Commodity HQ: A Deeper Look At Australia's Commodity Industry

One of the wealthiest countries in the world, and the richest in Asia in GDP per capita terms, Australia is an unusual mix of a modern market economy with a large commodities-driven export infrastructure. Despite the influx of wealth created by its natural resources, Australia has never been particularly successful in developing a large manufacturing base. What’s more, the country has run large and persistent current account deficits for over a half-century. Nevertheless, Australia has very significant and efficient mining and agricultural sectors, and ranks highly in the world in many categories.

To read more, please click the link:
http://commodityhq.com/2012/a-deeper-look-at-australias-commodity-industry/

Commodity HQ: A Deeper Look At South Africa's Commodity Industry

South Africa is the largest economy of Africa, and it accounts for almost one-quarter of the continent’s GDP. The path to this status has not been an easy one, however, as the country languished under sanctions in the 1980s tied to the government’s apartheid policies. While South Africa has a relatively well-developed manufacturing sector by the standards of African economies (and developing economies in general), a meaningful percentage of the country’s economy still revolves around commodities.

Please follow this link to read more:
http://commodityhq.com/2012/a-deeper-look-at-south-africas-commodity-industry/

Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

Please read more here:
http://commodityhq.com/2012/a-deeper-look-at-chinas-commodity-industry/

Heavy Metal

I'm wondering if this little mini-meltdown in commodity names has any real legs to it. One of my bigger regrets from 2010 is that I couldn't manage to part with any of my current holdings and make room for some quality "stuff" companies. If we could get a nice little correction in materials stocks, though, I'd be happy to do some cherry-picking. After all, I do happen to believe that there is a general link that goes something like "higher global growth = higher commodity prices" - at least for the next few years, at any rate, and before a lot of major new capacity/supply comes on line.

I am not all that interested in gold at this point. There are just too many nuts still beating the "you'll all be sorry when the dollar goes to zero" drum for me to be comfortable with it. I prefer to swim alone and there are just too many other people in the gold pool these days.

Silver and platinum are different stories, though, and I might be interested in Silver Wheaton (NYSE: SLW) or Impala (Nasdaq: IMPUY). I need to do more work on SLW, particularly with respect to what sort of future silver price is baked into the stock today. As for Impala ... well, this may be a name where I just have to swallow hard and hope for the best.

A lot of Impala's future value is predicated on resources in Zimbabwe and that looks like a dangerous bet to me. Zimbabwe's dictator Robert Mugabe (who is theoretically part of a "power sharing" arrangement so not technically a dictator) is a pretty awful fellow even by the low standards of Africa and I don't see how any investor can ever be completely comfortable with a thesis that rests on Mugabe respecting law and honoring contracts. Then again, maybe Mugabe would think twice about messing with a South African company; alienating the West is one thing as they are not likely to interfere directly in Zimbabwe's affairs. South Africa can, and given the right provocation, probably would.

Beyond this, though, there is a short list of names I'm following closely.

Freeport-McMoRan (NYSE: FCX) - owner of one of the best mines in the world, and a major player in copper and gold (as well as molybdenum).

OM Group (NYSE: OMG) - traditionally a player in cobalt, but trying to move into more advanced materials as well.

Vale (Nasdaq: VALE) - a huge Brazilian mining company with interests in iron ore, nickel, potash, and many other resources. I'm not sure any company in the world has a more aggressive expansion plan over the next five years than Vale.

Xstrata (XTA.L) - a global miner of copper, coal, nickel, lead, and alloys.

Thompson Creek (NYSE: TC) - long a player in molybdenum, the company is expanding into gold and copper.

Teck Resources (NYSE: TCK) - met coal, copper, zinc - Teck is leveraged to some of the best commodities for ongoing industrial growth in the developing world.

These are the major names I'm circling right now and hoping that the stocks fall to me. I'm also looking at a host of junior miners in a variety of metals (gold, zinc, potash, etc), but this post is already running on the longish side. When I come up with some actionable ideas there, I'll write a separate post.

