Q&A on the Biggest Unstoppable Trends (and More)

Keith Fitz-Gerald Dec 23, 2014
17 

Holiday markets tend to slow up a bit, and this week is proving to be no exception, so I thought we’d change things up a bit by diving into the mailbag and tackling a few of the fabulous questions you’ve asked recently.

Of course, as is our way around here, I’ll follow each answer with some actionable investment advice you can put to work right now as well as specific recommendations for your consideration.

Let’s get rolling with three questions related to our “Unstoppable Global Trends” that are very much in the news right now… Energy, Technology, and Warfare.

Q: Will oil ever come back and is now the time to buy the big oil refiners? ~ Hank T.

A: Yes, global demand will ensure that. The only question is when, and that depends entirely on how much longer the Saudis want to play games. Worldwide demand is growing tremendously, and energy itself is going to see some $48 trillion worth of spending by 2035, according to the IEA and other estimates. (I think that figure is low, by the way, for reasons I’ll cover in an upcoming column.)

But I don’t believe that the big oil refiners are the way to go.

The smarter play would be going for the integrated midstream producers, explorers, and pipelines like Apache Corp. (NYSE:APE) or Northern Oil & Gas Inc.  (NYSEMKT:NOG).The former has a really clean balance sheet and will likely to be a big beneficiary of the consolidation that’s now under way because of cheap oil, while the latter has hedged contracts at $90/barrel even though oil has now dropped to $55/barrel.

If you are really up for an adventure and potentially some dynamite returns consider the Open Joint Stock Company Gazprom (OTC:OGZPY). It’s the world’s largest natural gas extractor, has a lock on Europe, and is trading at perhaps the world’s smallest multiple of 1.73. Any shift going from terrible to less bad with regard to Putin is going to send this stock soaring.

Now an update on our War, Terrorism & Ugliness stock…

Q: Whats happening with Kratos (KTOS)? I took a 22% loss and decided to go elsewhere. Did I exit prematurely? ~ Miles E.

While many investors seem to have it out for the stock based on a Q3 earnings miss, I have a different opinion.

For starters, the miss was due to problems in the contracting process and competitors protesting the fact that Kratos was winning so many contracts. Not problems stemming from Kratos itself.

Second, the company continues to win valuable new contracts, especially in the drone and aerial warfare arena. Recent examples include the Helicopter Aircrew Training contract valued at $13 million and the Unmanned Target System and Technical Support contract from the AFSAT valued at $72.3 million.

And, third, the company is uniquely in touch with modern warfare systems with its emphasis on standoff and systems integration. That makes it ripe for a takeover by a larger defense contractor and probably at a substantial premium.

I believe this is a $10 stock next year.

Next up, Diana’s wondering about really interesting subset of our Technology trend.

Q: How do I invest in the Internet of Things I keep hearing about? ~ Diana R.

A: The Internet of Things (IoT) (also called “Machine-to-Machine Communications”) is a term referring to the very near future where almost everything and everyone is interconnected.

There are thousands of ways to play that emerging reality. Unfortunately, most of them are not going to live up to the hype. So, begin by shifting your thinking.

The Internet of Things is not strictly about new gee-whiz technology, like most people think. That means that buying things like internet thermostats, smartwatch makers, or fitness trackers is NOT the way to go.

At its core, the Internet of Things is really about the quantum leap in productivity that will ultimately drive our economy for the next 100 years. That suggests what you want to look for is the underlying layer associated with sensors and data – the less visible stuff.

Right now chip makers like Qualcomm Inc. (NasdaqGS:QCOM) expect 8-10% growth a year and are comparatively cheap given the potential. Another company worth considering is ARM Holdings plc (NasdaqGS:AMRH) because it licenses 95% of the architecture powering the world’s smartphone processors.

If I were to draw a parallel to the Internet boom as I am often asked to do… the Internet of Things strikes me as being at the same stage that the Internet itself was at during the early 1990s, which means now is the time to make your move if you want a piece of the action. 

Now let’s move on to three of the most commonly asked general investing questions being asked at the moment.

Q: Gold buy or sell? ~ Steve K.

A: I think you’d be very hard pressed to go wrong buying a little gold at these levels, even if the price declines further, if you’re buying as a part of an overall investing plan like the 50-40-10 strategy that I advocate in our sister publication, the Money Map Report.

That’s because having 3-5% of the shiny stuff in your portfolio 1) dampens overall volatility so you sleep better at night, and 2) helps to preserve value and 3) can help mitigate the negative effect that the inevitable rises in interest rates will have on your bond investments.

But if you’re buying gold as a speculative move (which I do NOT advocate), keep in mind that valuations are currently high and adjust your expectations accordingly. Know that there is considerable debate about the commodity super-cycle coming to an unceremonious halt.

How you really buy depends on your personal preference. Many investors like GLD, while others prefer bullion, coins, or even the Perth Mint Certificates from my friends over at Asset Strategies International.

