This will blow you away….Babock and Brown Wind Partners (BBW)

Babcock and Brown Wind Partners (BBW) is $A1.80 stock which I recommend you get in to soon – it has already gone up 10% in the last 2 trading sessions. It is a longer term investment, but it pays a 6%+ dividend and should appreciate well over the next couple of years. Also it is a good defensive play – which is useful when the market takes downward turns.

So what got me interested in this stock? Well, a lot of my ideas come from reading articles in the online media and then trying to see which companies can leverage off the information I find. This time it was easy. The article I mentioned was in the Australian covering the Howard Government's decision this week to lift the nation's "clean energy target" (CET) to 15 per cent of all energy by 2020. This was the first line in the article : AUSTRALIA'S $2 billion wind farm industry is set for exponential growth following this week's release of higher clean energy targets, with investment plans being dusted off around the country. Pretty catching article, don’t you think?

A similar trend in the usage of wind energy is occurring world wide as the focus on clean energy becomes a prevalent political issue.

So which local companies can you invest in to leverage the new CET targets? The 2 main ones are BBW and Pacific Hydro. From my research I prefer BBW. So what makes me like this company:

- With the new CET targets (backed by both political parties) the wind farm industry will become a $16 billion industry in the next few years. BBW can leverage well of this given its strong portfolio and management expertise in this area.

- It has solid fundamentals, with significant overseas exposure. It generates a majority of earnings from the US and Europe – both are growing markets. It also has a strong buy recommendation from the analysts covering it.

- Has a 6.5% dividend yield – can’t beat that. While it will always carry a lot debt given the capital intensive nature of the stock, it has solid cash flows enabling it to repay the interest.

The risks to this investment are that building wind turbines is a very capital intensive business and its fortunes are tied to regulatory benefits from governments promoting clean energy. I think the trend to clean energy is growing and this is one stock you want to have some money in.

For more information and to do your own research, you can check out the following links:
Article in the Australian
All you need to know about More information on Wind Generation
Outlook for wind power

Let me know what comments you have on this stock.

Cheers...a look at Fosters (FGL)

Saw a great article in the US wall street journal regarding Foster's group. Here are some of the highlights regarding that Article. I have owned Fosters (FGL) shares for a while now and think they are due for a run up and now is a decent entry point. However, this is a long term buy as it will take 1-2 yrs to see meaningful gains. Apart from wine, Fosters is also a leader in the beer market - which will not be affected by drought as severely as the wine business.

Chief Executive Trevor O'Hoy has described the challenges that have hit the company in the past few years as "biblical" in proportion. Australia's wine industry has been hit by drought, fire and frost just as it was emerging from an oversupply that saw cheap wine flood the market and sink prices.

Analysts say that if Foster's can mitigate increased grape costs from drought, and continue the recent momentum in its wine business, the outlook is encouraging.

"The tentative signs are there; it's too early to say all the dramas are behind it, but the indications are that margin expansion is happening again and with a bit of luck the bottom of the wine cycle is now behind Foster's," says Greg Canavan, an analyst at Fat Prophets

Foster's, the world's second-biggest winemaker by sales behind Constellation Brands Inc. of the U.S., has already begun raising prices across its brands, which include Penfolds, Lindemans and California's Beringer Wine Estates.

"We put our prices up across the board in August between 4% and 11%....Those prices have stuck and competitors have followed. That's a pretty good sign," Mr. O'Hoy told Dow Jones Newswires.

For 18 months, some premium wine was at rock-bottom prices, as unbranded output -- known in Australia as "cleanskins" -- was offloaded to cut inventories. Now, Mr. O'Hoy is confident that consumers will maintain their preference for better-quality wine and accept higher prices.

The Foster's CEO was in the hot seat in February after conceding that a much-maligned strategy to restructure the company's sales force, doing away with separate wine, beer and spirits teams, had hurt sales. In the six months that ended Dec. 31, 2006, wine volumes slumped 9.3% from a year earlier.

With the sales-force issues getting sorted out, analysts expect Foster's to stabilize its market share and benefit from improved pricing as the wine glut clears.

For the year that ended June 30, Foster's reported a 17% fall in net profit to 966.2 million Australian dollars (US$843.8 million), in line with analysts' expectations. Profit before significant items rose 17%, and investors were encouraged by revenue momentum in the second half. Illustrating its confidence, Foster's announced a A$350 million share buyback.

