Follow the research... A 'sector checkup'... What Wall Street is betting on... This 'more inflation, please' sector is worth your time today... One company positioned to profit from an oil boom...
We love when we see this...
We're talking about when the stars align, so to speak... when, independent of one another, several of our editors' varying research styles all point to the same recommendation.
When this happens, we know it's time to share the news with our dear Digest readers. We want to make sure you don't miss the opportunity...
Frankly, this particular report is probably a little overdue (though we did call it out back in February)... This sector is up 42% over the past six months, handily beating the benchmark S&P 500 Index over the same time period.
But the good news is... The trend we're going to talk about today – the bullish case for some surprising energy stocks – still has plenty of room to run.
You see, we've talked ourselves silly about the signs of real-world inflation... and the fact that the Federal Reserve – which can help slow them down – isn't lifting its foot off the "easy money" accelerator just yet.
And as much as we might want to, we're not changing it... We've learned over time that the market doesn't necessarily care what we think. But knowing that, we can still make the most of our money.
So what's a guy or gal to do? It's simple...
Follow the research...
You can first look at the macro picture, as we do daily in the Digest... and as our colleagues Ben Morris and Drew McConnell do through regular updates to their DailyWealth Trader subscribers.
One exercise Ben and Drew do at the start of each month is a "sector checkup." They look at the best- and worst-performing sectors of stocks over two different time frames – the previous six months and the previous month.
Past performance does not guarantee future results, of course... But this regular practice gives Ben and Drew a good idea of the trends currently playing out in the market.
In other words, they're looking at where real money is flowing.
This month, in their issue published yesterday, Ben and Drew found some pretty clear trends at work. The market can be complicated at times, but sometimes the patterns are clear...
Ben and Drew saw where the "smart money" was flowing as a result of a significant rise in market-driven interest rates – and inflation expectations from Wall Street investors – over the past year or so.
As Ben and Drew pointed out, since August 2020, the yield on the benchmark 10-year U.S. Treasury (the so-called "risk-free" rate) is up 220% – from 0.51% to 1.63%. (And remember... as bond yields rise, prices fall.)
This massive jump in the 10-year U.S. Treasury yield – from which everything else is priced – has forced many Wall Street investors to reconsider the sectors (and specific stocks) they're investing in.
As Ben and Drew wrote...
As you can see in the chart below, energy, financials, and materials stocks led the pack over the past six months with 42%, 36%, and 23% gains, respectively. Consumer staples and utilities stocks brought up the rear, with just 6% and 4% gains, respectively...
So, this is what has been happening. But why?...
As Ben and Drew explained, it's something we've talked about frequently – today's inflationary environment and the companies that are perceived to benefit from it. More from their issue...
Materials businesses provide the raw ingredients that companies need for major projects. As growth picks up, there are more projects and more materials are needed.
The same idea applies to the energy sector. Energy stocks often do well when there is strong economic growth because there's more construction, more travel, and more energy consumption, in general.
For both these sectors – which produce and sell hard assets like iron ore, aluminum, oil, and gas – inflationary forces mean their goods are worth more, too.
Conversely, tech stocks – or "info tech" in the above chart – often thrive in low-interest-rate environments... That's why they've lagged throughout 2021.
As we've written, investors fear that the Fed will hike rates – or "taper" asset purchases – sooner than it says in response to higher inflation. (We're not so sure this is the case... But again, the market doesn't care.)
Materials, energy, and financial stocks returned between 4.7% to 5% last month, leading the market, even as the 10-year yield was basically flat. As Ben and Drew wrote...
Without a doubt, the inflation narrative picked up steam. As mass media covers this topic more, investors and traders will move their money around in many of the same ways as they do with rising interest rates. The two ideas – rising rates and inflation – are closely related.
Over the next six months, Ben and Drew expect the current market leaders – like energy stocks – to extend their lead. From the issue...
The current trends in interest rates are backed by strong governmental and economic forces that won't quickly change. So for that reason – in spite of the potential for a short-term reversal – we want to stick with the dominant trends.
