Caterpillar goes 'all in' on gas... Revisiting Eagle Diesel... Why Japan needs lots of natural gas... Another new high for Two Harbors... The wealthy are fleeing France... Still more positive Retirement Trader feedback...
The first ever Natural Gas for High Horsepower Applications Summit just concluded in Houston. That this event even exists is bullish for natural gas. But an announcement from Caterpillar's director of gas engine strategy, Joel Feucht, stole the show...
Caterpillar is the world's largest manufacturer of construction and mining equipment. If there's earthmoving to be done, chances are good you'll find the company's bright yellow machines on the job. Only soon, they'll be powered by liquefied natural gas (LNG)...
Houston's Rock Hill Herald newspaper reports Caterpillar has "decided to go all in on gas." Feucht told the conference, "We see a global market long term. Large engines are going gas. It's not debatable. It's our conclusion."
The company's first LNG-powered vehicles will be large mining trucks and locomotives. Caterpillar expects to launch the vehicles within five years.
To expedite LNG-powered product development, Caterpillar has teamed up with LNG engine-maker Westport Innovations (WPRT). Small Stock Specialist subscribers know this company well. Here's what editor Frank Curzio wrote about Westport in the May issue...
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Sales are expected to grow north of 50% annually over the next five years. The company projects profitability by 2014. But that could happen sooner as more trucking fleets save millions of dollars a year in fuel costs by switching their engines over to natural gas. |
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From a common sense perspective, Westport has partnerships with the world's largest engine makers. Together, these companies have a combined market-cap north of $110 billion... Yet Westport's market-cap is a mere $1.3 billion. |
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Based on the trucking industry's "Eagle Diesel" megatrend, Westport should see huge demand for its engines for decades to come. |
Although Frank does not currently have an open Westport position in the Small Stock Specialist model portfolio… subscribers who followed his recommendations did very well. In April, subscribers booked a 116% gain 14 months after Frank's original February 2011 recommendation of Westport. A month later, he opened a new Westport position in the model portfolio… and closed it out four months later with a gain of about 45%.
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Longtime Digest readers are familiar with Frank's "Eagle Diesel" thesis... He believes the low price of natural gas will make it an affordable alternative to diesel for heavy-duty trucks. As we mentioned in June, GM and Chrysler Group are planning to build natural-gas-powered pickup trucks. Industrial conglomerate 3M has partnered with natural gas giant Chesapeake Energy to develop cost-efficient natural gas fuel tanks. And even ferryboat operators in the U.S. and Canada are considering switching to natural gas. Caterpillar's announcement is another major milestone in the country's switch to natural gas as an alternative transportation fuel.
But Frank's Eagle Diesel thesis extends beyond the domestic natural gas industry. Around the world, demand for natural gas is soaring.
Consider the case of Japan...
In March 2011, an earthquake and tsunami destroyed Japan's Fukushima Daiichi nuclear facility causing a meltdown in three of its reactor units and the release of radioactive material. One of the worst nuclear disasters in history, the Fukushima Daiichi meltdown spurred Japan – which currently generates 30% of its energy from nuclear power – to reconsider its energy source.
On September 14, Japan's government voted to shut down all of its more than 50 nuclear reactors by 2040. It was a drastic, unanticipated decision. (European countries including France and Germany subsequently also announced plans to decrease their reliance on nuclear energy.)
Of course, the Japanese aren't reducing their electricity consumption. And the leading candidate to replace nuclear-fueled power is natural gas.
The same day Japan announced it would shutter its nuclear operations, it signed a $13 billion agreement with Russian energy giant Gazprom to build a new LNG export facility in eastern Russian port Vladivostok.
And just a few months ago, ExxonMobil said it would spend $15 billion to export natural gas from Papua New Guinea (the first delivery is expected by 2014). Exxon also announced a joint venture with Qatar Petroleum to build an LNG terminal in Texas. It's awaiting U.S. government approval for the project, which would cost $10 billion.
Clearly, the world is about to spend a fortune building the infrastructure to support a boom in natural gas. Analysts with the investment bank JPMorgan expect $220 billion will be spent on LNG projects in the next two years... And they produced that estimate before Japan and France announced they would cut their nuclear programs.