"They achieved what they said they were going to achieve. I think the market is a little more comfortable now that actions will follow the words," says ABN Amro analyst David Cooke, who rates the stock "buy."

Takeover rumors prompted a spike in the share price in August 2006, but the possibility of a buy-out appears to have receded for now. Mr. O'Hoy says several private-equity firms had contacted the group but interest has dried up since the turmoil in the global credit markets.

Foster's was an attractive target because of its vulnerability in tough industry conditions and its strong cash flows from its beer business, which includes Australia's top-selling brand, Victoria Bitter. Now, in the wake of the debt-market rout, Mr. O'Hoy says Foster's is getting calls from parties trying to off-load wine assets.

However, some skepticism about Foster's outlook remains. While drought in Australia was initially seen as benefiting the wine industry, helping erase several years of disastrous oversupply, it now threatens to cause a deep shortage of grapes.

"The anecdotal feeling at the moment is that the 2008 harvest is shaping up to be lower again," says Lawrie Stanford, information and analysis manager at the Australian Wine and Brandy Corp.

He says spring rains will be critical for Australia's main grape-growing region, the Murray Darling Basin, which produces about 60% of the country's grapes. McGuigan Simeon Wines, Australia's second-largest publicly listed winemaker by sales, has warned that a lack of sufficient rain could see the 2008 vintage down another 30% from 2007, which was already the smallest harvest in seven years. The reduced throughput into its wine-processing facilities helped push McGuigan Simeon to a A$5.9 million loss for the year that ended June 30.

While Foster's isn't as exposed to the drought -- most of its fruit is from cooler-climate areas -- higher grape costs still are an issue. The industry as a whole is also at risk of losing export markets if supply is restricted.

Mr. O'Hoy says Foster's has a competitive advantage in a tight market. "Our checks don't bounce, so in a short market we will generally do better than most other players," he says. Still, he acknowledges Foster's "will be short some varieties without a doubt if this [drought] continues."

Merrill Lynch analyst David Errington, who has a "sell" rating on the stock, is more circumspect about the outlook. Last week, he wrote that "it is likely to be a very tough couple of years for Foster's Australian business."

Mr. Errington says he expects the Australian business to suffer from higher costs of grapes and lower volumes, while the stronger Australian dollar "makes it a tough export market."

Foster's shares, which gained five Australian cents yesterday to A$6.53, are down 5.6% for the year. The average 12-month target price of eight surveyed brokers is A$6.49, according to Thomson Financial. Among 10 brokers with a Foster's recommendation, three have buy or overweight, six say hold and one says sell.

Macquarie Research Equities analyst Andrew Kovacs believes the outlook for Foster's U.S. operations -- nearly half of its total wine earnings and around 19% of group earnings -- is solid, with demand for wine benefiting from favorable demographic shifts.

People under age 30 "are adopting wine at greater rates than their predecessors and driving up U.S. per capita consumption," Mr. Kovacs, who has an overweight recommendation, wrote in a note this week.

The full article can be found by clicking this link .

BHP - Wait for the pullback to buy

With the recent news grabbing headlines of BHP's massive Olympic Dam resource increase, the shares ran up close to 15%. However, when the actual results were released in their annual report, it was a major anticlimax and the shares subsequently fell. As analysts said, "The expanded production won't come online until the middle of next decade so overall it is not increasing the value of the company for now. The Share price spike was on the hype of the upgrade, but the significance of this is a long way down the track in terms of developing the project."

BHP Billiton's stock price is headed higher long term, so wait for the expected further pullback to around $40 and buy the stock as a long term investment. No need to rush in now and get it at the high prices. Longer term the picture is still excellent for BHP primarily due to its exposure to the growing Chinese and Indian economies and their ravenous demand for resources.

Then there is the big untold story of BHP's petroleum division, which has not only slowed the decline in existing reserves but is poised to dramatically increase production in the next couple of years. Throw together petroleum, uranium and coal and BHP presents a handy energy play to more than keep cash flow running hard when the copper-iron ore boom slows.

If you feel you have missed the boat on BHP, don't worry most likely your super or mutual fund has BHP as a part of their portfolio (due to it's size in the ASX) and their is still plenty of upside in BHP over the next few years due to the above factors. So don't rush into buy now, but do buy on weakness.

