Government Payday

In This Issue: Government Payday Feds Open Up the Renewable Highways Canada's Surge in Productivity Invest in the Strongest Market on the Planet For over a century, Australian stocks have been the #1 performers in the world. I know that may seem hard to believe. But a Credit Suisse report backs me up. It found Australian companies delivered the highest investment returns of any country since 1900. If you've been looking for a safe and dependable place to insulate some of your portfolio from the overheated domestic market… read on for the lucrative details. Government Payday 9/12/2014 By Benjamin Shepherd Part of the sweeping reform of America's healthcare system under Obamacare was the expansion of Medicaid, the program that provides health insurance coverage primarily for America's low-income workers. Twenty-eight states and the District of Columbia have expanded coverage so far, with three considering it and 20 opting not to. Those that have opted out are beginning to show signs of coming around, with both Indiana and Virginia now discussing expansions of their own. Running those programs is an administrative nightmare, requiring both specialized systems and regulatory knowledge. That's where Maximus (NYSE: MMS) comes in. For more than 40 years now the company has been helping governments setup and operate programs such as Medicaid, Children's Health Insurance Program and health insurance exchanges. Those programs typically generate about 65% of the company's revenue with the remainder coming from consulting services on child support case management, improving educational systems and tax issues. More than half of its revenue is tied to administering programs for state governments, many which are federally mandated and, as a result, are fairly stable income streams. That said, they tend to be performance-based contracts so the company's performance has to be spot on, though there are usually incentive payments which provide additional upside for the company. Another quarter of revenue comes from foreign government clients, including Australia, Canada, the United Kingdom and Saudi Arabia. Maximus is involved in a number of projects in those countries, ranging from health care administration to job placement programs. Thanks largely to the growing plethora of health-related programs, in its fiscal third quarter revenue shot up by 26% on a year-over-year basis to $419.9 million. Much of that was tied to new contract wins related to the Affordable Care Act. It also launched a new for the US Department of Education, administering collection efforts for nearly 5 million student loan borrowers who are in default. It also signed a deal in the UK to create a program geared towards transitioning employees who are on extended leaves due to health reasons back to work and in Australia to expand its job-matching services. In all, Maximus has signed new contracts worth nearly $1.1 billion so far this year with bids for another $3 billion in business still outstanding. Earnings have also been growing rapidly, up 20% to 49 cents versus the same period last year. The company's shares are off by nearly 7% so far this year despite that impressive growth. While management expected full-year revenue to fall between $1.68 billion and $1.73 billion with earnings per share between $2.00 and $2.10, its outlook for fiscal 2015 is somewhat hazy. While several more states are expected to launch expanding Medicaid programs over the next year, the lion's share of that business is already up and running. As a result, it I tough to predict just how the company's ACA business will pan out over the next year. A number of new contracts are also expected to generate some losses up front since they are pay-for-performance arrangements, though they should begin showing profits in fiscal 2016. Despite the challenges the company will face over the next year, both earnings and revenue are still expected to grow by at least 10% and should kick back up to around 20% in the following year. But thanks to the drifting share price so far this year coupled with its still-solid expected growth, Maximus' forward price-to-earnings ratio has fallen from a high of almost 30 to just 19.6. At the same time, it pays a small but consistent quarterly dividend and repurchases its shares on a regular basis, buying back nearly 600,000 in the third quarter alone. Thanks to its high profit margins of about 14%, it funds both its repurchases and dividends from its $182.9 million in cash on the balance sheet with no net debt. Since governments are essentially make-work programs for companies such as Maximus, especially as many states continue to push through privatization programs, this is an excellent opportunity to pick up the company's shares on the cheap. There are also ample opportunities in foreign markets, particularly in the UK and Australia where efforts are underway to reform entitlement programs and control costs. Considering that Maximus is facing a year of consolidation rather than a business slow down, this is a prime opportunity to buy a high-growth company on the cheap up to $49. Who Is Making $43.8 Million a DAY? This Bermuda-based company is making a handsome profit on America's energy boom. It makes a critical, unique tool that energy companies desperately need. And they're willing to pay $635,000 a day to use it. This company owns 69 of them. That's $43.8 million a day in revenue. Its reach extends all over the world. No wonder it can afford to pay shareholders 10.32% . And you can buy it for less than $40. I expect it to hit $48 in the next 12 months. That's