In his latest issue of Small Stock Specialist, Frank recommended a "nuts and bolts" play on the global side of his Eagle Diesel thesis. The company is the go-to business governments and global energy giants are using to help build and operate giant natural gas projects. And thanks to a major, worldwide trend, this company is about to make tons of cash. Frank says the stock could double in the next few years... To learn more about the Eagle Diesel megatrend and gain access to the report detailing Frank's latest recommendation, click here.
One of Steve Sjuggerud's "virtual banks," Two Harbors, hit another 52-week high today...
"Virtual banks" like Two Harbors are more commonly known as mortgage REITs. These companies borrow money at low rates and invest in mortgage bonds paying higher interest rates. And Two Harbors invests 80% of its money in government-guaranteed bonds, so there is essentially no default risk. (If the mortgages default, Uncle Sam is on the hook.) Two Harbors invests the other 20% in "mispriced" bonds... These bonds are not government-guaranteed, but they pay a higher yield to make up for the extra risk.
Two Harbors' biggest risk is rising interest rates. But Federal Reserve Chairman Ben Bernanke's promise to keep interest rates low for years means Two Harbors can enjoy artificially high interest rate spreads. And investors can continue collecting its 12% dividend.
True Wealth readers are up 37% on Two Harbors since June 2011.
For more on Two Harbors, be sure to read today's DailyWealth. Steve discusses Two Harbors' new business – buying single-family homes in the U.S. Steve thinks U.S. housing is the best investment around today. So he was happy to hear Two Harbors President Thomas Siering discussing this new strategy. On a recent conference call, Siering told listeners…
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Two Harbors has invested approximately $150 million in its portfolio of single-family residential properties of roughly 1,370 homes... We continue to acquire properties in Arizona, California, Florida, Georgia, and Nevada... With home prices in some of our target markets down 50% or more from recent peak levels, we have been able to acquire properties at significant discounts to replacement cost. |
We've long believed if governments treat the rich too harshly, the wealthy will leave... Jacking up taxes, lambasting them in the press, and criminalizing success are sure ways to encourage the wealthy to flee. And we're seeing this today in France...
France's new socialist president, Francois Hollande, plans to increase the tax rate to 75% on income of more than 1 million euros a year. Hollande's tax plan also includes increasing the capital gains tax from the sale of stock and companies. In a 2013 budget plan unveiled two weeks ago, the government would tax capital gains at the same rates as salaries... So French citizens would have to pay up to 60% on their capital gains, rather than the current flat tax of 19%.
The French government backtracked on the capital gains tax last week, though taxation will still be higher than it is today.
The prospect of these onerous taxes has sparked an exodus of France's wealthiest residents, according to some real-estate brokers there.
"It's nearly a general panic. Some 400 to 500 residences worth more than one million euros ($1.3 million) have come onto the Paris market," managers at Daniel Feau, a real-estate broker specializing in high-end property, told the all-news TV channel France 24.
A Feau manager also said the profile of the wealthy who are leaving has changed. It's not just the "idle rich," but now includes "managers of major international corporations, entrepreneurs, and investors much younger than previously who are scared of the marginal tax rate of 62.21 percent on sales of stock."
As you can see from our list of 52-week highs (below), what Steve calls the "Bernanke Asset Bubble" is working. Fueled by the liquidity $40 billion a month in government bond-buying can cause, stocks across all sectors are hitting new highs. We'll discuss several of these positions in tomorrow's Digest.
New 52-week highs (as of 10/5/12): Berkshire Hathaway (BRK), Franco-Nevada Corp (FNV), iShares Nasdaq Biotechnology Fund (IBB), SPDR S&P International Health Care Sector Fund (IRY), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra Health Care Fund (RXL), Sequoia Fund (SEQUX), Sandstorm Gold (SSL.V), Guggenheim China Real Estate (TAO), Anheuser-Busch InBev (BUD), Constellation Brands (STZ), Abbott Laboratories (ABT), Johnson & Johnson (JNJ), Automatic Data Processing (ADP), IBM (IBM), 3M (MMM), Medtronic (MDT), Enterprise Products (EPD), ExxonMobil (XOM), Two Harbors (TWO), and Philip Morris International (PM).
Have you witnessed wealthy people fleeing oppressive taxes? Tell us your stories here... feedback@stansberryresearch.com.
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October 8, 2012