On an interesting side note, check out the contract details of BHP's new CEO.....wish we had it so good. CEO Contract

Superannuation Information

On the topic of Superannuation, a topic which I am looking into for my parents, I am going to provide a link to a few good resources. It is a well discussed topic with a lot of expert analysis and recommendations out there. So I am just going to aggregate some links that you may find useful. Scroll down and on the Right Pane you will see a "Superannuation Info Links". Hope these help and if you find any useful ones let me know and I will add them to the list.

Like I said in my previous post - Super is one of the best investments you can make because it is taxed much lower than your average personal tax rate. For those in the higher 40%+ tax brackets, you get a straight 25% return on your investment (40-15)! Can't beat that.

Updates on some stocks I recently reviewed - ORI, BHP, BNB

Orica (ORI) just announced the $775m purchase of Excel Mining and was up 5% on the announcement to 29.30. This purchase should help grow earnings by securing a larger slice of the growing underground mining segment. I recommended the stock last week at $28.20. I am forecasting it to close at $32 by year end , so continue to buy.

Rumors in the press are that BHP is going to announce a huge gold find . The stock had a nice 5% jump yesterday and could go higher in the next few days. However, I think the stock is already priced for the announcement so I would hold what you currently own now and look to buy on weakness.

BNB jumped 5% after I recommended it on a post yesterday. This is thanks to Goldman Sachs Group Inc., the world's largest investment banking company, which reported a 79 percent jump in profit, easing concern that a rout in global credit markets hurt industry earnings. Nice to see a quick return - thanks K for the tip.

Babcock and Brown (BNB) - This one's going to run up!

Had a talk over the weekend to a good friend of mine who recommended I look into Babcock and Brown (BNB)- An Australian based Investment Banking company. Well I did and I think it is poised to really take-off and benefit from the recent market volatility (in which it dropped 40%+, but is now only down 20% or so from it's high).

Here is a great video clip I saw about the recent results and comments from the company's management - BNB Results Video

So why do I think it is a buy:

1. It has exposure across various industries and excellent geographic distribution of it's earnings. It is predicting continued growth in it's earnings, with 2008 earnings pretty much locked in.

2. Fundamentals are great. It's PEG is less than 1, a sign that it is undervalued.

3. Average analyst rating is Strong buy

4. Management has a strong record of delivery, is compromised of the original founders and has a strong stake in the company.

The risks are obviously continued global turmoil, but overall the company has great prospects ahead of it. I am going to be investing in it very soon.

The price of BNB is 24.35 at the time I wrote this post. I think it will be $30 by year end and up to $35 by Mid 2008.

Why diversify?

Saw a nice article by a leading American mutual fund company about diversification. Here are some good part of it which I found interesting and a good reinforcement for why diversification is key for a balanced portfolio. This is relevant for investors anywhere in the world, including Australia.

Why diversify? Because foresight isn't 20/20 and "The less diversified you are, the more pain your portfolio will feel"

Sometimes, it's possible to have too much of a good thing. That's especially true when strong performance in a particular market sector causes one part of your investment portfolio to bulge while other parts shrink or grow only modestly.

In such situations, instinct may tell you to celebrate your good fortune and leave your portfolio as is—or even to load up on the investment that's doing well. But according to Donald G. Bennyhoff, CFA, an analyst in Vanguard Investment Counseling & Research, in most cases a smarter approach is to take a close look at your long-term investment strategy and take steps to restore your portfolio's diversification.

Protect yourself by learning from the past

Many investors don't want to worry about diversification when they're enjoying a stock market run-up, such as the one we saw in the first half of 2007. But letting one part of your holdings swell disproportionately can be risky. You never know when the current Wall Street darling will fall out of favor, turning your outsized gains into outsized losses.

Any investor who poured money into technology-focused stocks or mutual funds in the late 1990s can testify to the dangers of tilting a portfolio heavily toward one type of investment. And even though many of the scars of the dot-com meltdown have healed, it's important not to lose sight of the lessons from that painful period.

A key investment lesson of the last decade is that no one type of investment should have too much—or too little—weight in your portfolio. For many investors, the harm caused by the collapse of technology, media, and telecommunications stocks was compounded by a lack of portfolio diversification.

Use an investment strategy to avoid drifting. With the financial media always full of ads touting recent performance, Mr. Bennyhoff acknowledged, you might be tempted to drift away from a more diversified portfolio. And when temptation wins, the culprit is typically the lack of a comprehensive investment strategy.

