The Next Commodity That Will Take Off
My visit to the Rule Symposium... A small stock with incomprehensible upside... If you bought copper last year, buy this now... Commodities will catch up... Keep your mouth shut and listen... I'm not retiring... This is what leadership looks like...
I (Dan Ferris) just went to Boca Raton in the middle of summer...
I know... I know... Boca in July. It's as hot and humid as Florida gets.
But if I know my friend Rick Rule, he probably chose this time and place for the Rule Symposium on purpose... He's probably getting such a bangin' deal on the hotel facilities that the hot, humid weather takes a back seat.
And the event is well worth the trip. Every year, Rick invites some of the greatest legends of the mining industry. If you're an individual investor who likes mining stocks, Rick's annual four-day event is the best one to attend if you can only make it to one.
Nobody knows more than Rick about investing in small, speculative mining stocks. Nobody knows more of the greatest mining entrepreneurs... or the people who provide them with capital. And Rick has provided them with a substantial amount of it in his career. Rick is also a fixture at our annual Stansberry Research conference.
A small stock with incomprehensible upside...
For a sense of the companies featured at the Rule Symposium... I conducted a breakfast chat before an audience of about 60 to 70 attendees with Benoit La Salle, CEO of Aya Gold & Silver (AYA.TO).
Aya is already a huge success story. Its share price was around C$0.82 in January 2020... and is nearly C$15 today.
This company is focused on developing the Zgounder silver mine in Morocco. For now, it's a pure silver mine, but there's a second deposit – primarily gold this time – that the company expects to begin developing in the next few years.
It turns out Morocco is a very mining-friendly and more stable political jurisdiction than most other African countries.
Benoit told us the permitting process would have taken years longer in most other countries – even developed, well-known mining countries like Canada. Aya doesn't have a lot of competition in Morocco yet, and it's buying up as much land as it can so it'll be able to mine for many years to come.
I then asked Benoit how much upside could possibly be left in the stock after its epic run... He said – with a straight face, in front of the whole audience – "450 dollars," meaning C$450 per share.
At the end of the chat, I told him that if there's that much upside and the stock is only C$15, then the market must be missing something... and frankly, I said, I must be, too. "What are we missing?" I asked.
He turned around and pointed to a slide of the silver deposit and surrounding area and said, "This."
In other words, the deposit is so large and so rich that it seems too good to be true.
I'm not officially recommending Aya to my paid subscribers today... It's too speculative for my newsletters, and I haven't done a full analysis of the company. But for folks who are willing to take chances – and do enough research to identify the best opportunities – Aya shows how much upside can be available in a small-cap mining stock.
That's why people come to the Rule Symposium, Florida summer or not.
When I spoke at last year's Rule Symposium, I pounded the table on copper...
Specifically, I highlighted blue-chip copper stocks like the ones I've recommended in the Extreme Value Ultimate Commodity Hypercycle Portfolio and The Ferris Report.
Since then, copper has risen from below $4 per pound last July to as high as $5.05, and it still trades around $4.25 today. Copper stocks have moved, too. Over the past year, my copper stock pick for The Ferris Report is up about 6% and the one in my Hypercycle Portfolio (for Extreme Value Premier subscribers only) is up about 46%, both as of yesterday's close.
If we get a recession, all commodities and commodity stocks will suffer. But that'll just be the time to load up on them, because the longer-term expectations for most energy and metal commodities is excellent.
But enough about copper...
If you bought copper last year, buy this now...
This time around, I urged the audience to invest in natural gas.
I covered natural gas in the March issue of The Ferris Report (my paid subscribers and Alliance members can read that issue here).
At the time, the commodity was trading around $1.60 to $1.70 per thousand cubic feet ("mcf"). Most producers in most regions need at least $3 per mcf to break even.
When that happens to a commodity, the industry is essentially in liquidation. High-cost producers shut down expensive wells, get bought out, or go broke.
On the other hand, these are winning conditions for producers that are strong enough to survive the downturn. They'll come roaring back with more assets and less competition when natural gas prices rise again.
I recommended one of those survivors... a cash-generating, big-cap, blue-chip gas producer with great management, great assets, and a great balance sheet.
