Zacks Analyst Blog Highlights: Monsanto, Target, Wal-Mart, Chesapeake and EnCana

CHICAGO, Jan. 14, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Monsanto (NYSE: MON), Target (NYSE: TGT), Wal-Mart (NYSE: WMT), Chesapeake (NYSE: CHK) and EnCana (NYSE: ECA).

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Here are highlights from Thursday's Analyst Blog:

Trade Deficit Falls Again

The trade deficit is directly responsible for the increase in the country's indebtedness to the rest of the world, not the budget deficit. That is not just a matter of opinion, that is an accounting identity.

Think about it this way: during WWII the Federal Government ran budget deficits that were FAR larger as a percentage of GDP than we are running today, but we emerged from the war the biggest net creditor to the rest of the world that the world had ever seen up to that point. Then the Federal government owed a lot of money, but it owed it to U.S. citizens, not to foreign governments. Slowly but surely the trade deficit is bankrupting the country.

While most of the foreign debt is in T-notes, try think of it as if we were selling off companies instead of T-notes. This month's trade deficit is the equivalent of the country selling off Monsanto (NYSE: MON), while last month's deficit was the equivalent of selling off Target (NYSE: TGT). How long would it take before every major company in the U.S. was in foreign hands if this keeps up indefinitely? Put another way, the year-to-date trade deficit has totaled $458.7 billion, which is 84% what all the firms in the S&P 500 earned, worldwide, in 2009.

Goods Deficit & Oil Addiction

The goods deficit has two major parts, that which is due to our oil addiction and that which is due to all the stuff that line the shelves of Wal-Mart (NYSE: WMT). Of the total goods deficit of $51.17 billion, $20.08 billion -- 39.2% -- is due to our oil addiction. Relative to the overall trade deficit, our oil addiction is 52.4% of the problem.

On a year-to-date basis, we have run a $240.6 billion deficit just from petroleum. The second graph (also from http://www.calculatedriskblog.com/) breaks down the deficit into its oil and non-oil parts over time. It shows that the overall trade deficit (blue line) deteriorated sharply from 1998 to mid 2005 and then remained at just plain awful levels until the financial meltdown caused world trade to come to a screeching halt. That caused a major but unfortunately short lived improvement in the overall deficit.

However, the stabilization in the non-oil deficit started about two years earlier, but that was offset by the effects of soaring oil prices which caused the oil side of the deficit to deteriorate sharply.

The monthly deterioration in the goods deficit came from the oil side. It was up by $1.14 billion or 6.0%. Relative to a year ago, the oil deficit was up 1.0% or $21 million. On the non-oil side, the deficit fell to $30.31 billion from $30.81 billion, but is still well above the $27.06 billion level of a year ago. That is a deterioration of $3.25 billion or 12.0%. For the first eleven months of the year, the non-oil deficit is up by $68.61 billion to $342.25 billion or 25.1%, while the oil side is up by $59.49 billion or 32.9%.

The oil side should be the low-hanging fruit to bring down the overall trade deficit and thus help spur economic growth. Oil is primarily used as a transportation fuel. The technology exists and is widely used abroad to use natural gas to power cars and trucks. Thanks to the emerging shale plays, we have ample domestic supplies of natural gas, and on a per BTU basis, natural gas is selling for  $26.46 per barrel.

We need to get past the "chicken and the egg" problem of nobody wanting to buy a natural gas-powered vehicle because there are no convenient places to refuel, and gas stations reluctance to install refueling stations for natural gas-powered vehicles since there are not many of them on the road. Not only would such a move save money for drivers in the long run (there is an upfront capital cost as natural gas powered engines are more expensive than regular gasoline powered engines), but it would substantially reduce our trade deficit.

Since it is a domestically produced fuel (and most of what we do import, we import from Canada) there is also a huge national security argument for moving to using more natural gas. The dollars we send abroad to pay for oil imports are simply the tip of the iceberg when it comes to the overall cost of oil.

Natural gas is also a much cleaner fuel and emits far less CO2 than does gasoline. Thus it would be a very useful step towards stopping global warming, assuming we all think this is something worth addressing. Doing this, especially breaking the "chicken and the egg" problem, will take federal government leadership. The benefits for the economy, however, would be huge.

It seems inevitable to me that it will eventually happen, and when it does, it will be a great boon to major natural gas producers like Chesapeake (NYSE: CHK) and EnCana (NYSE: ECA). The timing of it happening is very uncertain, but the sooner it happens, the better.

I don't want to minimize the cost of doing this, particularly in terms of water quality. We need to do more research on the chemicals used in fracking operations to get at the shale gas (starting with getting rid of the trade secrets provision that allows the firms to hide exactly what they are putting into the ground and potentially the groundwater). Still, it strikes me as a trade-off worth making.

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