Out past six months, it's anybody's guess. So much is changing so fast right now, we'll only say this...
For your long-term investments, we suggest you diversify with a focus on world-class businesses and hard assets, like precious metals. With your shorter-term trades, stick with the trends... But be nimble and ready for anything.
As always, what you do with your money should depend on your goals, time horizon, and risk tolerance. But if you're looking to put new money to work over the next six months, these "more inflation, please" sectors look like a good bet.
This is what Wall Street is betting on today...
By now, you've likely seen something about the "Power Gauge"... We've been talking about this one-of-a-kind system over the past couple of weeks here in the Digest.
It's the creation of Marc Chaikin, founder of our newest corporate affiliate Chaikin Analytics. His platform can give folks on Main Street insight into what investors on Wall Street are buying.
Here's a real-world example... When we looked at Marc's platform today, the results aligned with everything that Ben and Drew were talking about in their DailyWealth Trader issue.
One feature of the Power Gauge is a constantly updated top 10 list of the highest-rated equity exchange-traded funds ("ETFs") in the U.S. As of today, six of the 10 most "bullish" ETFs – according to Marc's proprietary ratings – are related to the energy space.
And we're not talking about baskets of stocks that include electric-car maker Tesla (TSLA). Two of the top-ranked ETFs today come from the "dirty" world of oil...
In particular, Marc's "Chaikin Money Flow" indicator – part of every Bloomberg Terminal in the world – measures the accumulation or distribution of shares of a specific stock over a specific period.
In other words, it shows what institutional investors – who frequently buy or sell the same stock over set periods of time – are doing. This behavior can have a disproportionate effect on future price movement... And Marc's system can track that behavior.
For example, when investing legend Warren Buffett was consistently buying shares of Coca-Cola (KO) in the 1980s... the Chaikin Money Flow indicator saw it before anyone else.
Today, it's showing the energy sector – and oil stocks, in particular – in the "green" zone.
Separately, we also see a short-term tailwind for energy stocks – higher oil prices...
Some people might feel like oil is one of the last industries truly sensitive to traditional supply-and-demand pressures. But it's probably just the most visible one... since most Americans use it.
You'll remember last spring when the price of oil went to negative-$37 per barrel, as demand cratered amid the initial outbreak of the COVID-19 pandemic... We said at the time that the industry seemed to be the only one not being backstopped by the Fed.
Today, demand for oil is on the rebound while the OPEC cartel – which controls global supply – is keeping the amount of product tight and helping push prices to new highs. As Stansberry NewsWire analyst Daniel Smoot reported yesterday...
Ahead of the oil cartel OPEC+'s production policy meeting, the organization projected that the oil supply will tighten in the second half of the year. OPEC+ noted that the pandemic-induced global glut has almost dissipated.
The cartel added that this should continue, even with the expected introduction of an additional 2 million barrels per day ("bpd") from Iran, as demand from the U.S. has recently driven a consumption rebound.
The price of West Texas Intermediate crude oil – the U.S. benchmark – is up 12% over the past three months...
This is exactly the type of movement that Chris Igou, an analyst for our colleague Dr. Steve Sjuggerud's True Wealth team, suggested would happen back in our February 16 Digest.
Chris wrote then that oil prices had just gotten back above pre-pandemic levels and were (and are) going to head higher. From that Digest...
COVID-19 is not a permanent hit to the oil market. The short-term headwinds for demand are going away in the coming months and years...
The world will once again travel for work, take vacations, and stay in hotels. Ultimately, that means oil use should hit new highs again within a few years... if not sooner.
Estimates show that total oil demand will likely hit nearly 110 million bpd by 2035. That's more than a double-digit percentage jump from today's level. And it means another 15 years without oil demand falling off.
Even more, OPEC continues to limit daily oil production to help reduce supply on the market. Saudi Arabia has promised to cut 1 million bpd in both February and March.
With demand rising and supply shrinking, it's creating a much better scenario for higher oil prices over the short term. That brings us to another recent piece of research from our team...
