Where are the best opportunities right now in natural
resources?
The obvious answer is the companies that are digging the stuff
out of the ground.
But to find tomorrow's next big winners, you also have to look
at what's hated.
For example, no other natural resource has been shunned during
the past few years quite like natural gas. Prices have rebounded
sharply since April, but that's nothing compared with where prices
were before.
Shares of high-quality producers have barely responded -- but
that type of disconnect is always resolved in time.
Most industry execs say natural gas will need to hit at least $5
per thousand cubic feet (Mcf) before they start revamping their
budgets and directing more drilling rigs and resources back into
gas fields such as the Haynesville Shale.
So we've got a long way to go before the industry turns up the
production faucet.
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But if gas reaches $5 per Mcf, then cash flows should explode
for low-cost producers like
Ultra Petroleum (NYSE:
UPL
)
. The company can turn aprofit with gas as low as $2.88 per Mcf --
and it has 5 trillion cubic feet of reserves waiting to be
sold.
You should be looking for gems like this in "hated" sectors.
It's the best way I know to make huge gains in the stockmarket
.
There are also plenty of other sub-sectors feeling a brisk
tailwind from growing consumption of this clean, inexpensive fuel
-- liquefied natural gas (
LNG
) shippers just to name one.
Companies that own LNG tankers aren't really vulnerable to
underlying price fluctuations. If anything, they are benefiting
from today's low price environment. The cheap price of natural gas
has stoked demand from power generators and petrochemical makers,
boosting the global LNG trade.
Midstream infrastructure owners also provide exposure to the
huge volumes of gas being transported without the inherent price
volatility. Readers of my
Scarcity & Real Wealth
newsletter, for example, have already pocketed a 34% gain with
Williams Companies (NYSE:
WMB
)
, which owns thousands of miles of pipeline and two dozen
processing and treating facilities.
About 10.6 billion cubic feet of natural gas flows through the
firm's hands each day, or 15% of the nation's total usage.
Thatvolume feeds the company a steady stream of contractual
fee-based income -- which is promptly distributed to
investors.
I can't give all my favorite natural gas picks away (out of
fairness to my
Scarcity & Real Wealth
readers), but I can also say that I'm currently looking at the
ground floor of the shale-gas energy revolution.
These future energy sources dot the country from the Gulf Coast
to Canada. By itself, the Marcellus Shale stretches across parts of
Pennsylvania, New York, Ohio and West Virginia and covers 95,000
square miles -- an area half the size of France.
That's a lot of ground to cover. Look at the map below, and
you'll understand why industry experts believe the United States
will need to install another 35,600 miles of long-haul gas
transmission pipeline and 414,000 miles of local gathering lines to
meet increased production over the next 25 years.
That's enough pipeline to stretch around the earth 18 times.
.png)
Savvy investors shouldn't just ask who will operate these
thousands of miles of energy conduits -- but who will be asked to
build it.
I've got my eye on
MasTec (NYSE:
MTZ
)
, a specialty contractor that has won the business of industry
heavyweights.
MasTec's pipeline construction revenue skyrocketed from $43
million in 2007 to $774 million last year. That 18-fold increase
represents a torrid compounded annual growth rate (CAGR ) of 106%.
In other words, sales have been doubling every year, on
average.
And the company is just getting started.
I'm not necessarily saying you should buy MasTec, Williams or
Ultra today. On the contrary, I'm saying you should buy these
assets when they're hated -- when the normal volatility of natural
resources causes prices to swing down.
Natural resources are pushed and pulled daily by the
globaleconomy . This is a perfect setup for smart investors who can
buy these stocks when they're overlooked and
underappreciated.
You don't see a
McDonald's (NYSE:
MCD
)
hamburger priced at $3.50 one week fall to $2.25 the next and then
rebound to $4.75. The menu is fairly stable and predictable. Same
thing with toothpaste or movie tickets or your monthly phone bill
-- prices just don't bounce around much.
That's not the case with natural resources. We've all seen gold
rise or fall $50 an ounce in a single trading session. And that's
relatively mild compared to some others. All of this means
thatcommodity prices frequentlywhipsaw back and forth -- hence the
love/hate relationship with investors.
Action to Take -->
My advice: Buy these stocks when they are hated. It's the only way
to pick up these scarce assets at pennies on the dollar.
Don't fear volatility; it can be your strongest ally. If the end
goal is to buy low and sell high, then these extreme price swings
are just what the doctor ordered.
Yes, it's counterintuitive. We've all been hardwired to flee
from potential danger, not run toward it. But trust me when I say
that overcoming this mindset will put more big winners in your
portfolio than just about anything else.
-- Nathan Slaughter
[P.S. -- If you've been looking to add resource stocks to your
portfolio, now may be the time. The global trend for commodities is
rising demand coupled with shrinking supplies. That's why we've
seen soaring prices for years... and it means short-term sell-offs
can be rare buying opportunities. To learn more about Nathan's
Scarcity & Real Wealth newsletter which focuses solely on the
market's best resource investments, visit this link (without
watching any promotional video).]
Nathan Slaughter does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of WMB, UPL in one or more if its "real money"
portfolios.