Key points
- A broadly diversified portfolio should give you at least some exposure to the markets' best performers—and some protection from the worst ones—at any given time.

- A comprehensive strategy can keep you from overemphasizing recent performance.
"An investment strategy can serve as your emotional anchor and help you feel more confident about your choices," Mr. Bennyhoff said, "because you know you have a well-balanced and well-thought-out plan."

Developing your plan

A trusted financial advisor can help you devise an investment strategy, but you can also create one on your own using a suggested mix of mutual funds tailored to your circumstances. A number of companies like AMP, AXA, ING and the big banks have websites dedicated to this. Let me know if you want me to send you some links.

Of course, investment diversification will never eliminate your risk of loss, nor will it guarantee a profit in a declining market. But it should reduce the chance that you'll suffer disproportionate losses if one particular high-flying sector suddenly descends to earth. And owning a portfolio with exposure to all key market components should give you at least some participation in whatever sectors are performing best at a given time.

Don't lose your balance

Once you've established a diversified portfolio, you'll have to make sure you don't lose the balance you've worked to create. That will mean periodic rebalancing—shifting money from one type of investment to another—to ensure that you continue to hold the mix of stock, bond, and short-term investments that you deem appropriate for yourself.

Rebalancing will result in taking some money away from the top performer of the moment. While that can be emotionally difficult, such investment discipline will help prevent you from becoming too heavily weighted in one area.

"Diversification is the cornerstone of good investment practice, and rebalancing can be a way to make sure you achieve or maintain diversification," Mr. Bennyhoff said. "Investors, of course, want to buy low and sell high, and that is what rebalancing can help you do."



Additional Notes for diversification

- Prices of small-cap stocks often fluctuate more than those of large-company stocks.

- Past performance is not a guarantee of future results.

- Mutual funds, like all investments, are subject to risk. Investments in bond funds are subject to interest rate, credit, and inflation risk.

- Foreign investing involves additional risks, including currency fluctuations and political uncertainty.

- Diversification does not ensure a profit or protect against a loss in a declining market.

I track my shares in a simple excel spreadsheet. I now also track what % of my total portfolio each share makes up. Every 3 months, I evaluate and if a share makes up more than 20%, I put a plan in place to reduce it (hopefully take some profits) to between 10 - 15%.

Forbes 2000 List and the Top Aussie companies on it

Just saw the recent release of Forbes 2000 global companies (I had an earlier post with Fortune's List).

For a solid and safe portfolio (especially in these turbulent times) I would make my stock selection from the Australian companies on the list. If you are interested in investing overseas, this is also a good place to being your research.

The full list can be found at : Forbes 2000 List

An interesting point to note is that NAB was ranked higher than BHP. This is interesting, but is based on the 4 measures used -- sales, market value, assets and profits. Also, it shows the quality of Aussie banks from a worldwide perspective given that they make up 4 of the 5 Top Aussie companies.

I did get a response that I was only focusing on safe stocks. Well, I have invested in penny stocks and while I have made some money, overall it is a much sounder investment to focus on the top 200. Apart from sleeping easier, the long term returns are the same, so why take the extra risk. I have only got about 10% of my portfolio in these "risky" stocks as I think they do have a place, but they should only make a small part of the portfolio. Use the above list to pick the stocks for the majority of your portfolio.

Stock of the Week : Oxiana (OXR)

Recommendation : Buy on Weakness. Average Analyst Recommendation : Buy @ $3.70

Oxiana Limited is a an emerging Australian resources company, focused on copper, zinc and gold production.

Reason to Buy:

PE is 14.7 (as of Sep 23) and is one of the lowest compared to it's competitors. Other fundamentals and has a strong balance sheet with Net cash balance over $70 million (ie no debt)

Good Projects Pipeline which should provide increases in production from 08/09. This should drive future revenues and share price.

With Gold prices going up (in US$ terms) and spectre of rising real inflation, gold provides a good hedge. OXR is set to become one of regions larger junior gold producers with the new projects coming on line.

Cash in hand makes it ready to make an acquisition or become a target. Either way, this augurs well for the share price.

Has exposure to Uranium related growth through 40%+ holding in Toro Ltd.

