Saturday, June 18, 2011
In his May 2011 issue of True Wealth, Steve Sjuggerud discussed his recommendation of Silver Wheaton, one of his favorite stocks to play a boom in precious metals...
Unlike mining companies, these royalty companies don't have to spend massive amounts of cash to develop deposits. Nor do they explore for deposits. Companies like Silver Wheaton and Royal Gold, as Steve said, simply collect paychecks as the gold mining companies do the hard work. Their most difficult decision is which mines to partner with.
We're constantly searching the market for the best precious metals plays – especially royalty companies. But they're difficult to find. Phase 1 editor Frank Curzio recently discovered a new royalty company trading for a little more than $1 a share – dirt-cheap. Shares have little downside (based on the royalty streaming model), and the management team is great.
The CEO of this tiny company was once a top executive for one of the largest royalty streaming companies in the world. He left just to start this company. He already raised more than $240 million. The company used the cash to buy into several gold projects, which are already generating huge cash flow for this tiny company.
Frank is projecting at least 200% upside for the stock over the next 24 months. That's if gold prices average $1,400 an ounce. If gold prices push higher, the company could easily be a five-bagger. He will be holding a special conference call with the CEO and one of the top gold analysts in the industry on June 21. To learn more about his favorite royalty company, click here...
Few investors' newsletters make our "must read" list. But Jeremy Grantham, the highly regarded head of GMO, is one.
In Grantham's April letter, he called for a "paradigm shift" in commodity prices...
We commented on Grantham's letter on April 26...
Since Grantham's call, many commodities – like oil and copper – have corrected. One commodity investment many mainstream finance people are still super-bullish on is agriculture. Corn is up 130% in the past year. Cotton is up 62%. Wheat is up over 75%. And U.S. farmland is selling for record prices...
Hedge funds are largely responsible for the increase. According to Grant's Interest Rate Observer, an April 8 farmland auction set a new record of $11,080 an acre in one Iowa county. But farmers dropped out of the bidding at $9,000 an acre. Two hedge funds bid the land up, in $25 increments, to its final price.
This love affair with agriculture is a function of a low-interest rate world. Sitting in leather chairs in air-conditioned offices, investors are scrambling to buy farmable land at sub-4% crop yields (near record lows). And then they must pay someone to farm that land, which eats another percent or two. Ask yourself what will happen when these same investors can earn 2%-3% in a bank account.
A 3.5% crop yield values first-class farmland around 25 times earnings. Meanwhile, the Market Vectors Agribusiness ETF (MOO) – which consists of agribusiness giants Deere & Co, Potash, and Monsanto, among others – trades for 14 times earnings. But you don't have to pay annual taxes on MOO, you don't have to farm MOO, and you can exit MOO with the click of a button.
I e-mailed one of our "farm watchers," editor in chief Brian Hunt, who grew up on a farm in Iowa. He said buying farmland between 2003-2005 – before corn and soybeans skyrocketed – was a great idea. But today, folks are paying far too much money for good land. Many of his friends back home are saying they can't believe investors are paying that much for that ground. The numbers will never work for them.
"Investors buying farmland today are taking on large risks for the possible rewards going forward," Brian says. "Prices are at record highs. Cash yields are at record lows. Farmland is illiquid. The current buyers are simply momentum trading right now. Most of these new buyers are just idiots who heard Jim Rogers say something about farming on CNBC."
Like most any asset, you don't want to be buying farmland when it's "hot." You want to buy when most folks can't stand the thought of owning that asset... which brings us to an even better "land play": natural gas.
While hedge funds are buying farmland at record high prices, we're buying some of the world's best natural gas reserves at record low prices. We already noted the International Energy Agency (IEA) calling for the "golden age of gas."
Penny Stock Specialist editor Frank Curzio is currently covering the natural gas "megatrend" in his newsletter. He sees natural gas being increasingly used as fuel for transportation and power generation. The shift to natural gas will change the American economy... and send many natural gas stocks soaring. Frank covers his favorite ways to play this trend in a recent special report. To learn more, click here...