I’m wondering if someone for the Associated Press was standing over my shoulder yesterday when I went way overboard finding out how and why the biotech sector was looking good again. I published my article (Which Biotechs Have Been Nursed back to Health?) yesterday afternoon, and Forbes.com came out today with a story basically saying the same thing. I guess great minds think alike…or I at least hope great minds think alike.

The article - Biotech: Large Cap or Small Cap - actually said that mid-caps offered the most opportunity according to some analysts, but went on to say small caps were attractive too. The large caps were the ’safe’ and promising plays, though one analyst interviewed mentioned the small cap biotechs seemed to have better pipelines.  

No big deal, but if you wanted a second opinion, there ya’ go. It’s a pretty good, and short, read.

The article mentions a few specific companies, but I’m going to try and compile my own list of biotech ‘yays and nays’. Look for that soon.

It’s been a pretty long drought for biotech stocks. It’s not been necessarily bad for the last several months; it just hasn’t been good….even when other stocks were on the rise. All that has changed in the last month though, for some reason. The Biotech HOLDRs (BBH) have gained about as much as the market has lost in the last month. When I checked out the charts, I liked the charts as well….some of them anyway. (A few of the biotech indices still technically seemed a little shaky.)

My weapon of choice is the Dow Jones Biotech Index (DJUSBT). It includes almost all the listed biotech names. More on that in a second.

This chart is yet one more chart trading in a range. Yet, the pin-balling between those two boundaries can still make for good trading. DJUSBT recently crossed above its 200 day line, but I ultimately expect the index to reach 525 or so…approximately. That’s only about an 8.5% move, though if you pick the group’s leading stocks (or avoid the lagging ones), you could certainly do much better.

Take a look at the chart, then keep reading for some over-kill analysis.

So what’s all the talk about some biotech’s being better opportunities than others?

There are five major biotech ETFs, and three significant biotech indices. You’d think they’d all look about the same, but they don’t. The ones that look a little healthier - like the DJ Biotech Index or the Biotech HOLDRs - are significantly better looking than say the AMEX Biotech Index (BTK) or the iShares NASDAQ Biotech ETF (IBB). Why? Because these indices or ETF may or may not reflect smaller biotech companies.

The disparity got my wheels to spinning…and you know what that means.

In my quest to validate my theory, I also discovered something else…..that I have too much free time, and that there’s probably waaayyy too much information out there for investors to process. Of course, that didn’t actually stop me from processing it.

Believe it or not, there are indices that group biotech stocks by market cap. That means small, mid, and large. (I didn’t find a micro cap biotech index, but give it time.)

From top to bottom, we’re looking at a small-cap biotech index, a mid-cap biotech index, and a large cap biotech index. The last two panes you see are the S&P 1500 biotech index, and finally, the Dow Jones version. Take a look-see, and then we’ll wrap up…

Do with the information what you will, but a couple of things stick out to me….

1. The mid-cap strength impresses me, though I have to confess seeing that big move in early April makes me a little bit hesitant.
2. Of all the indices, the small cap biotechs appear to have the most upside potential from their present level. The larger biotech stock indices look a little bit past their prime….or at least well into any upward move.

The idea is to take this information and go find the leaders in the leading group, rather than try and squeeze out a gain from a member of a group that’s just not positioned as well. In other words, I’d be looking for small-cap or mid-cap biotech.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

It’s fun to be vindicated sometimes. That’s how I felt today anyway, after reading that newspaper company McClatchy (MNI) was cutting about 10% of its workforce. If you read our site relatively thoroughly, you’ll remember it was a week and a half ago I posted some rather pessimistic opinions about the future of the newspaper (printed versions) industry. What made my take a little more meaningful than others was that I backed it up with numbers….sales and earnings have been shrinking for quite some time for newspapers.

As if on cue, McClatchy came out with some confirming news today. They’re axing 1400 jobs in an effort to cut costs. Why the need to cut costs? Here’s the exact quote from the AP story…

Newspaper publisher McClatchy Co. is slashing 1,400 jobs, or 10 percent of its work force, as part of an accelerating drive to cut costs as advertising revenues dwindle, the company announced Monday. McClatchy also reported a 15.4 percent decline in advertising revenues in the first five months of the year.

Ring a bell? That’s just one more example of the symptoms I described back on June 6th.

Folks, I never say never, but I’m about as close to being certain about this as I can be…I don’t think newspapers are going to be able to stay afloat. Their issues are nothing that’s going away - which is the Internet. They can embrace the web, or they can fight it. Companies like Scripps (SSP) are embracing it; companies like the New York Times (NYT) or Washington Post (WPO) are doing everything they can to avoid the Internet. The problem is, McClatchy is affirming the same problems I think other newspapers are experiencing…poor and shrinking numbers.