Risks

- Increasing $A reduces foreign revenues

- Increasing costs to build projects, which will affect bottom line. Management's real test will be to keep costs under control during the current resource boom

- Crash in commodity prices.


Overall I think this is a stock you should look into for diversification in your portfolio.

For a detailed and recent company check out their recent US roadshow presentation

Australian Fortune 500 Companies - Which ones to buy

Here are the companies, in order, that made the Top 500 worldwide companies (according to Fortune Magazine). I have also put my recommendation next to them.

BHP Billiton (BHP) - BUY
Woolworths (NAB) - BUY
National Australia Bank (NAB) - BUY
Coles Group - SELL
Commonwealth Bank of Australia (CBA) - BUY
Australia & New Zealand Banking (ANZ) - Buy CBA instead
Telstra (TLS) - BUY
Westpac Banking (WBC) - BUY NAB instead

The above are world class companies and should be part of a balanced portfolio. The only change I would make is to exclude Coles and 2 of the banks, per the sell recommendations above.

Online Credit Card processing

Ever wondered how people/business get online credit card payments processed on their websites? There are many vendors that offer these services and with a few clicks and Google searches for words like Card Processor Merchant you can find one. If you are an international business, make sure select one that can handle international payments and transactions.

The key things to check for in a Merchant Processor is that they have low costs, convenience and they accept all major credit cards - Credit Card Accepting is a thing most of the main players do now. In terms of costing, volume is important. If you plan to undertake a number of transactions, then you can get volume discounts.

Either way do your own homework, know where your transactions are being processed - alot of Merchant Services Off Shore their transaction processing centres to get lower costs - so check their security procedures.

Fed cuts rates by half percentage point to 4.75 - expect a bumper day on the Aussie market!

The Federal Open Market Committee cut its benchmark federal funds rate by a half percentage point to 4.75%. In an effort to ease the credit crunch, the Federal Reserve also reduced its discount rate in lockstep to 5.25%. This is the first cut in the federal funds rate since June 2003. In a statement, the FOMC said the action "was necessary to forestall some of the adverse effects on the broad economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time." The Fed said that some inflation risks remain. It said the credit crunch could hurt the economy.

Should be a great day in the US and Aussie Markets!

What's going to happen to the Aussie Dollar?

With the up and down movement of the Australian (aussie) dollar over the last month, it'd be a brave man to predict the future. Luckily I happen to be a brave man. Here is my take based on what I have been reading...

The aussie has risen back above 84 USc since it fell to 77 USc last month as the
fallout from the US subprime mortgage mess widened and sparked a squeeze in global
credit markets. But it still remains below its July 25, 18-year
peak of 88.70 USc.

Why I think the $A will go up and down in the short term, but finish around $85c by year end:

- Better sentiment on carry trades (This where investors borrow the low-yielding Japanese unit to invest in assets in high-yielding currencies like the aussie and
kiwi dollars) underpinning support for the aussie and kiwi as rate differentials and outright yield become more potent market drivers in an environment where stock markets are more stable.

- Currency analysts expect it to hit 86c by year end, though it will be a volatile journey.

- Australian economy is booming and demand for our resources from Chindia (China and India) will keep the currency strong.

- Australia has a better yield differential. US interest are likely to fall, this should help the aussie dollar stay up.

Any further resurgence of global risk aversion obviously remains the most significant threat for the Australian dollar.

Overall I think the Aussie dollar will yo-yo up and down, with an upward trend. However, this should not affect your investment decisions. Always keep about 30-40% of portfolio in shares with international exposure.

Stock review for the week : Orica (ORI)

Orica (ORI) - $28.20 on 16/9/07 Rating : Long Term Buy (Target $40)

----------------

Saw an article over the weekend talking about the recent pull back in Orica's share price. I have been watching this stock for a while and I think it is the best in sector pick. I own DXL (Dyno Nobel) and wish I had bought Orica instead. I think it will be a $32 stock by year end (the recent rejected takeover price) and $40 by the end of the financial year (Jul 08).

Here are some key positives:

- Alot of growth oppotunities, espically in China. Mr Liebelt (CEO) told ABC's Inside Business program that Orica had a number of businesses operating in China at present and expected them to grow.

- In April, Orica rejected a $32 per share cash offer from a private equity consortium. Orica said the bid significantly undervalued the company and its growth prospects. "We said at the time that the board had been through a thorough process of reviewing the value of the company and in its view the $32 underestimated the long-term value of the company," he said.