Q: When exactly do you think rates are going to rise? I’m concerned about earning something… anything on my cash. ~ Helen M.

A: While I believe that the Fed will try to raise interest rates in 2015, they can’t help but fall flat on their printing presses. Institutional demand for safety and Treasuries is still exceptionally high so there’s not a lot of excess paper available to buy – and that keeps rates lower than they would be otherwise.

At the same time, the populations in Europe, the U.S., and in particular Japan are aging quickly. Research shows that older populations tend to keep rates low because the demand for stability is a stronger input than the demand for growth.

Short-term cash management options like U.S. Global Investors Near-Term Tax-Free Fund (NEARX) are worth exploring because they offer a mix of safety and slightly higher returns, should you want to stash your cash and can stand just a skosh more risk.

Q: I can’t shake the feeling that the stock market is one big bubble getting ready to pop. What do you think? ~ Charlie S.

A: I share your concern, but that doesn’t mean we should abandon our pursuit of profits. Not everything is over-priced. Further, if you’re lined up with the trillion-dollar trends, short-term noise is, well, short-lived.

Capital is a creative force and constantly expanding. Therefore, even though stocks are trading at about 75%-90% of their historical price range over the last 100 years, central banks still continue to pour money in, so the model can be far more sustainable than people think. You want to be on board or you’ll risk getting left behind… albeit with all the proper risk management in place. (That’s how you build your fortune the Total Wealth way.)

Whew! That about does it for today.

If you’ve got a question for me that I didn’t get to today, please leave it in the comments below or email it to my editors at customerservice@totalwealthresearch.com. I’d love to hear from you.

Happy holidays, and thanks for being part of the Total Wealth family. I am thrilled you’re here.

Best regards until next time,

Keith Fitz-Gerald

17 Responses to Q&A on the Biggest Unstoppable Trends (and More)

  1. Richard Malmed says:

    What are the current numbers on solar energy with or without government subsidy? With oil so low, is it dead until prices of oil return or is there some legitimate breakthrough in soalr panel efficiency?

    • Keith says:

      Excellent question Richard.

      My take is that the technology has already been commoditized so it’s going to be very difficult to make money with solar manufacturers even if there is an efficiency breakthrough. But start talking batteries or inter connectivity and you’re into something else entirely with real potential.

      Best regards and thanks for being part of the Family, Keith 🙂

  2. H. Craig Bradley says:

    Keith,

    I recognize the speculative potential of Gazprom. One question: Why are there so many “Gazproms” listed on our markets? Its very confusing. I read one article in Barron’s that said “Gazprom” went up a whopping 16% in ONE day last week. If so, its obviously a very volatile stock. Sure was not the joint one ( Russian Govt. + “Private” Comp. ? ) you listed ( OGZPY ). I actually seriously thought about buying some last Summer when it was $8.50/share and a tiny P/E Ratio.

    Sure glad I did not buy any at that price . Market timing again. I think its dividend yield may not be a given either. The payout could be lowered any time Putin Wants. So, why buy unless you are looking for a fast “pop” ? Otherwise, you are in for a few years wait for global energy supply/demand to straighten-out. Its all fear right now, so until the tide turns, Energy is not in a bull market anymore. Neither is gold, for that matter.

    I shy away from “parlor bets” that can only be considered the next thing to day-trading. If Gazprom goes up 16% in a day, I would sell and keep the gains (trailing stop). Pretty good for a day or a month position. I just don’t like doing that ( trading vs. investing). In fact, I can’t even keep up with a stock that moves that fast in just one or two days.

    • Keith says:

      Terrific question Craig.

      What you’re seeing is the various listings on a variety of exchanges as well as various subsidiaries and ADRs. OGZPY is the one you want if you’re a U.S. investor, for example.

      As for the percentage moves, I agree. They can be disconcerting if you’re not prepared to deal with them. That said, I think Gazprom is so cheap that a longer term perspective may be in order. That way the short term noise is largely irrelevant.

      Best regards and thanks for being part of the Family, Keith 🙂

  3. barry says:

    Hi & happy holidays

    Re KTOS, what I dont understand is

    I Original Rec was to

    Action to Take: Buy Kratos Defense & Security Solutions Inc. (NasdaqGS:KTOS) at market and set a 25% trailing stop to protect your capital and harvest gains along the way.

    It blew past the trailing stoip long ago, I can even rebuy and wont be a wash sale, But isnt one supposed toi stick to the rules

    Please clarify & yes they keep getting contracts, 2 in 2 days

    Barry

    • Regina says:

      Happy Holidays all.

      Just a few notes. Barry, Trailing stops rise as the price rises so you are always 25% [or whatever] below the highest price that the stock reached. As it drops back down, you would be a seller. That’s how I initially read your email (‘blew past’ meant going up to me). Now if your question is whether to buy back in at these rates, that question is also mine. Keith, are we still looking to get into this position at this time? It seems from your answer to Miles above that you do think this stock is a good speculation still.

