ESLR Update

Talk about volatility. I bought Evergreen Solar in May for $10.40 a share. Since then, it has gone as low as $9.50 and, yesterday, as high as $12.30. That's down 8.7% from my purchase price, to up 18.3% from my purchase price (and up 29.4% from the low) all in the space of about a month. And as of writing the stock's down some 3.4% today, trading at $11.88.

This one's definitely not for those with a weak stomach or prone to emotional decision making. Had I been watching the price yesterday, I'd probably have sold. It remains to be seen if that would have been the right or wrong thing to do.

The latest catalysts for the upswing were a couple of supply deals and an upgrade by Lehman.

Although, I think the stock will be much higher a year from now, as I wrote when I first bought it, I still have a limit order at $8.60 (this might get lower as the stock approaches this price) for the other half of my planned purchase.


Hain Celestial, A Pure Play in the Organic Market

I've noticed recently that people like my family members, who for years have scoffed at consumers of organic products (calling them hippies and idiots), have started buying various organic goods. My mom, for example, a long time critic of organics, now uses organic shampoo and occasionally eats organic produce.

Demand for organic food and personal care products has been growing at a phenomenal rate. Over the past 10 to 15 years, demand has increased at a rate of 15 to 20%. In 2006, for example, American consumers spent around $16.7 billion on organic food. This was a 126% increase over the previous five years, according to the Organic Trade Association. With organic food holding around a 2.8% share of the US market, demand is expected to continue to grow at high single digit rates for at least the next half decade. While health food stores and supermarkets like Whole Foods (WFMI) have been selling organic products for some time, regular grocers and big wigs like Wal Mart (WMT) are getting into the game.

Hain Celestial Group (HAIN) is based in Melville, NY, and has sales in North America and Europe. With around 1,500 branded items, most of which are organic, it is well positioned to benefit from recent trends. Among its more prominent products are Celestial Seasonings teas and coffee, and various personal care goods marketed under such brands as JASON (which holds leading market share). Hain participates in almost all natural food categories, including the growing vegan and vegetarian food and beverage market. For instance, veggie burger patties used at McDonald's (MCD) are made by Hain in some markets.

Hain's last quarterly report, in March 2008, showed earnings per share growth of around 20% year over year on a sales increase of about 11%. Price increases of 3 to 5% on many of its products helped offset rising costs. The 11% increase does not reflect about $5 million of discontinued products because of a newly implemented SKU rationalization program. If the discontinued products were included, sales would have increased 14% year over year. Considering the high commodity cost environment, Hain did well internationally too. European sales were up 20%, and sales in Canada grew by 40%.

Hain's SKU rationalization for its personal care products division is expected to weed out between 30 and 40% of its least profitable products. The firm hopes to boost operating efficiencies and margins, expecting to add about 1% to its gross margin. Management expects a total savings of almost $0.07 per share by the end of 2009.

The company's long term growth strategy has been aggressive acquisitions, and it has been on a buying spree of late. Recent purchases include non-dairy beverage maker Imagine Foods, the Linda McCartney frozen food brand, and baby products maker TenderCare International. While its debt to equity ratio is still quite low, this may change if the pace of acquisitions continues. Some recent acquisitions outside Hain's core food competency have been regarded as spreading the company's product portfolio too thin.

Hain's share price has stagnated over the last year, currently trading slightly below January 2007 levels. It is also well off its 52 week high.

This is a reflection of the tough operating environment Hain, like most food companies, faces. Food commodity prices are going up, and price increases are expected to continue. Transportation and refrigeration costs are growing as well. It is difficult to gauge whether Hain's customers would accept additional price increases for its products, especially with the current stagnant economy. Sales may slow, or margins may shrink as cash strapped consumers may switch to cheaper, and perhaps non-organic products.

A big risk faced by Hain is that there are practically no barriers to entry into the organic market. Competition from food processing giants like Kraft (KFT) and Dean Foods (DF) is increasing. Hain also faces competition from the very grocers that sell its products. Kroger, Safeway, Trader Joes, and Whole Foods all have organic in-store brands that often sell at discounted prices.

Another risk in investing in Hain is that over half of its annual sales come from goods made by other vendors. Eight suppliers account for over two thirds of these outsourced products. Contract disputes, production problems, and the like could severely hurt Hain.

Recently, the California Attorney General has initiated a lawsuit against several companies for not warning consumers of a potentially carcinogenic chemical, 1.4-dioxane, in their soaps. One of the companies being sued is Avalon, a subsidiary of Hain.

Dividend investors should note that Hain does not pay dividends.

If you're looking for a pure play on the organic market, Hain is it. As long as demand for organic products does not wane, its success will depend on how management deals with mounting cost pressures and competition, and what new products the company develops. Recent successes include the growingly popular Celestial Seasonings Coffee brand.

Hain's fiscal year ends in June. I would wait until the next earnings report before deciding whether to buy.


