In trading on Thursday, non-precious metals & non-metallic mining shares were relative laggards, down on the day by about 2%. Helping drag down the group were shares of Globe Specialty Metals (GSM), down about 9.5% and shares of Avalon Rare Metals (AVL) off about 5.1% on the day.
Also lagging the market Thursday are specialty retail shares, down on the day by about 2% as a group, led down by Barnes & Noble (BKS), trading lower by about 22% and Officemax (OMX), trading lower by about 5.1%.
Brendan Smialowski/Getty Images Money goes in. More money comes out.
Corporations don't lobby Congress for fun. They lobby because it helps their bottom line. Getting a regulation gutted or a tax loophole created means extra cash for the corporation. But getting laws changed can be very expensive. How much money does a corporation get back from investing in a good lobbyist?
It's a messy, secretive system so it was always hard to study. But in 2004, economists found a bill so simple, so lucrative, that they could finally track the return on lobbying investment.
The American Jobs Creation Act benefited hundreds of multinational corporations with a huge, one-time tax break. Without the law, companies that brought profits earned abroad back to the U.S. had to pay a tax rate of 35 percent. With the law, that rate dropped to just over 5 percent. It saved those companies billions of dollars.
In a recent study, researchers Raquel Alexander and Susan Scholz calculated the total amount the corporations saved from the lower tax rate. They compared the taxes saved to the amount the firms spent lobbying for the law. Their research showed the return on lobbying for those multinational corporations was 22,000 percent. That means for every dollar spent on lobbying, the companies got $220 in tax benefits.
That high of a payoff surprised even Alexander:
RA: I was not expecting it to be that big at all. I thought I needed to go check my math.
AB: So after the fifth or sixth time checking you were like, oh, this is the number?
RA: After the twentieth time of checking.
The American Jobs Creation Act is just one example. Not every lobbying effort has a return of 22,000 percent. There are companies that probably lose money lobbying — they spend limited resources on lobbyists and see no benefit in return.
But the company-lobbyist-politician ecosystem, Scholz says, is a problem:
We have a situation where we, in essence, invite corporations to buy their own tax rate through lobbying... which ultimately corrupts both the companies and the politicians.
Read more about Alexander and Scholz's study. And listen to our previous podcast in our series about lobbying and U.S. politics.
With 2012 there are some stocks that looked poised to make a turn into bullish territory. One sector that offers some choice stocks to look at is the Basic Material sector. Here are two stocks that appear ready to break out in 2012 that an investor can research. Both stocks offer opportunity for long term investing or optionable strategies.
Dow Chemical (DOW)
The Dow Chemical Company manufactures and supplies products used as raw materials in the production of customer products and services worldwide. The company offers materials for chemical mechanical planarization pads and slurries, chemical processing aids and intermediates, electronic displays, food and pharmaceutical processing and ingredients, home and personal care ingredients, hygiene and infection control, photolithography materials, printed circuit board materials, process and materials preservation, and semiconductor packaging. It also provides sticking and bonding solutions; insulation, housewrap, sealant, and adhesive products and systems; construction chemical solutions and building-integrated photovoltaics; and as well as supplies various coatings.
As of this morning, DOW is trading at 28.91. With an Ascending triangle formation in place we have a good opportunity to invest in DOW either the stock or an option position. Analysts have targeted DOW in the median range of 33.50 and a high target of 40. This gives it a good opportunity to move. At the end of a bearish pattern, ascending triangles are considered strong reversal patterns.
One of the ventures DOW has put together to enhance its portfolio of lithium-ion battery components is a joint venture with Ube Industries. Together they will form "Advanced Electrolyte Technologies" that will manufacture electrolytes for lithium-ion battery cell manufacturers. This is expected to help DOW Energy Materials, a division of Dow Chemicals. This division was established in 2010 to develop what they call next-generation battery materials.