- Potential for further acquistions. At the half-year, Orica said its gearing was at 31.7 per cent, down from 35.2 per cent in the previous corresponding period. As a listed company, it is perceived to have a "lazy balance sheet", with a debt-to-equity ratio below 50 per cent. But Mr Liebelt said this provided opportunities, and Orica could borrow additional money for acquisitions in the hundreds of millions or a half billion dollars.

- Growth in their mining services division. "Given that we've got a good presence there with our explosives business and now with Minova, we think there's going to be continued opportunities (in mining services)," he said

Good luck.

Andy.

Current Tax Rates and Schedules in Australia

See updated Tax tables at this newer post : http://www.financeviewpoint.com/2007/10/200708-australian-tax-brackets-and.html


Finally found a good summary Income tax table. Australia has a progressive tax system. Here are the rates :

Taxable income threshold -------- 2007/2008 Marginal tax rate*

$0 - $6,000 ------- 0%
$6,001 - $30,000 ------- 15%
$30,001 - $75,000 ------- 30%
$75,001 - $150,000 ------- 40%
$150,001 + ------- 45%

*In addition to these tax rates, the Medicare Levy (up to 1.5%) and Medicare Levy Surcharge (1%) may apply. Tax rates current as at July 2007


See my other posts for superannuation and maximising tax investments.

Andy.

What is Superannuation? Why is it effective

My parents are 8-10 years away from retirement and live in Sydney, Australia. We started discussing superannuation which led me to doing some research about superannuation in Australia.

What is Super?

Super is a long term savings plan that you undertake throughout the course of your working life to ensure you can live comfortably in retirement. Most Australian employees receive an amount of 9% of their salary, called the ‘superannuation guarantee’ which is contributed to a super fund by their employer. Whilst you are working, your super savings grow because money is paid into your super account regularly, which can be invested through your super fund


Basically if you earn more than $30,000 (which most Aussies do) then it is a great investment. The 2 main reasons are :

1. It is very tax effective. The best thing about super is the fact that Australians get loads of tax benefits and government incentives for contributing to super. The tax you pay on money entering your super account and on any earnings is generally capped at 15%. Compare this to the tax you could pay on income earned outside of super, for example, your salary, which could be up to 46.5% (including the Medicare Levy)! As far as saving for your retirement goes, there are more reasons to invest ‘in’ super than ‘outside’ of it.


2. Compound Growth. The younger you start the more time you will have for the compounding effect to boost your savings. There are heaps of calculators out there that can show you the younger you start, the more you will have at retirement.


So review your superannuation and contribute more than your employer's 9%! There are caps on how much you can contribute depending on your age (see my next post on this). However an overall contribution target should be between 15% - 20% of your current income to allow you to retire on your current income (subject to 7% growth in investments).

Andy.

Aussies to spend $5bn on digital technology - How can you capitalise on this?

Saw an article on news.com. au titled "Aussies to spend $5bn on digital technology". So what stocks would benefit from this spend on consumer electronics:

First here are some stats from the article :

- AUSTRALIANS will spend twice as much this year on digital technology as they did four years ago, a consumer electronics survey predicts ($5 Bn by year end, compared to $2 Bn for last year)

- In the flat panel TV sales battle, MP3 Players (IPods) and game consoles should be winners.The losers in 2007 have been DVD players, digital video cameras, inkjet printers and photo printers.

So where would I put my money. Here are the top 3 to look into further:

1. JB-HI Fi (JBH) - This is a pure play exposure to the consumer electronics boom. Stock has had a large run up of late, but still some upside and a potential stock split coming up.

2. Harvey Norman (HVN) - Bigger and more diversified version of JBH. Also had a great run of late, but could be some more growth leading up to Christmas.

3. Woolworth (via Dick Smiths who they own) - For the least risk (but probably lowest return) exposure to the growth in consumer electronics.

Tough week ahead

Well, looks like Monday is going to be a big down day in the market given the 2% drop in the US markets and the bad "r" - recession - word now being bandied around.

I still think the US will get through this tough spell because the rest of the world economy is still growing. I don't think the housing or credit markets are the real worry, it is consumer spending - which still drives over 60% of the US economy. Consumer confidence is down, but retail spending is still showing signs of growth. However, as long as inflation is low and job environment is decent - which is the current situation, a recession is unlikely.