Pfizer Update

Pfizer (PFE) announced this morning that it reached a deal with Indian generic drug maker Ranbaxy Laboratories regarding its popular Lipitor drug. Before the deal was announced, it was widely expected that Ranbaxy would start selling generic Lipitor in the US by June 2011. The deal, however, gives Pfizer five extra months. Ranbaxy will start with generic Lipitor in November 2011.

The agreement also involves Ranbaxy being able to sell generic versions of Caduet, a Pfizer drug that is a combination of Lipitor and Norvasc (a blood pressure drug). While Pfizer's expiring Lipitor patents in Denmark, Finland, Portugal, Romania, and Spain still face litigation, Pfizer will not attempt to block Ranbaxy from marketing generic Lipitor in Australia, Belgium, Canada, Germany, Italy, the Netherlands, and Sweden when its patents will expire in those nations.

No money was exchanged in the deal, so federal regulators should not be able to contest it.

What does this all mean? Deutsche Bank's Barbara Ryan thinks the extra five months give Pfizer an extra profit of $0.40 per share in 2010 and 2011. James Kelly, an analyst at Goldman Sachs now thinks Pfizer will earn $2.44 a share in 2011 (up from his earlier projection of $2.09), and $1.96 a share in 2012 (up from $1.88).

Investors have reacted favorably, sending the stock past $18, where it has hovered over the past two weeks (going as low as $17.50). Pfizer's share price is still at 10 year lows.

There obviously are still challenges ahead for Pfizer. Current projections still show shrinking profits, and it's not just Lipitor that's expiring. The dividend cut that I wrote about earlier still appears to be a possibility. On the other hand, Pfizer has more time to get its act together, and the Ranbaxy deal shows that management has some competence. Forbes has recently reported that there appear to be some promising cancer drugs currently in Phase II trials.

Last time I wrote that I was too fearful to buy right now. I still am. The stock of the world's largest drug maker looks attractive, but I still think it can go lower. I will look to see what happens to Pfizer's dividend. If it remains steady or is raised, and the stock is still under $20 a share, I'll consider buying it.


We All Know the Bad, but Hgher Oil Prices Can Be Good Too

The price of oil goes up, whether because of supply and demand or speculation, or a mix of both. Supply will almost certainly reach its peak soon, if it hasn't already. Refiners, who pay the higher price, raise gasoline and diesel prices to protect their margins. We pay more at the pump. Goods have to be transported, which takes energy. As oil is our principal energy source, food prices rise, as do the prices of other products and services that require transportation. The price you pay for a good or service might stay the same, but the quantity or quality diminishes. For example, you may have noticed that meals on airlines have become scant or nonexistent. The list goes on.

High oil prices are not intrinsically bad. Rather, they are bad only because we rely on oil. Besides the economic costs of our reliance on oil, which we experience in our daily lives, there are the social and environmental costs. Save for a few democratic oil producing states, like Norway, most of the world's oil comes from unstable regions and nations run by dictators or quasi-totalitarian regimes (I'm thinking of Russia for this last one). We prop them up by paying for the oil they sell. There's also terrorism. Then there are the environmental effects of our oil consumption, from oil spills to smog to global warming (although this last one is debated).

There are benefits to higher oil prices

For one, by owning shares of those companies making higher profits from higher energy prices, we can make money.

Second, our reliance on oil will only end if it becomes too expensive to use it. We can have all the warm and fuzzy thoughts we want about being energy efficient, not supporting oppressive regimes, and doing things for the environment, but we'll do nothing if prices are cheap. Who would talk about alternative energy if oil and gas were a quarter of today's price?

Higher oil prices turn ideas into actions. For example, automobile manufacturers are starting to produce better, cleaner, and more fuel efficient cars. Alternative energy companies are springing up all over the place (we can leave the types of ethanol that contribute to higher food prices out of the good category). Their incentive is higher energy prices. There would be no demand for their products without high oil prices.

As technological innovations, driven by necessity and demand, lead to better products and become available for mainstream consumption, our reliance on oil will decrease and may eventually end. While we'll probably have some other problems as a side effect (we humans are great at finding solutions that come with a host of new problems), the negative economic, social, and environmental consequences of our oil consumption will lessen.

Along the way, by investing in the right companies or industries, we can turn a tidy profit.

These are not recommendations, but if you are interested in alternative energy, check out the following ETFs and an ETN.


Claymore Global MAC Solar Energy (TAN)
Claymore Green (GRN)
First Trust NASDAQ Clean Edge (QCLN)
PowerShares Cleantech Portfolio ETF (PZD)
PowerShares Global Clean Energy Portfolio ETF (PBD)
PowerShares Global Nuclear Energy Portfolio ETF (PKN)
PowerShares WilderHill Clean Energy Portfolio ETF (PBW)
PowerShares WilderHill Progressive Energy Portfolio ETF (PUW)
Van Eck Market Vectors Global Alternative Energy ETF (GEX)
Van Eck Market Vectors Nuclear Energy ETF (NLR)
Van Eck Market Vectors Solar Energy ETF (KWT)


Global Warming ELEMENTS ETN
(link does not go directly to the fund page, scroll down to find the prospectus, etc) (GWO)