Last month, our Stansberry's Investment Advisory team recommended investing in an oil company...
If you're a subscriber of our flagship newsletter and missed it, be sure to check out this must-read issue from analyst Alan Gula.
In it, Alan lays out the case for owning shares of a Canada-based company that represents a capital-efficient way for investors to gain exposure to the energy sector... "which is still recovering from a historic bust," as he wrote.
This company took advantage of pandemic-depressed energy prices and made some smart acquisitions in our favorite oil region in Texas. Plus, it has a business structure that we love, particularly in an inflationary environment...
You see, this company is set up to make around 80% of its 2021 revenue from "royalties" – primarily on crude oil and natural gas. Royalty companies own the "mineral rights" to what's in the ground without having to extract or transport it.
It's a great setup, as Alan wrote...
Mineral-rights owners can lease their properties to oil- and gas-exploration and production (E&P) companies. These drilling companies then pay the mineral-rights owner a share of oil and gas production revenue – called a royalty.
Longtime readers know we think royalty businesses, across many industries, are some of the most capital-efficient businesses that investors can find because of their bare-bones cost and steady revenue structure.
What's more, according to our Investment Advisory team, this company's capital efficiency, low leverage, and cheap valuation will put it near the top of our Global Oil Value Monitor when its next scheduled update comes out in July. You'll want to stay tuned for that. We're revamping this monitor a bit to make it even better and more intuitive for subscribers. (This is one of the features available to the publication's lifetime subscribers in the "Extra Features" section of the product page.)
So there you go...
This is a great example of how anyone can find a good investment opportunity worth considering...
We started with the broad view of the world – inflation and interest rates, in this case... continued with evidence that Wall Street is buying energy stocks today and why... and then, to take advantage of the trend, drilled down to one company that our research team loves.
In the end, it pays to follow the research, as you can do across our publishing universe...
Follow Ben and Drew's work each day here... Learn more about Marc's Power Gauge system in his latest presentation... And as always, don't miss our actionable investment ideas every month in the Investment Advisory. Give our flagship publication a risk-free try today.
Why This NFL Player Wants His Entire Salary in Bitcoin
NFL tight end Sean Culkin says he realized while studying economics that bitcoin had a big place in the future. It's a realization primed by his father, who was bullish on gold...
In this interview with our editor-at-large Daniela Cambone, Culkin – who made headlines in April by saying that he was converting his entire $920,000 salary for 2021 into bitcoin – shares his fascinating story...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
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In today's mailbag, some thoughts on yesterday's Digest about inflation (and cicadas)... and more feedback on Dan's latest Friday Digest and your experiences with cryptocurrencies. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Sometimes I wonder about the supposed smart people's train of thought... (referencing some of Fed's latest comments)
"For some time, the Fed has been preaching a long recovery for the labor market. Central bank governors have said they want to ensure a lasting economic recovery. So, it wants to see the job market recover to pre-pandemic levels.
"[Now they're saying] the tight labor market is forcing some businesses to raise wages to entice workers, while others are remaining closed because they can't find anyone to work.
"My thoughts... If we quit paying people bonus money to stay home, would we not have a few more people 'taking' jobs?
"Wasn't the extra money that was above and beyond regular unemployment supposedly targeted to lower income workers? Maybe they are the same workers we are now missing from the ranks for these jobs?
"Now oddly enough we have to raise those wages just to get those jobs filled.
"(Maybe they needed a little raise, but also if they wanted more earnings maybe they need to take another job to meet their needs or quit spending beyond their paycheck.)
"I better get off my soap box for now and tend to my business." – Paid-up subscriber Tony C.
"I'm sure you love it when people correct your facts, like telling Dan Ferris it isn't 'gabish.' But the cicadas have at least 15 different broods and they come out in different years, so it isn't like they're only around every 17 years.
"I grew up in south central PA not far from your offices and now I live in the dead center of the country, and I can attest that in both places the cicadas are present just about every summer. In this sense, they are still like inflation – ever present. This website explains." – Paid-up subscriber R.M.
