Q&A on the Biggest Unstoppable Trends (and More)
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: What‘s 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 firstname.lastname@example.org. 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,