From an Australian perspective, there is no need to panic. Use the market volatility to build position in the solid companies in ASX 200 and reduce other weaker positions.

For a good overall article on the potential of a US recession check out the following article : http://www.marketwatch.com/news/story/how-much-longer-can-us/story.aspx?guid=%7B0D0C82D2%2D783A%2D4111%2DB5B4%2D27ECC944B08F%7D

Australian Investment Review

Found a good site with some solid commentary and research on Australian stocks. Has a weekly pdf publication you can download and read. AIR review is the name and here is the link:

http://www.aireview.com.au/welcome.php

Where would I invest $25,000?

I recently sold some of my shares and cashed in some profits - just to ensure some of the paper profits become real profits. However, the market seems to be back on the rise after some turbulence and going back to it's previous highs.

Rather than leave my money in a cash account (even though ING Direct is offering a nice 7% bonus rate nowadays), I was thinking of putting some of that money back to work in the market.

So where would I invest $25,000 today - given I have a 2-5 yr horizon. Well here are the companies I selected based on my screening.

BHP - $5,000 - Solid play on the best and biggest resources company in the world
QBE - $5,000 - A well run insurance company with well diversified risk profiles.
CBA - $5000 - Need to have some money in the banks.
NWS - $4000 - International Media company with good exposure to the growing online media.
WOW - $4000 - No matter what, people still need to buy groceries
CMR - $2000 - Speculative play on a Northern territory uranium explorer and producer.

So there are my picks. If you have more or less money than 25K, then just invest the proporinate amounts. Also, no need to buy all the stocks at the same time - wait for dips. These stocks are not going to sky rocket overnight, so don't feel pressured to buy on rallies.

Let me know if you agree/disagree with the above and what you add.

Top 10 things to know about stocks

Here is a nice and simple article I found for new investors covering the top 10 things to know about stocks. I have edited it to put into an Australian context :

1. Stocks aren't just pieces of paper.
When you buy a share of stock, you are taking a share of ownership in a company. Collectively, the company is owned by all the shareholders, and each share represents a claim on assets and earnings.

2. There are many different kinds of stocks.
The most common ways to divide the market are by company size (measured by market capitalization), sector (e.g. resources), and types of growth patterns. Investors may talk about large-cap vs. small-cap stocks, energy vs. technology stocks, or growth vs. value stocks, for example.

3. Stock prices track earnings.
Over the short term, the behavior of the market is based on enthusiasm, fear, rumors, and news. Over the long term, though, it is mainly company earnings that determine whether a stock's price will go up, down, or sideways.

4. Stocks are your best shot for getting a return over and above the pace of inflation.
Since the end of World War II, the average large stock has returned, on average, more than 10 percent a year - well ahead of inflation, and the return of bonds, real estate and other savings vehicles. As a result, stocks are the best way to save money for long-term goals like retirement.

5. Individual stocks are not the market.
A good stock may go up even when the market is going down, while a stinker can go down even when the market is booming.

6. A great track record does not guarantee strong performance in the future.
Stock prices are based on projections of future earnings. A strong track record bodes well, but even the best companies can slip.

7. You can't tell how expensive a stock is by looking only at its price.
Because a stock's value is depends on earnings, a $100 stock can be cheap if the company's earnings prospects are high enough, while a $2 stock can be expensive if earnings potential is dim.

8. Investors compare stock prices to other factors to assess value.
To get a sense of whether a stock is over- or undervalued, investors compare its price to revenue, earnings, cash flow, and other fundamental criteria. Comparing a company's performance expectations to those of its industry is also common -- firms operating in slow-growth industries are judged differently than those whose sectors are more robust.

9. A smart portfolio positioned for long-term growth includes strong stocks from different industries. (Diversification)
As a general rule, it's best to hold stocks from several different industries. That way, if one area of the economy goes into the dumps, you have something to fall back on.

10. It's smarter to buy and hold good stocks than to engage in rapid-fire trading.
The cost of trading has dropped dramatically -- it's easy to find commissions for around $20 a trade. But there are other costs to trading -- including mark-ups by brokers and higher taxes for short-term trades -- that stack the odds against traders. What's more, active trading requires paying close, up-to-the-minute attention to stock-price fluctuations. That's not so easy to do if you've got a full-time job elsewhere.

The original article can be found at CNN/Money.