Or, think about it another way….are you going to stop reading our stuff or other web-delivered opinion? Which do you prefer? Paper, or digital?

If you missed by earlier negative forecast for the newspaper industry, you may want to go back and take a look. The earnings chart is pretty clear.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

This is hardly a newsflash, but newspapers are marching to their ultimate doom. And when I say newspapers, I mean literal papers….black ink on cheap paper, printed and dropped at your door daily. Of course, there’s less and less ‘printing and dropping’ every year.

You already know why. In fact, the fact that you’re reading this now is the problem. The internet is fast, free, easy, and doesn’t leave smudges all over your fingers.

This is hardly a Eureka! moment for any of us, so why bother talking about the death of the newspaper industry? There are those who think the industry can be revived. Mostly it’s the owners of newspapers thinking that way, and I suspect it’s based more on hope than demand for their product. That’s their problem though. My concern is for investors who may be swayed to agree with them. Don’t jump on a sinking ship.

As evidence of the idea, I submit to you EW Scripps’ (SSP) recent decision to spin-off their television and internet business from the newspaper business. In legal terms that’s how it’s happening; in reality I think it was a decision designed to separate the winner from the loser. Scripps admitted they’re looking for yet another decline in newspaper revenue, but also anticipating top-line growth for their broadcasting and web divisions.

The question is, why? There’s no answer from them, but I’ll submit one possibility…newspapers just ain’t worth it anymore. Their stocks are declining because revenues and earnings are declining.

On the chart below I’ve plotted the stock’s of the four major newspaper companies…Washington Post (WPO), New York Times (NYT), McClatchy (MNI), and Gannett (GCI). Clearly their pain isn’t something new - they’ve been sinking since 2004.

Immediately under each stock chart I’ve plotted their quarterly earnings-per-share results (red). The stocks started struggling long ago, while earnings started to weaken shortly after the stocks. Yes, there’s still some bottom line, but you see the trend in place.

If you’re betting on newspapers, the bet you’re essentially making is that those earnings lines are going to turn around and start moving higher. My question to anybody who thinks that’s going to happen is this….why? What can print newspapers do a year from now they couldn’t do a year ago? The answer is, nothing. For the same reason jets replaced trains, the internet is replacing newspapers - Speed and cost. That’s why MySpace.com sold for billions. 

These stocks are nothing but liabilities in the internet age. If you don’t believe me, when’s the last time you took a train on a long-distance (non-commute) trip? At least Scripps saw the writing on the wall.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

I don’t know if any of you noticed this, but I was surprised to see the strongest sector over the last three months has been…..transportation stocks? It’s true – transportation stocks have outpaced technology (which has been coming on strong) and even energy or basic materials.

Might we infer something here? I think so. More specifically, I think this is a hint we should all be taking and doing something with.

The brunt of the rally is attributable to railroads. Despite the fact that these stocks are overbought (and therefore dangerous), the value is there. Once the technicals cool off, the values will be even better. Check out CSX (CSX), Burlington (BNI), and Union Pacific (UNP) if you want the best of the best. Like I said, all are overbought right now, but I could really get fired up again if they pullback and start to receiver.

Truckers have participated in the rally too, though I still don’t particularly like them. Actually, I’m kind of torn here. If oil comes down in price (like I think it will), then trucking will actually become more attractive because fuel costs will be cheaper – which will improve demand.

My problem is two-fold…(1) I’m not absolutely certain gas and diesel prices will come down, and (2) I’m not sure these companies will be any more profitable if they do come down. I was surprised to see how expensive some of these stocks were (based on P/Es).

Take Marten Transport (MRTN) for instance. Its P/E is 28.9. Industry giant YRC Worldwide (YRCW) somehow managed to give up sales this year. Knight Transportation (KNX) shrank the bottom line by 31% this year. What gives?

Industry-wide, there’s no margin. Like I said, part of that may be higher diesel fuel prices…..but I think that’s a lame excuse – these guys have been passing those expenses on to me and you. If gas prices retreat, then these stocks may find appropriate valuations at their current levels. So, no advantage there.

The sleeper in the transportation group is marine shipping. I love these oddball, offbeat industries that nobody really sees, as they can be a quiet little money machine very few people tap into.

Undoubtedly you’ve heard at least part of the DryShips (DRYS) buzz. DryShips is only the beginning though; all these stocks are cheap cheap cheap!

For instance, Knightsbridge’s (VLCCF) P/E is 7.0. Tsakos Energy’s (TNP) is 7.4. Danaos Corporation’s (DAC) is 9.5. Just crazy.

But it’s not like low P/E’s are the only story. Net margins are an average of 18.6%. And, I don’t see marine shipping falling out of favor anytime soon…even if oil subsides (and maybe especially if oil subsides).