It's not just copper and natural gas, either...
I'm really excited about owning high-quality, cash-gushing, well-managed companies across the energy and mining sectors right now. I believe you have a chance to make 5 times your money or more by holding them through the full cycle.
That's exciting to me because natural resources investing is really difficult and risky. It's very hard to assign a value to a business that extracts natural resources since you have no way of predicting what the price of its product will be.
It's not like a good beer or wine brand, or a good software company or a great retailer, where the earnings tend to grow fairly steadily for years. The volatility of energy and metal prices makes it riskier for investors.
But with that extra volatility comes extra opportunity. You can make explosive gains being a contrarian in commodity stocks – buying when commodity prices are down and everyone is terrified and selling.
It's easier to hold a company through those ups and downs if you know it's one of the best companies in the world. If you speculate on tiny little mining-exploration stocks, you know they can and often do flame out and go to zero. It's insanely difficult for most folks to hold them long enough to get the big multibagger returns they seek.
You might still get volatility with the big blue-chip miners... but you'll have a lot less risk of financial difficulties. In other words, you can hold them safely through the full cycle. You don't need to worry about the stock going to zero. And when commodity prices turn back up, so will their share prices.
So they produce pretty great returns. No, you won't make 100 times your money the way you can speculating on the small stuff like Aya... But let's face it, almost nobody ever makes that kind of money in risky little stocks, because almost nobody ever wants to hang on through all that volatility.
So I think you have a much greater chance of making several times your money with the big blue-chip energy and mining stocks than of making any money at all in the tiny little speculative stocks.
As I mentioned, I have a portfolio of seven of the best-of-the-best blue-chip mining and energy stocks in the Extreme Value Ultimate Commodity Hypercycle Portfolio. Since we started the portfolio on February 28, 2023, it's up 32.6% through yesterday's close... just behind the S&P 500 Index at 39.7% over the same period. The Hypercycle Portfolio return has been well above 40% at times, and at one point was about 11% ahead of the S&P 500.
The S&P 500 is ahead of our Hypercycle Portfolio for the moment, but that won't last...
The S&P 500 is more egregiously overvalued today than at any other time with only two exceptions: the dot-com peak and late 2021. History suggests that, over the next 10 years, it's likely to generate flat or negative returns.
Right now, "everybody knows" interest rates will fall soon and that the stock market will love it. So they're buying stocks like crazy. A crash is inevitable. But as trader and past Stansberry Investor Hour guest Michael Harris shared today on the social platform X:
Fragility is increasing exponentially.
When stocks get this expensive, a stock market crash is inevitable.
And during times when stocks falter, commodities can shine brightly. The S&P GSCI Commodity Index rose more than 200% from 1966 to 1974 as stocks fell... and 120% from 1977 to 1980 as stocks continued their 16-year sideways journey through rampant inflation.
Commodities were volatile. That's always true. But they outperformed stocks overall during the period.
So, despite their greater volatility and the possibility of a recession in the next few years, I like many commodity-related stocks a lot better than most noncommodity stocks today.
Another highlight of the symposium was my private conversations with fellow attendees...
At one dinner, I wound up sitting with Frank Trotter, co-founder of EverBank and president of Battle Bank.
Every time I talk with him, he teaches me a new simple but powerful truth about the banking industry.
This time around, we were talking about how, as banks grow, the regulatory requirements become more burdensome, leading to more spending on accountants and auditors. He told me, "Once you hit $10 billion in assets, you had better grow to $20 billion pretty quick to pay for it all or you're gonna have a problem. That's why plenty of banks tend to stay below $10 billion or so."
According to recent data compiled by Bloomberg, 441 of 720 U.S.-based, U.S.-traded banks – about 61% of the total – have $9.99 billion in assets or less. Just 43 banks – 6% of the total – have between $10 billion and $19.99 billion in assets.
I wouldn't necessarily avoid all banks in that range. That wasn't Frank's message. It's just a little-known insight you should understand if you own bank stocks.
Another day, I found myself seated for lunch between Sean Roosen of Osisko Development on my right and Robert Quartermain (founder of Pretium Resources) on my left.
