One way to create a diversified portfolio is to choose stocks from different sectors that follow these criteria:

1. The stock is in a good sector.
   
2. The stock is a good stock in a good sector.
   
3. The stock has Reasonable Valuation:
   a. PEG < 2.0 (Price-Earnings to Growth Ratio).
   b. Forward PE < 40
   
4. The stock shows Strength:
   a. Stock is within reach of a 52 week high.
   b. Stock is above the moving averages (200 day, and even 50 day moving average).
   

Here are a few suggestions that mostly fit the criteria above. One could create a portfolio by choosing a stock or a few stocks from each sector below.

A. Tech: Internet and Information

We are in the middle of a society changing Information Revolution, and the Internet plays a central role.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
GOOG	Google	0.91	31	33.88%

B. Tech: Mobile Convergence and Mobile Devices

One of the major trends is the trend towards Mobile Convergence. Rather than have separate devices, such as a cell phone, a camera, and a music player, all these features are being integrated into a single mobile device. The Apple Iphone is a web browser, a music player, and a cell phone. Cell phones now come with cameras and music playing capabilities.

In addition, globalization is helping this sector out as international and emerging markets are adopting these mobile technologies in great numbers. One Indian person has even said that in India, even beggars have cell phones.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
AAPL	Apple	1.66	37.52	22.63%
RIMM	Research In Motion	1.04	35.06	33.61%
NOK	Nokia	1.40	17.06	12.22%

Aside from the Apple iphone, Apple (AAPL) has many other products as well such as the Apple iPod music player, and the Apple iMac computer.

Nokia (NOK), is also a play on Global Positioning as it is acquiring Digital Map Maker Navteq (NVT).

C. Tech: Networking/Digital TV/Telecom Equipment

Another trend is in the Network.

1. There is a trend having greater Bandwidth for advanced services (for example, High Definition Video on Demand).
   
2. There's the conversion of analog TV to digital TV. On February 2009, companies are supposed to stop broadcasting analog television, and are supposed to broadcast digitally.
   
3. There is the Battle for the Digital Living Room. From IP Television (IPTV), to Digital TV, to High Definition TV sets, to Digital Video Recorder Technology (DVRs), to digital set-top boxes, to streaming content from computers to the big screen, the battle for the Digital Living Room is just beginning.
   
4. The trend also includes wireless telecommunication systems that help bring advanced services (video on a cell phone) to mobile devices.
   

Symbol	Stock Name	PEG	Forward PE	5 yr growth
CSCO	Cisco	1.25	17.64	14.10%
GLW	Corning	0.95	15.80	16.57%
NNDS	NDS Group	0.69	16.39	23.75%
HRS	Harris	0.58	15.68	27.00%

Cisco (CSCO) is the big company in Networking. They also have Set-Top Box exposure (access to the Digital Living Room) with their acquisition of Set Top Box maker Scientific Atlanta.

Corning (GLW) makes glass and equipment for higher bandwidth optical networking. They are also a play on the Digital Living Room as their products are needed by those who make flat panel displays and High Definition TVs.

NDS Group (NNDS) is the United Kingdom's version of the overhyped Chinese company China Digital TV (STV). The company engages in the supply of open end-to-end digital technology and services to digital pay-television platform operators and content providers worldwide. They even supply middleware and Digital Video Recorder Technologies, and Set-Top Boxes, and they support high definition TV.

Harris (HRS) is a company which operates in four main segments from Government Communication Systems, RF Communications, Broadcast Communications and wireless networking through Harris Stratex (HPTX). Their Broadcast Communications Group is involved Digital TV. They also benefit from a good win rate on government contracts.

D. Tech: GPS and Global Positioning

A major growth area in tech is in Global Positioning Technlogies. This technology is more than just turn by turn directions on a navigation device. In the future, as part of Mobile Convergence, GPS will be integrated into almost any device which can move, such as a cell phone.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
GRMN	Garmin	1.44	28.06	19.53%
TRMB	Trimble	1.86	28.94	15.60%
SIRF	Sirf Technologies	0.77	20.44	26.62%

Garmin (GRMN) mainly makes Global Positioning Devices. They are big in the car navigation and aeroplane navigation market. Recent concerns include the intended acquisition of their Digital Map Supplier Navteq (NVT) by Nokia (NOK).