To be clear, I don’t see these stocks as ‘trades’. I think they’re foundational investments…though still high powered. At the same time, I don’t know that I’d buy in just right now. I’m waiting for a pullback. I like their relative strength though.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

I’ve been a fan of South American telecom stocks for a while now. It’s one of the fastest growing economies in the world, and telecom has been newly-budding there over the last half-decade or so. Sometimes five years of growth is all you get before that respective market is saturated. In this case though, there’s still a massive amount of unmet need - telecom growth in Latin America is still picking up speed.

For those of you who follow our site closely, you’ll already know of my affinity for the few Latin American telecom stocks. We picked Telemig Celular (TMB) a few weeks ago, not just because they offer wireless service in Brazil (the biggest South American market), but because they’re demonstrative of how strong the opportunity is in the market.

Ironically - though happily - TMB’s trading has been halted today after Vivo (another cell phone company in the region) made a tender offer. No word yet on the outcome, but the fact that acquisitions and mergers are starting to become common suggests things are really heating up there.

Take for instance another merger on the verge…the union between Brasil Telecom Participacoes S.A. (BRP) and Telemar Participacoes (TNE), which will by far make them the largest landline player in the country. The union is being encouraged by President President Luiz Inácio Lula da Silva as an effort to stave off the major role that foreign companies play in their telecom business.

And, there’s certainly plenty of it…in all arenas. Deutsche Telecom (DT) and Vodafone (VOD) are just two foreign companies with eyes on Brazil.

That said, it’s not just Brazil. For that matter, it’s not just land lines. Mexico-based wireless company America Movil (AMX) is the dominant name in mobile phone service for the entire continent, but other outfits are looking to take a bite out of their business.

There are three key reasons I see much more growth ahead for telecom in Latin America. (1) Like I said, the region is still under-served. (2) State governments are more willing to give up control, even if their motivation is money. [See, the government has more to gain from competition and fees than they do by retaining control themselves.] (3) A stronger economy is allowing more residents there to own landlines and cell phones.

Take America Movil as an example of #2 (that governments want more telecom service providers). Movil recently paid $480 million to the country of Ecuador for the right to do business there…and they’re not even the only wireless player in the market.

The point is, if telecom’s growth was winding down in the region, all these companies wouldn’t be jumping through hoops in an effort to get positioned for future growth. I think it’s just getting started.

I mentioned a few company names above, though they’re not the only ones worth a look. As for our Telemig pick, I think it’s good that a buyout offer is on the table…it’s likely to mean more gains for us. I don’t recommend waiting for the merger though (if it happens). If the acquisition is for real, I’m probably going to suggest locking in the gain following any price jump.

Of course, it hasn’t happened yet; Telemig shares aren’t even trading right now. They will be soon enough, so we can reassess the trade then. In the meantime, I’m still bullish on the industry in this region.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

Just when you think it can’t go any higher, wham - it does. I’m talking about oil prices. You’re feeling the pain at the pump. Hopefully you’re offsetting that pain with gains from energy stocks in your portfolio; profits should be strong again.

The question - my question anyway - is whether or not this is the shape of things to come. It seems like every time a milestone price was hit, someone thought that would be the peak. Wrong every time so far.

Were it me, I’d use today’s surge as a profit-taking opportunity with any oil stocks I owned. It’s not that crude prices can’t go higher; it’s just that I think the reasons oil prices are attacking the $120 level aren’t really the reasons everyone else thinks they are.

For the most part, the spike is being blamed on a shutdown of a BP refinery in Grangemouth, and a military strike that disrupted production in Nigeria. Certainly those are factors, but I don’t think that’s what got oil all the way up to $120.

No, I believe we still need to call a spade a spade - oil is expensive right now because the U.S. dollar is incredibly weak. This isn’t news to any of you. However, if you’re wondering when the oil pain/pleasure is going to end, be sure to look at the right thing…and the right time frame. It will take months to repair the dollar - at least.

There is some light at the end of the tunnel though.

For the first time in as long as I can remember, there’s some chatter that the Fed is more worried about persistent inflation than economic tepidness. More specifically, there’s a possibility that the Fed won’t cut rates as part of their monthly policy meeting on Tuesday and Wednesday. Those low (and lowering) interest rates are what’s sending oil and other commodities to the moon, but letting inflation stay high. Pushing things in the other direction may be a welcome change for most.

However, if the Fed does stand pat, it may also be a hint that commodities have peaked and will no longer be getting a boost from Bernanke and company. That’s why I’m more inclined to lock in any gains today - in case the Fed doesn’t lower rates this week and hints that they may be flat or even pointed upward later in the year.

In terms of the timeline of an ordinary economic trough, it makes sense.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.