Arnett Lanse Waters is a bit of a news junkie. His best investment ideas, he admits, come from paying constant attention to world events. During the week Black Enterprise caught up with him this spring, workers in the Gulf of Mexico were scrambling to clean up a massive oil spill, the U.S. economy was showing further signs of turnaround, and the European Union was preparing a financial bailout package for Greece. Waters was naturally brimming with thoughts about how investors might make long-term bets related to these occurrences.
Like his investment strategy, Waters’ career has been multifaceted. The native Bostonian, who attended Harvard, began working in public service in 1971, running several state and local employment training programs. Later, he honed his economic chops as an aide to the former chief economist of the Bank of Boston. Waters then shifted his focus to finance, cutting his teeth as a stockbroker at Merrill Lynch, and then working in various executive positions at Merrill; Donaldson, Lufkin and Jenrette; and Shearson Lehman. Waters founded A.L. Waters Capital L.L.C., an investment banking and corporate finance firm, in 2004. Whenever he can, he urges his clients to think globally. “Technical analysis and economic indicators are great tools,†says Waters. “But to be ahead of the curve you have to look at the big picture.†We talked to Waters about his view of the world and of financial markets, and asked him to share a few investment ideas.
How do you see the U.S. economy and the financial markets performing in the second half of this year?
We see the U.S. economy slowly getting back into shape–the gradual effect of President Obama stabilizing the banking system. The Dow should trade in the range of 9,000 to 13,000 with a lot of volatility. But I’m optimistic about the U.S. economy. There’s no better place in the world to trade.
What are some of the global themes you’re acting on now as an investor?
There’s what I call the European problem. It’s naive to think that the sovereign debt crisis will remain a Greek problem. Portugal, Italy, Ireland, Greece, and Spain all face overwhelming deficits. Ireland’s deficit is already larger than Greece’s. The European
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Commission recently forecast that the United Kingdom and Spain will also surpass the deficit in Greece. The U.K. will be the highest and will also be facing a hung parliament by the looks of things. Individually, this is concerning enough. Collectively, this is bad news for the euro. Already, investors are running away from the euro and into U.S. Treasuries.
How might investors take advantage?
An ETF [exchange-traded fund] such as the ProShares UltraShort Euro (EUO) is a great way to profit from this decline
What’s another theme that’s holding your interest right now?
Shipping. We watch the shipping industry closely because it reflects real economic activity. Shipping companies have been known to make exponential gains when the economy begins picking up. Things look grim for the industry in the near term. The explosion at the oil rig off the Louisiana coast has implications far beyond the human tragedy and financial stress on British Petroleum and Transocean. The attention will spread to the shipping industry as well. There is already talk of a ban on single-hull ships in the Gulf. This will involve an expense to upgrade to double hulls and be an advantage to some and a setback for others. The race is on to see which one will be able to step in. Diana Shipping should be the best performer in the shipping group.
What do you like about Diana Shipping?
Diana Shipping Inc. (DSX) is a global provider of shipping transportation services. It specializes in transporting dry bulk cargoes, including iron ore, coal, grain, and other materials along worldwide shipping routes. Each of its vessels is owned through a separate wholly owned subsidiary. Here’s a company that has an excellent record and good management, and they are going to make money. The reason they’re lagging is external; some people feel there’s a danger that shipping will be restricted. But
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countries that have a lot of natural resources will continue to make shipments to countries that don’t. With the recession, shipping has declined, and Diana has been unfairly affected. But the shipping world has not ceased. With growth in world population, shipping is going to increase. DSX’s share performance began lagging behind movement in the Dow back in July of 2009. Most of its peers have also lagged the Dow, and that, to us, has been an indication that valuations are a little optimistic for Dow components. At just under $15 a share, prices have been hovering in the middle of their 52-week range after trending higher in April. Our 12-month target price is $21.
Are there any companies currently in the news that you like?
I happen to like Transocean Ltd. (RIG) [which owned the rig destroyed in the April 20 explosion preceding the oil spill in the Gulf of Mexico]. Regardless of what anyone says, we’re going to need fossil fuel for a long time. Transocean is an international offshore contract driller in the oil and gas industry. The company owns or operates 138 mobile offshore drilling units. It is a leader in deep-sea drilling and has five ultra-deepwater drill ships under construction. Oil has been relatively stable, considering the level of instability in the global economy, in the range of $70 to $80 per barrel. We will see an expansion of exploration and drilling, which means revenue for the drilling companies. Even though Transocean is under some pressure right now because of the accident in the Gulf, shares are holding up rather well. Shares have been downgraded from “buy†to “hold†with some analysts, and revenues were lower in the last report but better than most expected. Despite all this, shares didn’t fall off drastically. If anything a little selling will create a buying opportunity. I believe the stock will trade at its 52-week high again in the next six months. Our 12-month target: $94.50.
John Simons is the personal finance editor for Black Enterprise.