Trimble Navigation (TRMB) makes GPS products. They are also a unique play on the good Agriculture market, as they even have GPS equipment for farm equipment and tractors.

Sirf Technologies (SIRF) makes GPS semiconductors. Their chips are finding their way into devices such as cell phones.

E. Tech/Consumer Discretionary: Computer, Video and Online Gaming

The strong Gaming cycle is continuing as three major console makers (Nintendo, Microsoft and Sony) have released major consoles.

There are also up and coming new trends such as online gaming, especially in East Asia (China).

Symbol	Stock Name	PEG	Forward PE	5 yr growth
GME	Gamestop	1.36	28.92	21.22%
SNDA	Shanda Interactive	0.64	21.26	33.26%

Gamestop (GME) is the premiere gaming retailer. Why choose the winner of the console or software maker war when you can buy the retailer who sells all these products.

Shanda Interactive (SNDA) together with The9 Limited (NCTY) are dominant Chinese Online Gaming companies poised for great growth.


F. Energy: Oil and Oil Services.

Energy and Oil remain strong sectors. There's great demand as countries all over the world, especially the emerging market countries, need oil. Supply is limited as well, and harder to come by.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
COP	Conoco Philips	0.93	9.19	9.92%
NOV	National Oilwell Varco	0.60	17.89	29.67%

Conoco Philips (COP) is an integrated oil company, while National Oilwell Varco (NOV) is an Oil Services and Equipment Company, and operates three segments: Rig Technology, Petroleum Services and Distribution Services.

G. Energy: Coal

Energy sources such as oil are in great demand. Coal, a very inexpensive fossil fuel, benefits from the great demand in energy.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
BTU	Peabody Energy	0.93	9.19	9.92%

H. Materials

Freeport McMoran (FCX) is a gold and copper company, and both are needed by rapidly growing emerging market countries such as China.

Precision Castparts (PCP) manufactures metal components used in the aerospace, power generation, general industrial, and automotive markets. There's a bull market in aerospace and infrastructure, and Precision Castparts benefits.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
FCX	Freeport McMoran	0.98	10.82	11.00%
PCP	Precision Castparts	0.85	18.13	21.23%

I. Agriculture

There's a Bull market in agriculture, thanks to an influential US Farm Bill in 2002.

Monsanto (MON) makes seeds, including very specialized and drought resistant seeds. Deere (DE) makes agricultural equipment. Trimble Navigation (TRMB) is also an unusual play on agriculture as they provide GPS products to many places, including tractors and the agriculture industry.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
MON	Monsanto	0.95	29.53	30.93%
DE	Deere	1.75	16.21	9.25%

J. Aerospace and Defense

There's a Bull market in Aerospace and Defense thanks to the aeroplane replacement cycle. Many of the older planes have to be replaced.

Boeing (BA) makes airplanes and is a better play than competitor Airbus. Transdigm Group (TDG) is a $2B company that supplies parts to the Aerospace industry. Lockheed Martin (LMT) is a defense contractor that makes many defense products, including military aircraft.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
BA	Boeing	1.08	15.86	14.70%
TDG	Transdigm Group	0.64	18.24	28.50%
LMT	Lockheed Martin	1.33	15.31	11.52%

K. Infrastructure

With great global growth comes a great need for Infrastructure.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
ABB	ABB Limited	0.83	20.63	25.00%
MDR	McDermott	1.38	22.01	16.00%

L. Telecom: Emerging Market Wireless Telecom

Emerging Markets are using wireless products in large numbers. Many emerging countries have low wireless penetration so there is even more room to grow.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
AMX	America Movil	0.49	15.89	32.65%
VIP	Vimpel Communications	0.75	17.49	23.37%
CHL	China Mobile	0.98	24.66	25.14%

M. Financials

Goldman Sachs (GS) is the premier brokerage company, the gold standard.

