If you want to be successful in thestock market , then
sometimes you must think like acontrarian .
I've spent 15 years in theinvestment industry. In that time,
I've seen many investors struggle and many others make a
The difference between success and failure usually has little
to do with intelligence or analytical skills. Rather, the best
investors generally have an ability to stay cool under pressure
and the fortitude to break away from the herd when necessary.
This is the best way to makemoney when it comes tocommodity
Like many investors, I've been neutral tobearish for most
precious and industrial metals over the past couple of months.
However, there is one notable exception.
Before I tell you about this metal, let me give you some
background on it first...
It's one the scarcest metals on the planet. In fact, for every
10 ounces of gold pulled out of the ground, only 1 ounce of this
metal is taken out of the ground -- and gold is supposedly one of
the scarcest metals on Earth.
This is exactly the sort of scarcity that can drive up prices;
all that's needed is demand. And we're seeing that, too.
So what metal is going against the grain? Palladium.
What's going on with this metal is exactly what you should
look for when seeking out a commodity to invest in.
||Palladium is one the scarcest metals on the planet. For
every 10 ounces of gold pulled out of the ground, only 1
ounce of this metal is taken out of the ground.
Unlike gold, whose value hinges on fickle expectations for
monetary stability, palladium prices are influenced by more
predictable supply-and-demand fundamentals.
Even under optimum conditions, palladium mines have been
struggling to keep up. Not to mention that lastyear labor
disputes cut operations at several large mines, leading global
output to fall 11%.
Additionally, due to rising costs, many producers have been
forced to close less economical mines.
In years past, withdrawals from Russia's palladium stockpile
could cover any shortfall, but those reserves are now thought to
be nearly exhausted.
On top of the dent in supply is a dramatic increase in demand.
Worldwide palladium consumption jumped 16% last year to hit a
record 9.9 million ounces. And I expect equal or greater
consumption in 2013 and beyond.
Palladium is an extremely important metal. In fact, I would
say it's indispensable for the globaleconomy .
It plays a key role in the automotive industry. They are
essential to catalytic converters, which turn vehicle exhaust
into harmless water vapor. Without these devices, internal
combustion engines would spew out tons of noxious pollutants.
That's why they are installed on almost every car and truck that
hits the road.
And auto manufacturing is one of the few strong spots in an
otherwise soft global economy.
According to LMC Automotive, an automotive industry market
research firm, global vehicle productionwill rise 3.4% this year
to 83.8 million vehicles. And growth is expected to accelerate 6%
Keep in mind, auto manufacturers make up 65% of demand, but
aren't the only hungry buyers anxious to get their hands on
palladium. It's also found in iPods, Blu-ray players and
flat-panel monitors, among other places.
Put the picture together, and you start to see why palladium
has decoupled from other commodities, gaining ground at a time
when just about everything else is retreating. I expect it to
rise above the $800 in the coming year -- a 20% increase from
So what's the best way to invest in palladium? Rather than
trying to invest in it directly, like all commodities, I like
putting my money with miners pulling the stuff out of the
For palladium I like junior miner
North American Palladium (
, which I'm expecting big things from over the next 12 to 24
There are three main ways that a miner can boostcash flows and
excite the market:
1) Fetch higher prices for its metals.
2) Produce and sell more of those metals.
3) Find a way to get them out of the ground for less.
An improvement in any of these areas can make a dramatic
difference. I believe North American Palladium is positioned to
achieve all three.
First, given the supply and demandfactors I discussed above, I
am confident palladium will continue climbing.
Second, North American Palladium is in the midst of redoubling
its efforts to extract value from its flagship palladium mine --
located in Canada, one of the few mines outside of Siberia and
South Africa. The property relinquished 163,000 ounces of
palladium last year and has much more to give.
In fact, output is expected to rise to 250,000 ounces per year
once expansion efforts end. That's an increase of 90,000 ounces
annually -- nearly 60% above current production levels.
Finally, when production begins to expand, costs are expected
to drop precipitously, diving to $250 per ounce by 2015 (versus
$490 today). With costs falling and palladium prices
rising,profit margins could surge to around $550 an ounce, from
$240 per ounce today.
Multiply that $550 by an additional 90,000 ounces of annual
production, and you start to see that North American Palladium
has the potential to multiply its stock price several times
Granted, there are several variables that have to fall the
right way for thisbullish scenario to play out. But at less than
$1 per share, the market is expecting very little from North
American Palladium. Still, the stock is better-suited for
Action to Take -->
I think this could be one of the best ways to take advantage of
global palladium supplies being stretched ever thinner. As more
palladium begins flowing, the company will transition into a more
efficient, mid-tier producer.