A Year Of Beltway Investing

WASHINGTON, D.C. – On Forbes.com this year, we’ve consistently offered readers ideas for Beltway-themed stock investing. The idea, of course, is that you can profit from businesses that are enjoying legislative, regulatory or procurement-related tailwinds.

So, how are we doing? At least in the short-term, not badly. In 2006, this author wrote 23 Beltway investing columns, which mentioned 107 stocks favorably. They’ve posted an average total return of 15%, using prices from the date of publication through Monday night’s market close, against a return of 10% for the S&P 500 index during equivalent time periods.

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Hail Mary Stock Picks

On this page we repeat a venerable FORBES ritual known as Love Only One. The gist: Each year we invite 12 experts to give us the stock they deem best poised to outrun the market over a 12-month period. We also ask 5 bears to name a likely laggard. When the time’s up, those successful get return invitations; the rest make way for new contestants.

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Spinning Red Tape Into Gold

WASHINGTON, D.C. – For a D.C.-area private equity shop, Valhalla Partners goes light on the public sector experience. Among these VCs, you won’t find any former cabinet officials or intelligence big wigs looking to trade on a fat Washington rolodex. Nor do they sound all that enthusiastic about investing in companies catering to the federal government or its big contractors.

“Government is capricious,” says Arthur Marks, a Valhalla co-founder and general partner.

Yet there’s no aversion at the Vienna, Va.-based outfit, which has $440 million under management, to making money off opportunities that the government creates, namely through red tape.

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Memo To Enviros: Go Easy

WASHINGTON, D.C. – Five years ago, Roger Ballentine opened a lobbying and consulting shop, Green Strategies, to counsel companies on setting environmental agendas and dealing with eco-policy in Washington. At the time, he says, that corner of business was relatively quiet.

Things have picked up. “It’s just absolutely booming,” says Ballentine.

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Play the Asian Boom

WASHINGTON, D.C. – Bad news for investors, at least for certain ones: The dollar will collapse against Asian currencies over the next two decades. Good news: China and India will evolve from devourers of basic materials into full-blown consumer economies, creating demand for U.S. exporters.

These are two of the premises behind stock picks from Stephen Fan, a money manager in Mountain View, Calif. with a fondness for midcap technology stocks. One in his portfolio is MEMC Electronic Materials, a St. Peters, Mo. firm (once part of Monsanto) that makes silicon wafers for the semiconductor industry. Last year sales outside the U.S. accounted for two-thirds of MEMC’s $1.1 billion in revenues, with the bulk going to customers in Japan, Taiwan and South Korea. If Asia rockets as Fan expects, MEMC will likely go along for the ride. With shares at $35, MEMC goes for 5 times expected 2006 sales and 18 times expected earnings.

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Pushing Bankers On Climate Change

WASHINGTON, D.C. – There’s no shortage of scary stats on the world’s energy needs, particularly for poorer folk. Some 1.6 billion people have no access at all to modern energy services, and 2.5 billion still rely on burning wood and the like for cooking and heating. Developing countries, reckons the International Energy Agency, will need $10 trillion worth of energy investment from here to 2030.

For those worried about global warming, the nightmare is that those trillions will get spent on low efficiency, high pollution technology.

“The investment that takes place in the next ten to 20 years could lock in very high greenhouse gas emissions for the next half-century,” notes the British government’s recently released Stern Review Report on the Economics of Climate Change, “or move the world onto a more sustainable path.”

Pushing for the latter scenario is the International Finance Corporation, the private sector development arm of the World Bank Group. One the IFC’s prime targets at the moment: commercial banks, particularly those in developing economies such as China, India and Central Europe.

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Thanks To The Democrats: Sallie Looks Cheap

WASHINGTON, D.C. – Five years ago, we presented Forbes magazine readers with a bullish call on student lender SLM, otherwise known as Sallie Mae. Backing up our bet was analyst Matthew Snowling of Friedman Billings Ramsey, an Arlington, Va., investment bank.

That tip worked out well, as Sallie has had an 84% cumulative total return since October 2001, versus 34% for the S&P 500. After last week’s election, we checked in again with Snowling on Sallie Mae , a stock that gets bounced around on political news.

“We recently dusted off the Sallie Mae story,” he says. “It’s getting interesting.”

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Building Momentum: Aecom Technology

WASHINGTON, D.C. – The engineering and construction business counts several of its giants on our list of America’s largest privately held companies. Ninth-ranked Bechtel is the most prominent among them, both in revenue size and notoriety. Leaving aside its role in Boston’s Big Dig trouble, Bechtel recently made headlines for its exit from Iraq, for which it won billions in reconstruction contracts and where it suffered dozens of employees killed.

But while Bechtel gets the spotlight and the biggest sales volume, competitor Aecom Technology is the standout for sales growth. Ranked 82nd on our list for its $3.3. billion in annual sales (for its fiscal year just ended in September), the Los Angeles engineering firm has increased its revenue at an 16% annualized clip over the past five years, more than double the rate of Bechtel’s top-line growth for that time period. The table below shows how Aecom outruns the competition on our private companies list and elsewhere.

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The DOE Wants You To Make Money

WASHINGTON, D.C. – Taxpayers are getting their money’s worth out of Robert Rosner, astrophysicist and director of the Department of Energy’s Argonne National Laboratory in Illinois. Rosner tells us his workweek usually winds up closer to 80 hours than to 40.

“When I go home,” says Rosner, 59, “I don’t stop working.”

What keeps Rosner so busy? Plenty. Running Argonne, the country’s oldest national laboratory and a hub of research on topics like nuclear reactor technology, means dealing with Washington bureaucrats, safety concerns, a budget of $475 million and a staff of 2,900, including 750 PhDs.

But Rosner is also devoting a good deal of time to developing Argonne’s ties with the private sector. Although the lab’s Web site touts existing partnerships with companies like Baxter International, Caterpillar and 3M, Rosner describes the national labs as a “severely under-recognized gem” of American research and development. He wants more recognition, meaning more partnerships.

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Security Stocks: Bank On The Bankers

WASHINGTON, D.C. – The presence of bullish investment bankers in a particular business sector is no guarantee of its good health. It sometimes indicates just the opposite. In 2000, for example, bankers at San Francisco’s Robertson Stephens were prospering on dot-com and technology business. The bank folded two years later, victim of a tech market gone abruptly south.

These days, you’ll find plenty of bullishness at a boutique banking outfit with a unit catering to the homeland security industry. John Shaw, president of New York’s Legend Merchant Group, says he expects homeland security to experience “explosive” growth in the coming years. “Our pipeline is rather robust,” adds colleague Scott Greiper, a Legend Merchant principal and head of its homeland security practice, the Convergent Security Group (CSG).

In the investment context, we’ve been troubled on occasion by the possibility of terror bubbles. Here, however, we don’t interpret the happy talk from the i-bankers as a sign of impending bust. In fact, those interested in homeland security stocks and takeover plays should heed arguments from Greiper and his CSG colleagues.

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