An "Inevitable" Trend Gathering Steam

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The power of investing in “inevitables” … a major inevitable trend emerging today … ways to invest

When it comes to building wealth in stocks, few concepts will help you more than something we at InvestorPlace call “Inevitables.”

In fact, we believe knowing about “Inevitables” – and putting them to work for you – is a critical part of being a winner in the game of money. It’s a “Top 10” most important concept for stock investors.

“Inevitables” is a concept popularized by legendary investor, Warren Buffett. It’s his term for businesses with huge competitive advantages that dominate their industries.

From Buffett’s 1996 Berkshire Hathaway investor letter:

Companies such as Coca-Cola and Gillette might well be labeled “The Inevitables.” Forecasters may differ a bit in their predictions of exactly how much soft drink or shaving-equipment business these companies will be doing in ten or twenty years… In the end, however, no sensible observer – not even these companies’ most vigorous competitors, assuming they are assessing the matter honestly – questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime.

In simple terms, “the Inevitables” are the market leaders of specific sectors that will be in demand for decades to come.

They have such well-entrenched and well-defended positions that their continued dominance and success in this in-demand market sector is virtually inevitable.

So, what’s the lesson for investors like you and me?

“Inevitables” are incredibly powerful, long-term investments that enable us to make huge returns while sleeping well at night.

But there’s a twist…

Inevitables don’t have to be specific stocks.

The concept is applicable to certain technologies, trends, or cultural shifts that are so impactful, that massive growth is “inevitable” … virtually guaranteed.

Today, we believe such an inevitable trend has materialized, is building steam, and stands to provide a huge payoff for investors.

We’re talking about the boom in copper and rare earth metals.

We’ve profiled this trend in various Digest issuesin recent months, but it continues to gather momentum – and the pace is quickening.

Today, let’s make sure you’re aware of what’s happening, and why, because big gains have been piling up and even more are coming.

***Three dynamics are setting up to funnel huge swells of capital across the U.S. economy

One, President Biden’s infrastructure plans… two, the snowballing popularity of green energy/electric vehicles… and three, cooling relations with China, which is driving a push to build up specific sectors of the U.S. economy.

As to infrastructure, yes, there will be partisan bickering about the size of Biden’s bill, but at the end of the day, our politicians will approve the spending of billions. It’s inevitable.

Green energy and electric vehicles still have their issues (as we profiled in the Digest last week). But we’ve passed an inflection point in our society – “green/EV” is the future. Its growing adoption is inevitable.

Finally, the U.S. economy is dangerously reliant on China in a number of areas, but perhaps none more so than rare earth metals, which are critical in many manufacturing and defense sectors. As tensions grow between these superpowers, this is forcing the U.S. to find new, rare earth metals solutions. It’s inevitable.

Tying in the investment implications now, at the heart of each of these inevitable trends, we find copper and rare earth metals miners.

Let’s dig deeper, beginning with copper, which is central to Biden’s infrastructure plans and any large-scale green-energy/electric vehicle build-out.

For any newer Digest readers, copper is the must-have metal when it comes to electrical wiring. It’s also a major component of plumbing. Frankly, if you’re building something, copper probably plays a role.

In fact, about 43% of all mined copper is used in building construction. Another 20% or so goes to transportation equipment – and that figure will only climb as our world increasingly turns to electric vehicles. That’s because electric vehicles require an enormous amount of copper.

To illustrate, the Copper Development Association reports that conventional cars have 18-49 pounds of copper. Meanwhile, a plug-in hybrid electric uses about 132 pounds. And if we look at a pure, battery electric vehicle, the amount of copper used jumps to a whopping 183 pounds.

It doesn’t take a genius to connect the dots between this demand and a surge in copper’s price.

***Last week, we learned that Goldman Sachs is now calling copper the “new oil”

Goldman raised its price target to $11,000 per metric ton over the next 12 months (it’s around $9,400 as I write Wednesday morning). That would be 17% growth – but that’s just the start.

From CNBC:

Goldman said that copper demand from the energy transition will grow nearly 600% by 2030 to 5.4 metric tons in the firm’s base case.

In the case of “hyper adoption” of green technologies, the firm believes demand could surge 900% to 8.7 metric tons…

Goldman believes this leaves the market vulnerable to large open-ended deficits from the middle of the decade, culminating in a long-term supply gap of 8.2 metric tons by 2030. This is double the size of the gap that sparked copper’s bull market in the early 2000s, the firm said.

“Copper is so integral to the green transition—a global effort underpinned by government support—that the supply requirements necessitate a spike in copper prices,” the firm said.

Goldman believes the metal will hit $15,000/t by the middle of the decade.

