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As our friend and colleague Steve Sjuggerud likes to say, "If you catch just one biotech bull market in your lifetime, you may never have to work again."
In the February issue of True Wealth, Steve pointed out that biotech was breaking out to 11-year highs. "We HAVE to get in," he wrote, detailing the tremendous value he saw in biotech at the time. Back then, nobody wanted biotech stocks.
Regular True Wealth subscribers know Steve's investment mantra. He looks for opportunities that are cheap, hated, and in an uptrend. Steve saw all three lining up in biotech. Investors had fled the sector for years. The sector funds were breaking out to new 11-year highs, indicating an uptrend was already in place. And he showed readers why biotech stocks were a fantastic deal for investors.
The reason was shareholder yield – the money a company gives back to shareholders through dividends and buybacks. As he explained to readers... we normally don't think of biotech as a "value play." Yet in a zero-percent world, these stocks were showing up as value plays... and he was right on the mark.
Biotech bull markets are crazy animals. Starting in 1998, the Nasdaq Biotech Index jumped SIXFOLD over the next 18 months.
In the early 1990s, biotech soared 1,300%. Since the 1980s, biotech has enjoyed four massive bull markets. We can't know if we're at the beginning of another triple-digit winner... but True Wealth readers who got into the trade are already up more than 25%.
Catching a bull market in biotech isn't the only way to quickly make huge gains in the market... Many of our readers have also made huge gains investing in the junior resource sector.
In fact, one of the highest-returning recommendations in the history of our business was a small mining stock – resource expert Matt Badiali helped subscribers make 597% on ATAC Resources.
The problem is that small mining companies in general are very risky… They're almost like lottery tickets... The managers market the company with stories of huge mineral deposits and wild riches. (Mark Twain once said, "a gold mine is a hole in the ground with a liar on top.") But the vast majority go broke…
Most small mining companies must spend all their money on exploration and salaries. There are no earnings (because they don't produce anything.) And if the company doesn't make a discovery before the cash runs out, it'll collapse.
There is, however, another type of resource company that offers a much safer way to generate big gains... These companies don't do any exploration. And they don't do any mining. In fact, most employ only a handful of folks, who sit around in an air-conditioned office.
I'm talking about royalty companies... These companies are groups of intelligent mining insiders that pool their capital and invest in early-stage projects. When a project starts producing, the royalty company gets a portion of that mine's profits.
The benefits of royalty companies are threefold. These companies don't drill or explore. Instead, they make calculated bets on projects they trust. Their downside is limited to the loss of the initial investment... But because they invest in multiple projects, that risk is minimized.
Also, most royalty companies are run by insiders in the mining space... They know the best projects and have the best management teams. They will allocate their capital accordingly.
Finally, royalty companies are shielded from the soaring costs of production. As Matt wrote a few months ago in our free e-letter, DailyWealth... The mining companies they finance bear all these costs.
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The rising prices of heavy equipment, mine infrastructure, roads, labor, electricity, and fuel are all eating into the bottom line [of mining companies]. |
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Major gold miner Barrick Gold, for example, saw its cost of production rise 22% from 2011 to 2012. That's a huge increase. It's hurting profits... and it's hurting shareholders, who are down 20% over the last year. |
Matt noted royalty companies have continued to collect checks and are "largely immune to the rising cost of mining."
You may recognize the names of some of the larger royalty companies from our "new highs" list published at the end of every Digest. Royal Gold, Franco-Nevada, and Silver Wheaton are regulars on the list... And they're all royalty companies.
We've made great money on these stocks... Matt's readers are up 54% on Royal Gold, 40% on Franco-Nevada, and 25% on Silver Wheaton.
But the big money is made in royalty companies when you invest early.
Taking a look at the charts of these companies gives you an idea of how profitable investing in royalty companies can be. These companies start out tiny, investing small amounts of money in various projects. As their investments start generating income… they invest that income in more projects, which grow their revenues further. And their share price explodes higher.
Royal Gold, for example, traded around $1.25 per share in the early 1990s. Today, it trades for more than $95 per share...
The same is true for Silver Wheaton. Silver Wheaton is a younger company than Royal Gold, but early investors are still holding on to 1,200%-plus gains...
Again, the trick to making huge money in these stocks is to buy in early... before everyone else knows about the company. It's difficult to find these companies in the early stages. There's no online database that lists all royalty companies. And they're so small (often worth less than $100 million in market cap), many investors overlook them.
That's where our mining contacts come in handy... We often say, in the resource sector, who you know is at least as important as what you know… The mining analysts, CEOs, geologists, and analysts in our network of contacts are constantly telling us about new opportunities.
Extreme Value pick Anheuser-Busch InBev (BUD) is hitting fresh all-time highs. AB InBev owns 200 global brands of beer. Its three flagship brands are Budweiser, Stella Artois, and Beck's.
Apart from its world-leading brands, BUD also has some of the best managers in the business. Its free cash flow has grown from $500 million in 2002 to more than $7.5 billion in 2011. The company gushes free cash flow every year.
As Dan pointed out to readers in May 2010…
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Next to water and tea, beer is the most popular beverage on the planet. |
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And the best way to invest in beer is to own the World Dominator beer stock. |
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Think about the World Dominators for a minute. They earn a bigger share of the profits of their industry than any other company. More grocery dollars will go to Wal-Mart than any other company, more software dollars to Microsoft, more microprocessor sales to Intel... and more beer money will wind up in the World Dominating brewer's bank account than any other beer maker in the world... |
As we've said many times before... out of all the businesses in the world, a great consumer-product franchise is hard to beat from an investment viewpoint. Consumers are loyal to great brands. And they'll pay more for the product.
Plus, it's a lot easier for these companies to develop new products... They can release new products to their millions of existing customers. Small mom-and-pop-type companies simply can't compete. Apart from an outstanding product, you need extremely deep pockets to fund all the marketing and advertising. You can also bet that companies like BUD will still be around in five, 10, or 20 years. It won't matter what (or when) the next crisis is. Consumers will continue to drink beer.
As BUD's business continues to grow, it continues to generate more sales, more profit, and more cash flow every year. And the company is rewarding its shareholders with handsome capital gains and regular dividend checks.
Dan recommended shares back in May 2010. Today, Extreme Value subscribers are sitting on 83% gains.
New 52-week highs (as of 10/9/12): Eli Lilly (LLY) and Comstock Resources (CRK).
In today's mailbag, some stories supporting the "false" unemployment numbers and the wealthy fleeing... Send your anecdotes to feedback@stansberryresearch.com.
"Hard to fathom. 7.8 % unemployment. I own a firm in the textile manufacturing business. Not only has employment been cut in half from 790 employees during the last 3 3/4 years, but the prospects of re-hiring is nil! The employment figures have to be messaged to make Pres. Obama look better. With the addition of 114,000 announceed this week and the increases number of potential employees coming into the market , there is no way these figures can add up. Business at the manufacturering level is still week to week orders with little signs of picking up. Until we know the tax , health and less restrictions on manufactureering firms, don't expect any hiring in our industry." – Paid-up subscriber ALC
"As a County Supervisor in Northern California, my job leads me to become acquainted with people from all walks of life. One such acquaintance told me unequivocally he was buying a Condo in Tahoe and would save fifty thousand a year in State Taxes. He was going to change his residence to avoid being punished for his investments in rentals in the Chico, California area. If he and his family are fleeing many others must be." – Paid-up subscriber Bill Connelly
Regards,
Sean Goldsmith
New York, New York
October 10, 2012
The biotech bull market is here... Another way to get rich in the markets... Why we love royalty companies... A World Dominator hits a new high...