Jim Collins, The OTC Insight newsletter - Soft Landing for Economy Helps Stocks

Jim Collins, editor of The OTC Insight newsletter, believes savvy investors can use this time to invest in quality stocks at discounts to what should be a good close to the year. Find out what this featured expert has to say about interest rates, the easing of geopolitical tensions and lower oil prices. Then take a look at one of the stocks that was reviewed in this edition of Collins' newsletter. Market Outlook from September 5 Soft Landing for Economy Helps Make Stocks Attractive Stock prices received relief in August, as interest rate increases were put on hold and geopolitical tensions declined. Geopolitical tensions had a particularly negative effect in July when Israel and Hezbollah were at war and Iran was unwilling to agree to talks over its nuclear program. Although tensions remain high among the international community with Iran, the ceasefire with Israel and Hezbollah is holding and no longer appears to be a threat to engulf the whole region. The result of the decreased tension is that oil prices have retreated below $70 per barrel. The fact that this year's hurricane season has been relatively benign and has not threatened the critical supply and production facilities in the Gulf of Mexico is also helping to ease the pressure on energy prices. Reduced geopolitical tensions and falling energy prices are allowing investors to benefit from the Federal Reserve's decision to keep short-term interest rates unchanged at their latest meeting. Initially, the stock market did not react positively to the halt in increases due to the Fed's stated concern over inflation. Now that energy prices are falling, the Fed will have greater flexibility when adjusting rates. As long as there is not another shock to world energy supplies, there will be an increased focus on the economy. There were clear signs the economy was slowing entering the third quarter. This led to increased speculation that the Fed may have tightened too much, potentially leading to a hard landing. Insight believes this view is overly pessimistic, and the data appear to back their argument. For example, the latest report on consumer spending indicates that spending increased by a larger than expected 0.8% last month. This was during a period of higher gasoline prices, which prevented the increase from being even larger. (Consumer spending accounts for approximately two-thirds of all economic activity.) Most retailers are also reporting the back-to-school sales season has been robust. Stocks remain attractive, as prices have not kept pace with earnings over the first eight months of the year and the earnings outlook is positive. The price-to-earnings (P/E) ratio for the S&P 500 on a trailing 12-month basis is at its lowest point since the first quarter of 1995. Using the earnings estimates for the S&P 500 over the next 12 months, the P/E ratio is at a level not seen since the third quarter of 1990. Meanwhile, earnings are expected to expand in excess of 10% over the next year, which is good by historical standards. The bottom line of Jim Collins and his team's analysis is that the risk/reward characteristics of stocks are pointed in investors' favor. There may be small periods of downside volatility as we close out the third quarter when many companies who expect to miss earnings projections preannounce their disappointing results. However, Collins and his team believe savvy investors can use this time to invest in quality stocks at discounts to what should be a good close to the year. Analysts' Review Garmin Ltd. (GRMN) is a leading, worldwide provider of navigation, communications and information devices, most of which are enabled by GPS technology. Garmin designs, develops, manufactures and markets a diverse family of hand-held, portable and fixed-mount GPS-enabled products and other navigation, communications and information products for the consumer and general aviation markets. The company employed 3,034 people as of December 31, 2005, and its headquarters are located in the Cayman Islands, though its primary operations are in Olathe, Kansas. Recent News On August 10, 2006, Garmin introduced an accessory to the popular Forerunner 305 that allows athletes to train indoors where a GPS signal is unavailable. Named the Forerunner 305 Foot Pod, the shoe-mounted device wirelessly communicates with the wrist-worn Forerunner 305 to provide accurate distance and speed while training on treadmills or indoor tracks. The Foot Pod uses a pair of accelerometers to measure each stride to provide a runner's speed and distance information. The Foot Pod is 97% accurate out of the box and 99% when calibrated, and it can be worn in tandem with the Forerunner 305's wireless heart rate monitor. Financials For the quarter ended June 30, 2006, Garmin reported net income of $0.55 per share, compared to $0.35 reported in the prior year before the effects of foreign currency exchange. Total revenue increased 64% to $432.5 million compared to $264.5 million reported last year. The strong revenue and earnings in the quarter were the result of significant strength in the automotive and mobile segment as well as solid results from the outdoor segment. This article highlights the commentary of Jim Collins for the Zacks.com audience. Jim Collins provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "OTC Insight" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "OTC Insight" and 30-Day Free Trial. 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