Investing in DOW
As DOW is set to grow in 2012, it looks like it is ready to break out on the bullish side and reverse direction. Here are two options: First, invest in the stock now solely. Second, invest in a long term option. A debit spread would be a good strategy at the median price range. Buy a June 2012 call (presently at $1.14) and sell a June 34 (presently at $0.87) for a debit of $.027
Georgia Gulf Corp (GGC)
Georgia Gulf Corporation manufactures and markets chlorovinyl and aromatics chemicals, and vinyl-based building and home improvement products in the United States and internationally. It operates through three segments: Chlorovinyls, Building Products, and Aromatics. The Chlorovinyls segment offers an integrated chain of electrovinyl products, which includes chlorine, caustic soda, ethylene dichloride, vinyl chloride monomer, vinyl resins, vinyl compounds, compound additives, and plasticizers. The Building products segment manufactures window and door profiles, including frames, sashes, trims, and other components; mouldings, sidings, and pipes and pipe fittings. The Aromatics segment offers cumene, and the co-products, phenol and acetone.
Presently trading at 19.16 GGC is also set for a breakout with this Ascending triangle reversal pattern in place. Analysts have its median target range set for 26.50 so it has plenty of room to move for a profit for the savvy investor.
In a year plagued by near global recession, GGC had an operating income 57% higher in 2011 than in 2010. This is phenomenal news, but they were not immune to the bad economy. With the construction industry lagging, so did its exports into the end of 2011. Its Aromatics segment also had to lower its inventory because of falling benzene and propylene prices this year. But overall, its performance in 2011 increase almost 20% over 2010 and with 2012 around the corner, it is ready to breakout.
Investing in GGC
There are two strategies that we can take with GGC. If we invest in the stock, we have a nice profit level to ride for it just to reach the median forecast. Another strategy using options would be a debit spread using the median price as a reference point. Going into May, buy a May 2012 call (presently at $2.00) then sell a may 25 (presently at $1.35) for a debit of $0.65.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The following companies had unusual price changes in Peru trading. Stock symbols are in parentheses and share prices are as of the close of trade in Lima.
The Lima General Index (IGBVL) gained for a fourth session, rising 1.6 percent to 19,886.89. The MSCI All Peru Capped Index (MXPECAPD) climbed 1.7 percent to 2,570.50.
Mining stocks surged after metals advanced in New York and London, said Francisco Miranda, an analyst at Lima-based investment fund NC&F Inversiones SA.
Alturas Minerals Corp. (ALT) , a Canadian copper and gold exploration company, rose 11 percent to 10 cents. Southern Copper Corp. (PCU\C) (SCCO PE), the country’s biggest producer of the metal, jumped 5.7 percent to $31.70. Volcan Cia. Minera SAA (VCM\B) (VOLCABC1 PE), Peru’s largest zinc and silver producer, gained 4.3 percent to 3.13 soles. Minsur SA (MINSURI1) (MINSURI1 PE), the world’s fourth-largest tin producer, climbed 3.8 percent to 2.70 soles. Cia. Minera Milpo (MILPOC1) (MILPOC1 PE), a zinc and silver producer controlled by Sao Paulo-based Votorantim Metais Ltda., rose 3.3 percent to 4.65 soles.
Maple Energy Plc (MPLE) , the oil and natural gas producer with operations in Peru, rose 2.7 percent to $1.13 after crude jumped to a seven-month high in New York.
To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net;
To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net
The following companies are having unusual price changes in Peru trading. Stock symbols are in parentheses and share prices are as of 12:37 p.m. local time.
The Lima General Index (IGBVL) was little changed at 19,261.67. The MSCI All Peru Capped Index (MXPECAPD) gained 0.2 percent to 2,484.87.
Copper miners dropped after futures declined in London, said Inteligo SAB analyst Rodrigo Zuazo.
Panoro Minerals Ltd. (PML) , a Canadian exploration company, fell 5.4 percent to 35 cents. Candente Copper Corp. (DNT) , a Canadian exploration company, slid 1.1 percent to 92 cents. Southern Copper Corp. (PCU\C) (SCCO PE), Peru’s biggest copper producer, dropped for a third session, losing 1 percent to $29.90.
Sociedad Minera El Brocal SAA (SMBC) (BROCALC1 PE), a zinc and silver producer, rose 1.3 percent to 47 soles after zinc gained in London and the Stock Exchange said the company will enter the Lima Selective Share Index.
Empresa Agroindustrial Pomalca SA (POM\C) (POMALCC1 PE), a sugar producer, advanced 2.1 percent to 49 centimos after futures gained in New York.
To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net.
To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net
