Gold stinks.
Iron ore stinks.
Copper stinks.
What commodity doesn’t stink?
Everyone hates commodities. Everyone hates resource stocks.
Well, nearly everyone.
Your editor is a stubborn old fool. When we read everywhere about the death of resource stocks, it tells us one thing — you better get ready for one heck of a resource stock rally…
We’ll admit we’re facing a tough opposition. As Bloomberg Businessweek reports:
‘Banks led by Goldman Sachs Group Inc. and Citigroup Inc. say commodities are heading for losses in 2014 as rising supplies and slowing demand compound slumps that led to bear markets last year in gold, copper and corn.’
It’s a brave investor who bets against Goldman Sachs. Remember, these are the guys whose trading divisions typically have no more than one or two losing days each quarter.
That tells you they get something right every now and again!
But let’s get one thing clear — don’t under any circumstances confuse natural resources with natural resource stocks.
We won’t pretend to know where commodity prices are heading.
There are so many variables involved. That’s true whether it’s oil, natural gas, copper or iron ore. Political unrest, labour disputes, weather; you name it, they can all impact the supply, demand, and price of any given commodity.
Even the supply, demand and price can impact the supply, demand and price of a commodity…if you get what we mean.
But note one thing. Commodity prices and resource stock prices don’t have to move together. A commodity price doesn’t always have to be high for a resource stock to make money. And it doesn’t have to be high in order for a resource stock price to go up either.
The fact is that from 2003 to 2007, and again from 2009 to 2011, investors were spoiled. Resource stocks rose on little more than the smell of a successful drill result.
All it took was for the share price of one resource company to take off, and others would follow. Companies looking for the same commodity would go up. Companies with exploration permits nearby would go up.
Companies looking in completely different areas for completely different resources would go up because they would suddenly claim that they too had found rare earths, graphene, nickel, or whatever resource was the flavour of that month.
In that market, the rising tide of commodity prices lifted all ships. Unfortunately, the tide went out on the resource sector in 2011. And as the tide receded it revealed the true state of the resources sector.
And it wasn’t a pretty sight.
That boom period is over. It ended three years ago. But it’s wrong to think that the entire resource sector is dead, because it isn’t.
The main difference is that now rather than the rising tide lifting all ships, only the good ships will reap the benefit of this rising tide. That’s because many of the other ‘ships’ have holes in them.
In other words, you can’t just invest in any old resource stock. You’ve got to choose each investment carefully. Because while there is a lot of negativity around the resource sector, there are also a lot of great opportunities.
That’s why this year we hired a gun resource analyst to look into these great opportunities. We were looking for someone who was just as excited about the Aussie resource sector as we are.
His name is Jason Stevenson, and he has already produced some outstanding work for our flagship resource investment advisory since he joined the team last year. You’ll get an opportunity to see some of Jason’s work for yourself in the coming days. Keep a look out for it.
The way we see it is that opportunities to invest in an entire beaten down sector don’t come around that often. This is one of those rare times.
Right now we can think of few better places for investors to make money than the Aussie resource sector.
But how can that be possible when the likes of Goldman Sachs say commodity prices are heading down the toilet? Simple…
Sometimes investors just can’t see the wood for the trees. They’re so busy looking for some complicated rationale that they can’t see what’s staring them in the face.
The fact is there’s really only one statistic you need to look at for proof of the bullish case for commodities. It’s this: China’s economy, at the current growth rate, will double in less than nine years.
It’s impossible to properly put that in perspective. But to put it simply, it means that China will produce and consume roughly double the amount of resources and consumer goods that it consumes today.
And that’s just China. Assuming the US, Europe and South East Asian economies continue to grow, you’re looking at economies that could be 20 — 30% bigger (or even bigger than that) than they are today.
Is it credible to think that this won’t cause a huge demand for resources? Is it credible to think that this won’t lead companies to explore for new resources? Is it credible to think that a company’s stock price won’t go up if it discovers a new resource?
Everyone hates resource stocks, and yet slowly but surely the market is beginning to recover. If ever there was an opportunity for stock pickers to make a killing while prices are dirt cheap, this is it.
Analysts at banking giant JPMorgan say the market is at the mid-point in the resources ‘super cycle’. If your portfolio doesn’t contain resource stocks in 2014, you’re in danger of missing out on what could be the trade of the decade.
Cheers,
Kris
Special Report: Retirement Security Ladder