a 31% total gain! It's just one of 5 companies in my "secret" blueprint for income. Discover them all here. Feds Open Up the Renewable Highways 9/11/2014 By Richard Stavros Thanks to a recent court ruling, earnings for green-energy utilities may soon be on the rise. In late August, a major obstruction to greater sales of renewable energy was lifted when a court upheld an order issued by the Federal Energy Regulatory Commission (FERC). The rule--known as Order 1000--mandates states and utilities to consider regional green-energy policies when building out the electrical grid network. We see the recent court ruling as part of a continuing trend of state and federal regulation that favors those utilities that are investing in clean technologies and developing new business strategies for the changing energy landscape. This is also clearly good news for the renewables industry in general, especially since more markets--both regulated and unregulated--will be more fully open to renewables. The ruling not only calls for the expansion of the electrical grid superhighway, but will build off-ramps into regulated markets, which means potentially new renewables customers in those states. At the same time, this drives yet another nail into the coffin for coal-heavy utilities, as analysts predict such policies will force utilities to shutter plants. In fact, regulated utilities were the entities most opposed to Order 1000 before it was upheld. Not only does the order force utilities to consider renewables in their transmission planning, but they must also pay for such expansions according to a new method for cost allocation among beneficiaries. These regulated utilities' chief concern--as it has been for their unregulated peers--is that plants that were built recently could become uneconomic due to greater competition from other energy resources. These firms have argued that they're essentially being forced to open their service territories to markets that could disrupt their investments. But that seems the way of the world these days. As we have seen in unregulated markets over the past year, companies such as Exelon Corp (NYSE: EXC), which boasts the largest fleet of nuclear power plants in the US, have suffered an erosion in margins as a result of competition from firms that shifted to generation from cheap natural gas and renewables. And it stands to reason that this could also happen in the regulated arena, though most analysts agree that renewables' penetration of these markets will occur much more slowly, even with an expanded grid, than it has in unregulated markets. Nevertheless, we view Order 1000 as the least of these utilities' worries. With the Environmental Protection Agency (EPA) getting ready to issue a final rule next summer on how it will regulate carbon, the industry is already rapidly preparing for the reality of this new carbon-emissions regime. Many in the industry predict that a massive wave of coal plant closures in the next few years is all but certain, as new carbon-emissions rules will render many coal plants uneconomic. That's why investors should be focused on utilities that are making the changes to their business model now, including taking the lead in offering renewables, actively upgrading their networks to accommodate renewables and other services, and preparing for the next stage of the industry's transformation. Winning on Green What will the utility of the future look like? Jon Wellinghoff, a former chairman of the FERC, summed it up best in the forward of a recent report issued by Ceres, a non-profit that advocates for environmental sustainability. The utility of the future will be able to help consumers "manage their energy bills and obtain targeted energy services in the quantity, quality, and locations that they desire." For Wellinghoff, this means a utility that can deliver real-time pricing so consumers can choose how much electricity they use between peak- and off-peak hours, known in the industry as demand-response service. This also means, according to Wellinghoff, that utilities can help consumers generate electricity on site--such as with solar photovoltaic systems--as well as integrate more efficient end-use technologies such as LED lighting. Finally, the utility of the future will have developed the "smart infrastructure" required to integrate and optimize all these services. And for those wondering which present-day utilities are coming closest to this ideal, Ceres recently launched a ranking of the 32 largest US investor-owned utilities based on energy efficiency and renewable energy sales. The Best and Worst Clean-Energy Utilities According to the Ceres ranking, NV Energy Inc, which was acquired late last year by Warren Buffett's MidAmerican Energy Holdings Co, Xcel Energy Inc (NYSE: XEL), PG&E Corp (NYSE: PCG), Sempra Energy (NYSE: SRE) and Edison International (NYSE: EIX) ranked the highest for renewable energy sales. Renewable resources accounted for roughly 17 percent to 21 percent of their retail electricity sales in 2012. SCANA Corp (NYSE: SCG), Southern Co (NYSE: SO), Dominion Resources Inc (NYSE: D), AES Corp (NYSR: AES) and Entergy Corp (NYSE: ETR) ranked at the bottom, with renewable energy sales accounting for less than 1 percent of each of their total retail electricity sales. Certainly, according to Ceres, state policies were found to be the greatest driver in clean-energy investment. And as noted above, new EPA policies on carbon emissions as well as the FERC's Order 1000 will provide additional incentives for states to improve clean-energy performance among utilities. This article