OM Group is cheap enough to interest me today and Freeport McMoRan is oh-so-close. I'd need to see about a 10% pullback in the other names to get really excited, though, and maybe actually a bit more with Thompson Creek. Of course, trying to really get a firm sense of fair value on these companies is almost fatuous - I just generally try to pay less than 7x forward EBITDA and pay attention to the underlying commodity charts (as well as the growth in emerging economies and general investor sentiment). After all, why waste my time trying to be precisely wrong instead of vaguely right?

So maybe I get lucky and get to add some quality materials names at attractive prices. Time will tell...

5 Unusual Assets That May Outpeform The Market

In the never-ending attempt to beat the market, some investors will leave the markets altogether to find outperforming investment ideas. These strategies range from the brilliant to the bizarre, and they are not necessarily the most accessible or liquid ideas. Still, for investors who want to look beyond stocks, bonds and mutual funds for portfolio growth, there are some unconventional ideas worth considering. (For further reading, read Alternative Assets For Average 

"Invest" in your Fridge? 
Much has been written over the past couple of years about how people could have beaten the market if they had simply bought various pantry or freezer staples and hung on for a while. To a point this is certainly true - the price of butter and bacon has absolutely gone up in the last year or so. But are these really investments? It is not as though you can buy $10,000 worth of butter, hold it in your freezer, and then sell it later. At best, it is a hedge against future commodity price inflation, though one that carries a risk of spoilage.

No Wine Before Its Time
In contrast, wine actually offers some investment potential. It is possible for people to buy bottles, cellar them properly, and then sell them at a higher price down the line. It is difficult to find properly audited performance reports on wine as an investment, but there is strong anecdotal evidence that investments in top first-growth vintages have done very well for the past decade-plus. To participate, an investor will have to educate themselves and be savvy about their purchases; buying wine at the local wine store isn't going to get the job done. Rather, prospective investors will need to investigate auctions and so-called "wine futures" to really benefit from this opportunity.


Please follow this link for the full piece:
http://financialedge.investopedia.com/financial-edge/1210/5-Unusual-Assets-That-Might-Outperform-The-Market.aspx

Ode to Joy Global

It is practically an investing meme now that investors should focus on the "pick and shovel" plays for major investment themes. I suppose you can take that advice very literally in the case of Joy Global (Nasdaq:JOYG), as this leading mining equipment company is very much a pick and shovel play on ongoing theme of global commodity exploitation.


The Quarter That WasAlthough Joy Global did not have a superb quarter at first glance, the context is important. Revenue was down 3% and operating income was down about 4%, but those results were significantly better than analysts expected. With equipment orders up about 43%, the backlog up by double-digits since the beginning of the year and a second straight quarter of a book-to-bill ratio above 1, there was no shortage of reasons to be pleased with the company's quarter.


For the complete article, please continue on to: 
http://stocks.investopedia.com/stock-analysis/2010/Ode-to-Joy-Global-JOYG-TCK-VALE-CNX-BUCY-IR-CAT0607.aspx

As China Goes, So Goes The World?

I really like writing columns like this one ... where I get to poke and prod at the so-called "conventional wisdom".  It's always interesting to see what turns up when you challenge some basic assumptions.
 
Conventional wisdom is that China now calls the tune. You cannot read a commodity industry report without the assumption that China is the prime mover, and plenty of U.S. commentators have warned of the potential dire effects of a Chinese property bubble on U.S. equity markets.

But is this really true? Let's investigate. 

Calling the Tune on Commodities?On first examination, it would seem that the commodity folks have a point. After all, China is the incremental demand variable for a huge number of commodities. If you compare the iShares China 25 Index ETF (NYSE:FXI) to the iPath Commodity Index (NYSE:DJP), you see a pretty close correlation between the performance of the Chinese stock market and the performance of a basket of commodities. (For more, see Investing In China)

The full column can be read at: http://stocks.investopedia.com/stock-analysis/2010/As-China-Goes-So-Goes-The-World-FXI-VALE-BHP-INTC-WFMI-PFE0601.aspx.

Monsanto - A Non-Commodity Commodity Play (MON, DD)

Here's the latest I've written on Monsanto for Investopedia.
http://community.investopedia.com/news/IA/2008/Monsanto---A-Non-Commodity-Commodity-Play-MON-DD1015.aspx

I've long loved this company and lamented the valuation. Boy howdy is this a volatile one!

Cheers
ss