5 Investment Clues; 5 Investment Opportunities

When I was a child, my mother used to buy me workbooks filled with connect-the-dots puzzles. Maybe I was easily entertained back then, but I was always amazed at the pictures I could create by connecting a bunch of otherwise unconnected dots.

A bunch of random dots when connected revealed a clear picture, and judging from the feedback, last week’s column about how to take pieces of news and turn them into actionable, profitable ideas was very popular.

Successful investing is about connecting data points until you get a clear picture of the future. Every week — heck, every day — is filled with news, and you have to know what to look for.

Here are five news items I thought were particularly interesting in the last week:

Investment Clue #1: The glitzy commodities — gold, copper, natural gas, oil, etc — get all the headline news attention, but there are lots of other commodities that are worth your attention. One that has been red hot is cotton.

Cotton prices have rallied to a new all-time record high because of booming demand from China, the world’s biggest user. Cotton prices have jumped to $1.3426 a pound, the highest price in 140 years of trading. Cotton is up 78% this year.

The U.S. Department of Agriculture estimated that China’s domestic cotton harvest would fall 18.5 million bales short of total demand.

Cotton has rallied recently because of an unusual cold spell in China and hailstorms in Texas that damaged cotton crops. But even before that bad weather, the U.S. Department of Agriculture estimated that China’s domestic cotton harvest would fall 18.5 million bales short of total demand. A bale of cotton, by the way, weighs 480 pounds.

Investment Opportunity #1: There is an ETF that tracks the price of cotton. The name is long, iPath Dow Jones-UBS Cotton Sub-Index Total Return (NYSE:BAL), but it is the easiest way for individual investors to jump on the cotton bandwagon.

Investment Clue #2: Business is so good at Boeing that it increased its 20-year sales forecast. Where is all this new business supposed to come from? China of course.

Chinese airlines are expected to add 4,330 aircraft worth $480 billion by 2029, up from a forecast last year of 3,770 planes worth $400 billion. In China, Boeing said passenger numbers should more than triple, and airline fleets will double in size by 2020.

“We have seen a much stronger market than we anticipated for single-aisle airplanes. When we look at international traffic, we think that the Chinese airlines will grab a larger market share of that traffic than we did last year,” Randy Tinseth, vice president for marketing of Boeing’s Commercial Airlines unit, recently told The Associated Press.

Investment Opportunity#2: You could buy Boeing stock, but I think you’ll get more bang for your buck by investing in Chinese airline stocks. Two trade here in the United States: China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA).

Investment Clue #3: Copper is one of the basic building blocks of the global economy. Because copper is used to transmit electricity, every home, car, building, and electronic doodad needs varying amounts of copper wire.

The Chinese Ministry of Industry and Information Technology said China’s copper consumption will rise from 6.8 million tons this year to 8.5 million tons by 2015. Copper demand from the power, car and home appliance industries will continue to push up consumption in China, the world’s top copper consumer.

Investment Opportunity #3: If there is a cotton ETF, then there must certainly be a copper ETF. Look at the iPath DJ-UBS Copper (NYSE:JJC) for a pure play on copper prices.

Investment Clue #4: I guess all those people living in buildings wired with copper also need a lot of lumber to construct their houses. A growing economy first needs cement for infrastructure, steel for commercial buildings, and then finally lumber for residential housing.

Canada exported 1.6 billion board feet of lumber to China last year. That was an 800% increase from 2006, when just 210 million board feet were sent there. The British Columbia Minister of Forests and Range estimates lumber sales to China this year will reach 2.5 billion board feet.

Canada’s lumber exports to China jumped 800% between 2006 and 2009 and are expected to jump another 56% this year.

Investment Opportunity #4: The largest timber farm in China with millions of acres of prime forest land, Sino-Forest (Toronto:TRE.TO) is perfectly positioned to profit from the Chinese building boom.

Disclosure: My Asia Stock Alert subscribers already own Sino-Forest.

Investment Clue #5: Morgan Stanley estimates that China will contribute more than $9 billion of sales to Apple in 2012, compared with $2.9 billion in the last fiscal year.

If the traffic at any of Apple’s four stores in China is any clue, then Morgan Stanley may be underestimating the Chinese demand. I say that because those four Apple stores have the highest traffic of any Apple stores.

Investment Opportunity #5: You could buy Apple stock and probably do fine, but the company that assembles all those iPhones, iPads, and iPods — Hon Hai Precision Industries (HNHPF.PK) — may do even better.

Now, I am not suggesting you rush out and buy any of the above securities. As always, timing is everything, so your best bet is to wait for a pullback before committing any of your money. Of course, you need to do your own homework and make sure that any of the above ideas are appropriate for your personal situation, time horizon, and tolerance for risk.

But make no mistake about it: Rising commodity prices and a global construction boom are very long-term, super-cycle trends that could last for years, perhaps decades. Sure there will be ups and downs, but the long-term trend is definitely upward.

And as usual, the driving force behind those cycles is the booming economies of Asia. These days, you need to pay more attention to what is happening in places like Mumbai, Beijing, Singapore, Tokyo, Taipei, Seoul, and Shanghai than in Manhattan.

To that end, I am including links to some of my favorite Asian news sites, and while you probably don’t have time to read a bunch of Asian newspapers, a few minutes of browsing the business headlines will tell you more about the global economy than watching a few weeks of “experts” on CNBC any day.

Best wishes,

Tony