originally appeared in the Utility & Income column. Never miss an issue. Sign up to receive Utility & Income by email. You're Beating the Market Right Out of the Gate With This 10.6%-Yielder Considering that stocks historically return 9% a year, you're beating the market right out of the gate with this gem – in dividends alone. What's more, we're projecting a five-year gain of 709% for investors who buy this stock now. Canada's Surge in Productivity 9/11/2014 By Ari Charney In addition to Canada's strong resurgence in economic growth during the second quarter, the country may have also experienced a key turning point in an area that has long vexed its policymakers: labor productivity. According to Statistics Canada (StatCan), the labor productivity of Canadian businesses jumped 1.8 percent in the second quarter, exceeding the consensus forecast by two-tenths of a percentage point. But more important than that, this performance was the highest quarter-over-quarter rise in 16 years. And on a year-over-year basis, labor productivity was up 3.3 percent. Still, it's too soon to tell whether this is the start of a new trend toward higher productivity. Over the trailing five-year period, for instance, labor productivity has grown at an average rate of just 0.32 percent per quarter. And prior to this latest result, over the trailing-year period that ended March 31, labor productivity increased at an average rate of 0.55 percent per quarter. Sure, that's a modest improvement, though it's still underwhelming overall. But this is hardly a new problem. In fact, when it comes to labor productivity, Canada's been a longtime laggard compared to its developed-world peers. According to the Organization for Economic Cooperation and Development (OECD), from 2001 through 2009, labor productivity grew just 0.7 percent annually, which puts Canada in the bottom quartile of that entity's member countries. The boost to efficiency that typically comes from business investment seems to be the main culprit here. According to Deloitte, a major accounting firm and consultancy, Canadian companies invest less than half of what US firms spend on research and development. And on a per-worker basis, expenditures on machinery and equipment are just 65 percent of what US firms spend, while Canadian companies invest just 53 percent as much as their US peers on information and communication technology. Even the rock star of central banking, former Bank of Canada (BoC) Governor Mark Carney has previously described Canada's past performance on the productivity front as "abysmal." Of course, that hasn't stopped our average stock recommendation from producing enviable returns. So it's easy to imagine what a boost to labor productivity will do for companies' bottom lines--and ultimately our Portfolios. And in keeping with the spirit of friendly rivalry between the US and our neighbor to the north, we'll note that Canada's growth in labor productivity has outpaced the US in five of the past eight quarters, with three consecutive quarters of outperformance most recently. So what changed during the second quarter? Interestingly, according to StatCan, even as labor productivity surged, the number of hours worked fell by 0.8 percent from the prior quarter. Meanwhile, labor costs per unit of production increase by 0.3 percent, which was just one-third the rate of the first quarter. According to The Wall Street Journal, Douglas Porter, the chief economist of BMO Capital Markets, believes the sudden rebound in productivity could be partly the result of the economy shifting from its dependence on debt-burdened consumers and real estate to rising exports and business investment. Those just happen to be two of the BoC's fixations since Stephen Poloz took the helm of the central bank last year, so they're foremost in economists' minds (and ours as well). Mr. Porter notes that growth resulting from real estate and consumer spending tends to create jobs, though it doesn't do all that much for productivity. By contrast, greater export activity and business investment leads to higher productivity, but doesn't translate right away into job growth. On the other hand, TD Economics believes the gain in productivity could be more cyclical in nature, perhaps reflecting the disconnect between the country's dismal employment market and growing economy. If hiring picks up, then productivity could moderate. Regardless, we like to look at which sectors had the greatest gains in productivity for possible investment themes. On that score, the retail trade, mining and oil and gas extraction, manufacturing, and wholesale trade sectors were the largest contributors to the rise in overall productivity during the quarter. This article originally appeared in the Maple Leaf Memo column. Never miss an issue. Sign up to receive Maple Leaf Memo by email. Are You Fracking Kidding Me? Massive amounts of oil and natural gas have been produced in the U.S. – thanks to a process called "fracking." In 2000, we produced 200,000 barrels of oil a day. Thanks to fracking, we are closing in on 2 million barrels a day – 10 times the amount! Latest reports from the Energy Information Administration show there are 223 billion barrels of oil and 2,431 trillion cubic feet of natural gas. Goodbye, sheiks. Hello, America. I have 6 "bedrock" energy companies leading the new fracking revolution. They're turning every $5,000 invested into $50,000! The time jump is NOW. Go here. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy Copyright 2014 Investing Daily. All rights reserved. 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