Hudson City Bank (HCBK) is a fast growing regional bank that has very little exposure to the subprime problems, and some have speculated that along with other Northeastern banks, could be taken over by Canadian banks and other companies.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
GS	Goldman Sachs	0.76	9.91	13.12%
HCBK	Hudson City Bank	1.09	18.73	17.15%

N. Asset Management Companies

Everyone is looking for the next Berkshire Hathaway (BRK.A), Warren Buffett's company.

One very good company in the mold of Berkshire Hathaway is the cash rich Leucadia (LUK), run for many years by super investors Ian Cumming and Joseph Steinberg.

Carl Icahn, another superinvestor, gives us Carl Icahn Enterprises (IEP), (Formerly American Real Estate partners (ACP)) and offers investors a way to invest with this great activist investor. Watch out for guru investors with a lot of cash to use.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
LUK	Leucadia	N/A	N/A	N/A
IEP	Carl Icahn Enterprise	N/A	N/A	N/A

O. Consumer Staples

Symbol	Stock Name	PEG	Forward PE	5 yr growth
PG	Procter and Gamble	1.60	18.07	11.31%
UL	Unilever	0.96	15.34	16.00%

P. Consumer Staples: Drinks and Beverages

Hansen (HANS) is a fast growing beverage company specializing in Energy Drinks.

Central European Distribution (CEDC) is a Polish drink and Vodka producer.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
PEP	Pepsi	1.74	19.22	11.03%
HANS	Hansen Natural	0.76	30.06	39.63%
CEDC	Central European Distribution	1.29	22.52	17.50%

Q. Consumer Discretionary: Gambling Equipment

Scientific Games (SGMS) makes equipment for Lotteries, Printed Products, and Diversified Gaming. Some say this is a recession proof stock.

International Game Technology (IGT) makes Gaming Equipment for Casinos.

Symbol	Stock Name	PEG	Forward PE	5 yr growth
SGMS	Scientific Games	1.06	23.94	22.66%
IGT	International Game Technology	1.69	25.36	17.20%

R. Industrials

Symbol	Stock Name	PEG	Forward PE	5 yr growth
GE	General Electric	1.47	16.31	11.09%
UTX	United Technologies	1.40	16.39	11.72%

S. Healthcare

Symbol	Stock Name	PEG	Forward PE	5 yr growth
GILD	Gilead	1.35	23.30	17.20%

How to Play: Am I Diversified (Diversifying your Stock Portfolio)

In Jim Cramer's CNBC TV show, "Mad Money", Jim Cramer has a segment where callers call in and mention their top five holdings. Jim Cramer then analyzes the stocks, and determines whether or not the caller's portfolio is diversified. Many other people on the social networking site Stockpickr.com ask the same question. But is there a way to determine on your own whether your portfolio is diversified or not? Definitely!

Sector Diversification

The main focus of "Am I diversified?" focuses on sector diversification. Many companies and analysts may have some variations, but there are around ten major sectors:

1. Basic Materials: These include gold, copper, composite material, chemicals, industrial metals, mining, forestry and paper companies such as FCX (Freeport McMoran), and ATI (Allegheny Technology).
   
2. Consumer Discretionary: Consists of General Retailers, Media, Travel and Leisure, Food and Drug Retailer companies such as TGT (Target), DIS (Disney), BBY (Best Buy), and SBUX (Starbucks).
   
3. Consumer Staples: Consists of Household Goods, Beverages, Food Producers, and Tobacco. Some others (such as those at ishares.com ) would include Automobile Parts, and Leisure Goods. Examples include PEP (Pepsi), MO (Altria), PG (Procter and Gamble), and SLE (Sara-Lee)
   
4. Energy: Consists of Oil & Gas Producers, Oil Equipment and Services, Coal, and Alternative Energies (such as Solar). Stocks include XOM (Exxon-Mobil), SLB (Schlumberger), and BTU (Peabody Energy).
   