Whether that final number is $15,000/t, $14,000/t, or $16,000/t, the takeaway is the same – copper’s price is headed higher…

It’s inevitable.

***We’re going to see similar growing demand for rare earth metals

For readers less familiar, rare earth metals (or elements) are a group of 17 metals that form under the earth’s surface. They can be difficult to find and extract.

These metals contain unique magnetic, heat-resistant, and phosphorescent properties that make them critical for tech-products such as smart phones, digital cameras, computers, LED lights, and flat screen TVs, among others.

They’re also critical in our defense industry. For more on this, including U.S. reliance on China for rare earth metals, let’s turn to our macro specialist, Eric Fry, editor of Fry’s Investment Report and The Speculator. Eric has been tracking this boom in commodities and metals for months now:

…rare earth elements are also absolutely critical to the U.S. military. They are key components of missile guidance systems, lasers, electronic displays, radar, and satellites.

That’s why we consider rare earth elements highly strategic resources.

Yet… the United States has to buy 90% of its rare earth metals from China!

In other words, China could easily cripple major parts of the U.S. military… simply by refusing to ship rare earth metals to us.

As crazy as the current situation is, the fact that we got here is even crazier.

The U.S. let this happen!

According to the U.S Geological Survey, China produced 38% of the world’s rare earth elements in 1993… and 33% of the supply came from the United States. Smaller percentages came from Australia, Malaysia, Canada, and India.

However, by 2008, China accounted for more than 90% of global rare earth element production. And by 2011, China accounted for 97% of global production.

Just look at this chart:

Simply put, this reliance on China is a gaping hole in our national security.

Our politicians know this and are scrambling to shore it up…with billions of dollars.

On that note, here’s CNBC from last Saturday:

The Biden administration and Department of Energy have targeted rare earths among domestic supply chain priorities as they outline ambitious climate and technology policy…

Domestic efforts to extract rare earths are taking place in states including Wyoming, Texas and California, but the recent past provides cautionary tales, such as Molycorp, which reopened the longstanding Mountain Pass mine in California in the early 2000s, only to go bankrupt in 2015. 

MP Materials bought the mine and restarted production in 2017. The Las Vegas-headquartered company is vying to restore the domestic rare earths supply chain from mine to magnet, and is hedging its bets on neodymium-praseodymium, with the hope of becoming the lowest-cost producer. 

Beyond this, according to Defense News, the Pentagon has…

…proposed legislation that aims to end reliance on China for rare earth minerals” by earmarking an estimated “$1.75 billion on rare earth elements in munitions and missiles and $350 million for microelectronics.”

And let’s not forget last spring, when U.S. Senator Ted Cruz of Texas introduced the Onshoring Rare Earths Act of 2020, stating…

Our ability as a nation to manufacture defense technologies and support our military is dangerously dependent on our ability to access rare earth elements and critical minerals mined, refined, and manufactured almost exclusively in China.

Much like the Chinese Communist Party has threatened to cut off the U.S. from lifesaving medicines made in China, the Chinese Communist Party could also cut off our access to these materials, significantly threatening U.S. national security.

The ORE Act will help ensure China never has that opportunity by establishing a rare earth elements and critical minerals supply chain in the U.S.

Bottom line – demand for a solution to U.S. reliance on China for rare earth metals is increasing, and will drive growth for certain mining companies and commodities prices.

It’s inevitable.

***How to play demand for copper and rare earth metals

As noted earlier, Eric has been tracking this commodities/metal boom for months, and has used it to help his subscribers lock-in triple- and quadruple-digit gains.

Most notably, there was his trade on copper miner, Freeport-McMoRan. Speculator subscribers who followed Eric’s official recommendations enjoyed a 1,350% gain. Eric still likes FCX today.

Beyond that, there are other a handful of mining companies that focus on copper and rare earth metals. For further research, you could look at Southern Copper (SCCO), BHP Group (BHP), or Glencore (GLNCY).

You also have ETFs, which offer broad exposure. For example, there’s the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX). There’s also the Global X Copper Miners ETF (COPX). Eric recently recommended his subscribers take profits on COPX to the tune of 100% and 85% (he sold in tranches).

I should mention that Eric’s “sell” recommendations aren’t due to a lack of belief in the copper trade. Rather it’s smart profit-taking after amassing large gains.

Wrapping up, many times we overcomplicate investing. One way to simplify it is by aligning our wealth with an “inevitable” trend that’s going to ride massive growth in the years ahead.

Demand for copper and rare earth metals is one such inevitable trend. This is the type of investment where you invest, forget about it, then check your balance some years from now to find a transformed portfolio.

Have a good evening,

Jeff Remsburg

The post An “Inevitable” Trend Gathering Steam appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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