Corey McLaughlin comment: You had me at "gabish"... (For those unfamiliar with the reference, click here to catch up on the backstory.)
Points taken...
The cicadas in general, as you said, are definitely like inflation, since they're always "there" in the sense that they come out in different parts of the country in different years. So yes, they're always around.
I probably could've been a little clearer, but I was talking only about "Brood X" here in Maryland, southern Pennsylvania, northern Virginia, and a little bit of West Virginia...
Gabish?
"Dear Dan, I really enjoy your weekly Stansberry Digest publications. It's my Saturday morning must read. Your writing style is both entertaining and educational. Looking forward to future issues." – Paid-up subscriber Alfred A.
"Nobody but nobody will ever get a sliver of my bitcoin. I buy every week from my paycheck a percentage. I buy it going down, I buy it going up. Sometime in the future, I will meet it somewhere in the middle. Along the way, it pays me my 5%-6% rewards. At some point in the future, the rewards will pay for my coin. I will have a free trade. My family will then enjoy a heritage." – Paid-up subscriber Terry P.
"I guess there is somewhat of a panic about bitcoin and the future of crypto... Regardless, the asymmetric bet on bitcoin/crypto remains intact. That is, risking a little bit of an investment portfolio in the crypto space could potentially generate tremendous gains.
"Since everyone is different, that 'little bit' may not provide sufficient guidance for some investors. Since I can only speak for myself, this is what I have done lately...
"When bitcoin went to $64K and Ethereum surpassed the $4K mark, that 'little bit' amounted to 11% of my total investment portfolio. Such high level valuation felt uncomfortable. So, I sat and watched bitcoin drop to the $30K level and Ethereum hit the $1.8K mark. Again, I sat some more.
"Within a day or two, bitcoin was back up to around $38K and Ethereum had recovered to the $2.6K level. On that day, I sold enough bitcoin and Ethereum to bring my stake down to 6% of my total investment portfolio. So, I took some money off the table, pared back to a more comfortable investment level, and the 'little bit' is fully financed by house money." – Paid-up subscriber Frank S.
"Your analysis is exactly mine. I've been buying bits of bitcoin and Ethereum for several years now, basically in a pseudo-dollar-cost-averaging method. So of course it hit a pretty amazing number a few months ago. And it's now down a lot from that high, but still up a lot. I haven't sold any, and I'm still planning to buy it slowly, although the bits I'm buying will now be considerably smaller fractions of a bitcoin (due to the appreciation that is), but I'm still going to do it. I might even increase the amounts in dollar terms. I'm especially bullish long term on Ethereum, with the 'smart contract' capability it enables.
"Time will tell.
"Another comment about some recent assertions you made on COVID... you're off base. It was (and is) a very dangerous disease. Saying it is '99% survivable' is true, and it's equivalent to a 1% fatality rate (it's actually been stable at 1.7% until very recently, but that might have been inflated by incomplete testing).
"But that's not the worst of it. What worries me is the impact over the next 50 years as the 'asymptomatic' folks get impacted by the damage COVID has done to heart, kidneys, and brain. The 'symptoms' we've been measuring it by are the respiratory symptoms, which are decidedly the most obvious, but not potentially the most dangerous.
"In June 2020, a study of 'asymptomatic' football players who had tested positive showed 30% with signs of [myocarditis, inflammation of the heart].[1] That has long-term implications that we aren't going to see overtly for years or decades." – Paid-up subscriber Ken L.
"'In the enterprise of risk-taking, never be fearful of being wrong. If you're fearful of being wrong, you're approaching it the wrong way.'
"Dan's quote from Friday's Digest seems akin to a sporting truism I've observed throughout my life... The top athletes in every sport love to win more than they hate to lose. They don't 'fear' losing and so, in the critical moments at the end of the game, their performance soars rather than chokes. Most of us are the opposite." – Paid-up subscriber Mark P.
All the best,
Corey McLaughlin
Baltimore, Maryland
June 2, 2021