5. Financial Services: Consists of National and Regional Banks, General Financial companies, Brokerages, Exchanges, Nonlife Insurance, Real Estate, and Life Insurance Companies. Examples include WFC (Wells Fargo), GS (Goldman Sachs), NYX (New York Stock Exchange-Euronext), AMTD (Ameritrade), PGR (Progressive Corp).
   
6. Healthcare: Consists of Pharmaceutical, Biotechnology, Health Care Equipment and Services, Healthcare Insurers. Examples include PFE (Pfizer), JNJ (Johnson and Johnson), MDT (Medtronic), GILD (Gilead Biotech), UNH (United Health Group), ISRG (Intuitive Surgical)
   
7. Industrials: Consists of General Industrials, Aerospace and Defense, Support Services, Industrial Engineering, Industrial Transportation, Electronic and Electrical Equipment, Railroads, and Construction and Materials. Examples include GE (General Electric), BA (Boeing), CAT (Caterpillar), UPS (United Parcel Service), UNP (Union Pacific Corp), DE (Deere), WMI (Waste Management), FLR (Fluor Corp), MDR (McDermott), and TEX (Terex).
   
8. Technology: Consists of Hardware, Software, Semiconductor, Internet, Networking, and General Technology Companies. Examples include MSFT (Microsoft), CSCO (Cisco), GOOG (Google), AAPL (Apple), IBM (IBM), INTC (Intel), NOK (Nokia), and RIMM (Research in Motion).
   
9. Telecom: Consists of Fixed Line and Mobile Telecommunication Companies. Examples include T (AT&T) and VZ (Verizon Communications)
   
10. Utilities: Consists of Electricity, and Gas, Water and MultiUtilities. Examples include EXC (Exelon Corp), TXU (TXU Corp) and DUK (Duke Energy).
    

How to Sector Diversify

So what you can do is look at each stock in your portfolio, and categorize them into one of the sectors above. After you go through your entire portfolio, you may find that some stocks may be grouped into a single area. For example, you may hold NYX (New York Stock Exchange-Euronext) and GS (Goldman Sachs). While one is a Stock Exchange, and the other is a Broker, both are grouped in the Financial Services Sector.

There are some companies that may be difficult to pin down to any one sector. For example, AMZN (Amazon). Is it Consumer Discretionary or is it Technlogy? Use your best judgement. If you want, during your analysis, you can put 50% of Amazon under Consumer Discretionary, and 50% of Amazon under Technology.

Sector Diversification is the main form of diversification preached by Jim Cramer.

Other forms of Diversification

Sector Diversification is not the only form of diversification. There are many other forms of diversification.

Market Capitalization Diversification

Companies have different market capitalizations. Some are very large companies (large market capitalization) like GE (General Electric), while some others, are small or mid capitalization companies such as NTRI (NutriSystem). Stocks of different market capitalizations behave differently from each other.

Growth and Value Diversification

Some stocks are considered Growth Stocks. Investopedia defines a Growth Stock as one whose "Shares in a company whose earnings are expected to grow at an above-average rate relative to the market."

Some other stocks are considered Value Stocks. According to Investopedia, a Value stock is "A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio."

So within a portfolio, you can further diversify by holding different styles of stocks from growth to value.

Peter Lynch, in his Book, One Up On Wall Street, further groups stocks into six categories:

1. Slow Growers
   
2. Stalwarts
   
3. Fast Growers
   
4. Cyclicals
   
5. Turnarounds
   
6. Asset Plays
   

International and US Diversification

Another way to diversify your portfolio is to hold stocks that are based in the United States, or based internationally. With international stocks, you can further group them into Developed International Markets such as Europe, Japan, and Australia, or into the Emerging International Markets such as Taiwan, Korea, China, Brazil, India, Eastern Europe, Africa, Middle East, and Russia.