      Responding to Helen’s desire to make anything on her cash, can also recommend the EverBank accounts, both the regular Yield checking/Money Market account and they also have a way to buy other currencies and/or gold/silver bullion in their World accounts. Just a thought since I know you’ve recommended them in the past.

      Re the internet of things, what is your take on NXP Semiconductors — especially since they seem to be behind a lot of the near-field communications that Apple Pay and the new iPhones use? They also seem to also be expanding their customer base.

      Best wishes to all and a Happy and Profitable New Year.
      Cheers.
      Regina

      • barry says:

        Hi Regina, Thnsk for the holiday greetings

        Actually, I bought the day of thge recommendation 10/24/2014 @ $6.547 it went staright up then straight down after I think getrting a new earnings report or some news, yet the day it dived if memory serves me well, it still got 2 new contracts, and has getting succesful testflights of trageting drones and many vcried contracts since

        *** WHEN I SAID, blew past me, I meant after it went up & trailing stop followed it up asu note, as it went down it went far below the trailng stop of about 5.25 ( i meant blew past as going down way past my trailing stop ) & sold Via the traling stop being initialized on 11/11/2014 or so
        since then it hit a mid Dec Low of 4.25, and with more contarcts has risen toi bearly $ 5 again

        As its been past 31 days ince sold I can rebuy without initiating a wash loss

        As u and others appear to want to know, do we stick witrh the loss only or is the advice to rebuy again and intialize another 25 % trailing stop

        Barry

        • barry says:

          Kieth

          It would have ben great to see your positive bias when near its 52 week low, Yes I know one cant capture the exact bottom,

          But a timely update earlier than this for those u muist have known were already stopped out with an Action to Take: — notice would of been appreciated, — can u give something more concrete now as I was told by an editor once that Unless there is an Action to Take: With instructions notice , its not an officail recommendation for total wealth members

          Thanks ever so much

          Barry

      • Keith says:

        Hi guys.

        It’s fabulous to see you having a discussion. Helping each other goes a long way towards making Total Wealth a great place to be..and learn…and share…and, of course, profit whenever possible.

        Best regards and thanks for being part of the Family, Keith 🙂

        PS: Yes…I still believe KTOS has terrific opportunity. In fact, I believe it’s a $10 stock this time next year. Here’s to hoping my tea leaves are correct!

  4. Doug says:

    Question: Keith,
    A while back when the Fed was doing the taper I read that the tiny country of Belgium
    had been purchasing extremely large amounts of US Treasury Debt, essentially filling
    the shortfall that the taper was leaving. Are there any updates to this and who else is purchasing
    US debt since the taper ended ?

    Doug

  5. Michael Upper says:

    Keith

    Several weeks ago you thought Halliburton was a good buy at about $40/share. You thought the entry point would not be seen again for a long time. The stock had a few bad days based on some bad news but to me the basics of the investment and your bases of expressing your optimism seem to still be true.

    Where are you on this company?

    Thanks,

    Michael Upper

    Are you still

    • Keith says:

      Hello Michael.

      My take is that the oil pricing problems that are pressuring the company are a short term event. Therefore, I beleive HAL is still a great buy at these prices even if oil goes lower from here. CEO Martin Craighead knows what he’s doing.

      Best regards and thanks for being part of the Family, Keith 🙂

      • Barry says:

        Hi Kieth,

        Isnt it cheaper to buy BHI instead of HAL based on the aquisition terms that HAL & BHI have agreed on as below

        Current Prices
        BHI is 56.34

        HAL is 39.70

        THe Deal
        BHI investors will receive 1.12 Halliburton shares and $19 in cash when the deal closes

        HAL Price times 1.12 plus $19 = BHI value

        so HAL @ 39.70 x 1.12 = 44.46 +19 = 63.46 — thus in total value when u include the cash BHI shareholders get 63.46 total value that is 12.64 % higher than current BHI price

        Have a happy holiday

        Barry

      • Michael Upper says:

        Keith:

        These responses from you mean a lot to many of us! Not many of your colleagues and/or competitors are willing to spend the time and effort to “keep us in the loop”.

        Thanks and Happy New Year to you and your family!!

        Michael Upper

  6. H. Craig Bradley says:

    Keith:

    A potentially important “Freudian Slip” about the true value of gold, as established between various central banks themselves. The FED values gold at $42.22/ounce, not the current spot price of $1,186/ounce. REF:
    http://www.zerohedge.com/news/2014-12-29/gold-held-ny-fed-vault-drops-lowest-21st-century-after-biggest-monthly-withdrawal-20

    It suggests there is price manipulation all around concerning gold. Its not just volatility and such. What do you make of it? Something is amiss.

  7. KEITH says:

    You’ve just advised an older reader ( like me) that he should not be in stocks if he only has a 1-3 yr window to retirement. What would you have him ( me) do with our money and current stock/bond investments.? Especially when you might have a dim view of what’s may well happen to monetary/currency system.

  8. Hank says:

    Uranium Price is Low, yet it gives the cheapest Power? Any favourites there?

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