I thanked Rick for the invite when lunch was over. He said, "I've spent my whole career hanging out with people like this and just listening."
Rick is probably the wealthiest and most successful investor I know personally. And one of his greatest skills is finding the best people in the industry, keeping his mouth shut, and listening. Good lesson there.
I also caught up with Seabridge Gold co-founder and CEO Rudi Fronk...
Rudi told me plainly that Stansberry Research's own Steve Sjuggerud "put Seabridge on the map" for investors when he first recommended the stock many years ago. It was a great long-term call...
Steve first recommended Seabridge Gold (SA) in June 2004 at $2.65 per share. As you see every day in the Stansberry Research Hall of Fame at the bottom of our Digest mailing, he sold for a 995% gain just four years later.
That's the kind of return we all dream about. And for any investors who endured all the volatility since then, they'd be looking at a hundred-plus-bagger since the company went public.
Fronk also asked me if I'm thinking about retiring. I just smiled and shook my head. I don't understand the concept of retirement. I'll only do it if I become too infirm to think, read, and write. One day... decades from now... they'll find a skeleton at my desk with a half-written Digest in front of me. Even if I should stop – never mind. Not gonna happen.
But now let me get serious on you...
I can't ignore the attempt on Donald Trump's life.
The most important thing about the shooting was the moment just seconds later, when he stood up, shook his fist toward the crowd, and said, "Fight... fight..." which everyone took to mean, "Fight for your country." More than one pundit has said something like, "That's what leadership looks like."
My political views don't matter. I'd never vote for Trump, Joe Biden... or anybody else, because none of them will ever do the one thing that matters: reduce the massive size and awesome and dangerous power of the U.S. government with all haste.
I'll never vote for any candidate unless that is their primary mission. I don't think it matters much for investors who gets elected in November.
People who think Trump is an "existential threat" are unhinged idiots mouthing nonsense. He's no more or less a threat to the U.S. than any other president in recent history: Biden, Obama, Bush, Clinton...
They all seek power for its own sake, expand government, and spend tons of other people's money on stupid ideas with zero chance of success. And none of them are working for you and me. Like comedian George Carlin said, "It's a big club and you ain't in it."
But even I have to admire the way Trump handled the moment. I'm not alone. Meta Platforms co-founder/CEO Mark Zuckerberg called Trump a "badass" in a recent Bloomberg interview (without endorsing him).
Political violence was already on my mind when the event took place. The June issue of The Ferris Report is about the 2016 assassination of U.K. Member of Parliament Jo Cox and the more recent murder of two mortgage brokers in Toronto.
My overall point was that violence – political or otherwise – can focus an investor's mind. Given the events last Saturday, I seem to have little choice but to continue that theme in the July issue, which comes out next Friday.
I won't make any election predictions, but Digest editor Corey McLaughlin already pointed out earlier this week that the shooting increased the odds of a Trump victory, according to betting and election prediction-market data.
And by now, perhaps you've been reminded that right-wing Brazilian candidate Jair Bolsonaro was stabbed in September 2018 during a campaign event... and elected president the next month.
So a Trump win in November would not be much of a surprise.
But a soaring stock market wouldn't surprise anyone, either, even though it's a very risky bet right now. So what would or wouldn't surprise anyone doesn't always tell you much about what'll actually happen in the future.
Point is, no matter which way the political winds blow, you should choose any investments carefully right now. Consider hedging your portfolio with cash (the best equity portfolio hedge) or with short positions if you're OK with more risk. And look at the longer-term potential in commodities.
New 52-week highs (as of 7/18/24): Alpha Architect 1-3 Month Box Fund (BOXX), Cintas (CTAS), Kinder Morgan (KMI), Omega Healthcare Investors (OHI), Plains All American Pipeline (PAA), Pembina Pipeline (PBA), and Viper Energy (VNOM).
Do you have any thoughts on Dan's essay... or anything you'd like us to cover in the coming days? As always, e-mail us at feedback@stansberryresearch.com.
Good investing,
Dan Ferris
Eagle Point, Oregon
July 19, 2024