Speculative and Non-Speculative

In his books (such as "Real Money: Sane Investing in an Insane World") and his shows, Jim Cramer preaches that up to 20% of a (discretionary, not retirement) portfolio could be allocated to more speculative stocks. This is yet another form of diversification.

Conclusion

So in order to have a diverisfied portfolio, be sure to diversify across several industry sectors as mentioned above. You can also choose to diversify in other ways as well such as market capitalization, growth vs. value, speculative vs. non-speculative, US vs International Diversification.

Evaluating stock using the PEG Ratio.

P/E Ratios

In evaluating stocks, many people look at the P/E multiple, or the Price to Earnings multiple. This is found by dividing the stock's current price by a companies trailing or expected future earnings.

For example, if we look at the stock of General Electric (GE) as of June 22, 2007, we see the trailing P/E ratio is 18.95, and the forward or estimated P/E ratio is 15.36.

Difference between Trailing and Forward PE

You might ask, what is the difference between the Trailing and Forward PE ratio? The trailing PE ratio refers to the price divided by the previous twelve months earnings. Those earnings were already reported, so the trailing PE can't be debated. Trailing PE is a way to see how the company did in the last twelve months.

Now the Forward PE ratio is calculated by dividing the current stock price by the estimated 12 months future earnings. There are analysts out there who predict how much a company will make in the next twelve months. Using the Forward PE is a way of seeing how a company will do in the future.

I personally prefer looking at Forward PE because I prefer looking at where a company will be going more than where a company's been in the last 12 months.

Is it better to buy a stock with a low PE or high PE?

Looking at the PE multiple by itself, it is hard to judge whether it is better to buy the stock. A company with a high PE might be justified in having a high PE because it is growing at a very fast rate. A company with a low PE might be priced correctly because it is growing at a very slow rate. However, what if a company has a high PE but the company is growing at a very slow rate? Or what if a company has a low PE but the company is growing at a very fast rate? With the former, you would say that the company is greatly overvalued. With the latter, you would say that this is a bargain!

PEG Ratio

Based on this, we can't look at the PE ratio to judge a company. We want to buy a company that is reasonably priced with respect to its growth rate. So that's where we come up with the PEG ratio, or the PE ratio divided by the companies growth rate.

Using GE again, we find, that GE has a forward PE of 15.36, and the 5 yr growth rate of 10%. So that means the PEG of GE is: 15.36/10 = 1.536.

So how do we use this number?

In general, if the PEG of a company is less than 1, the company is considered a very good value. If the company has a PEG greater than two, the stock is considered very expensive and it is best that it be avoided. With GE above having a PEG of 1.53, it is reasonable, but not extremely cheap.

Comparing PEGs

We could compare stocks and compare PEGs and choose the lower ones, but we could do better. It's better to compare the PEG of a company with its competitors or its industry because each sector might have a different range of good PEGs. You can use the PEG to choose the best stock in a sector.

Finding the information through Yahoo Finance

Now, you might want to know how to find the information in Yahoo finance. Go to finance.yahoo.com and enter your stock. You can see a nice summary page and find news stories about the stock, a companies market cap, and the Trailing PE ratio.

To find more details about the stocks, go to the Key Statistics tab. You can find the Trailing PE and the Forward PE. The PEG Ratio is also mentioned, but I prefer to calculate the PEG ratio myself.

If you want to manually calculate the PEG ratio yourself, you can find the forward PE, and then find the 5 yr estimated growth rate through the Analysts Estimates Tab. Go to the bottom part of the page and look for the 5 yr Estimated Growth. The Growth Rate of GE in this page is 10%.

So Forward PE = 15.36, Growth = 10%, so PEG is 1.536.

This investing style (by using PEG ratio) is called Growth At a Reasonable Price or GARP.

Improved Version of PEG incorporating Yield and Cash Per Share

The PEG ratio above is biased against slower growers with lots of cash and a good yield. So in order to incorporate this fact, I've developed the MyPEG. More information in this link.