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Gold or S&P: 1200 ?

Last couple of weeks both Gold and S&P crossed crucial 1000 mark with Gold at 1020 and S&P over 1060. Normally these two indicators go in opposite directions. People worried about inflation and economic turmoil rush to gold while people more optimistic about future rush invest in S&P. So it is kind of odd that both these are moving in same direction. So which would touch 1200 first and offers better opportunity over next 12 months.

In my opinion, investing in gold is like not investing at all. You should buy gold only to make things you (or your other half) want to wear - rings, necklaces and so on. Gold as investment may be good hedge against inflation over short-run but over long-run it does not pay off. It does not pay any dividends and upside potential is very limited.

S&P has lot of volatility but since it covers America's biggest 500 companies, offers lot of potential and 1-2% yield over long-run. So If you are looking for which one would touch 1200 first, I would bet on S&P (and forget about gold as investment)

Sept 2009 turning out to be quite different than expected. Many people (including myself) were thinking that long-pending correction would come in Sept. But exactly opposite is happening. Sept is turning out to be one of best month in this 6 month rally. Last week major indexes went up by 2.5% bringing my year-end target for DOW 10000 within striking distance. I won't be surprised if DOW crosses 10000 in next 4 weeks. Question is what after that ? It all depends on Q3 results which should start coming out in 3 weeks. Till now pre-announcements about warnings are not there. Technology sector should get another boost with upcoming Window 7 release on 10.22 and upcoming holiday shopping season. So till new year, coast seems to be clear for indexes to keep on going up.

My favorite sectors are still Energy (see last week's picks which did very well), REIT, Private Equity and Banks (especially regional banks like RF, KEY).

Recently I have started studying some other sectors and this week's pick is in transportation.

Company: YRC Worldwide Inc
Symbol: YRCW
Buy price: $3.90
Target in 12 months: $6
Company info:
YRC Worldwide, a Fortune 500 company and the #1 company in industry in the Fortune "America's Most Admired Companies" list, is one of the largest transportation service providers in the world. YRC Worldwide Inc. (YRC Worldwide) is a holding company, through its wholly owned operating subsidiaries offers the customers a range of transportation services. The Company's operating subsidiaries includes YRC National Transportation (National Transportation), YRC Regional Transportation (Regional Transportation), YRC Logistics, and YRC Truckload (Truckload).

Selection criteria:
  • Recently had a union pact which would save over $1B over next few years
  • Revenues of over $7B
  • Enterprise Value: $1.5 B Market Cap < $ 250 M.
  • 52-week Hi/low: $19/$.89
  • Company has upcoming debt negotiation of $150 M coming.
  • Once that debt gets negotiated, chances of staying out of bankruptcy would increase substantially
  • Once economy picks up, demand for services offered by company would increase
  • As investment, it provides good risk/reward potential
  • Caution: Be ready to lose all your money since this is "survival" play
Have a good weekend !

/Shyam

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