The Markets - Part 2

What I'm personally buying and not buying and the reasons

continued from last week

Part 2

This week, we’ll really get into it - thoughts and stock picks in mining, gas, coal, nuclear, infrastructure, utilities, consumer staples, foreign stock index ETFs, crypto, and stocks I wouldn’t touch with a 10 foot pole.

A reminder: “This is not investment advice; If you follow my ideas and lose your shirt, don’t even think about suing me, because you wouldn’t get anything, because I would have lost my shirt too. This is just what I would do and what I recommend to my children, based on my own personal experience, unprofessional opinions and philosophy.”

Be cautious – as I said last week..

In normal times, commodities and real estate have always been considered great inflation hedges. However, commodity prices are also volatile, sensitive to economic cycles and also fluctuations in currency values, so caution and timing are important. Gold went down from a high of $2780 in March 1980 to a low of $476 in March of 2001. That was a 21 year decline! Not fun. Real estate went through a rare crash in 2008. So even a good company is no bargain if you buy when it’s too high. One simple measure of value is a P/E (price/earnings ratio) of 10 to 15 or less. There is some talk about a recession, and that the markets could go down another 10 or 20%. Don’t bet the farm - keep your powder dry - we might see some real bargains. I’ve been buying when I see big down days, and plan on holding through any recession, because I’m very confident about the long run.

7 Day background - things have been happening very fast: Go to my home page (alchristie.substack.com) and see ‘The Markets’, ‘More About the Daily Market yo-yo’, and ‘The Front Lines of the Battle of Wits’.

Mining

Metals and minerals prices can be volatile, so again, caution and timing are important – this is not the kind of investment to buy and just blindly hold on forever – but the situation today is very favorable. Rare earth minerals and lithium, for example are needed for security – we need to mine them here; not be dependent on importing them from China. The great need for building new power transmission systems and updating worn out ones creates a huge demand for copper. The good news is that under the Trump administration, the former near ban on new mines will be removed. When it comes to moving a lot of earth around, I like Caterpillar (CAT) as a solid investment over the next 4 years at least. I like this company so much that I bought some even at a P/E of 15.

Gas

Natural gas is abundant because of fracking, and will be in great demand as new gas power plants start being built. But because the price of nat gas is volatile, I’m most interested in the gas pipeline companies. They charge the same regardless of the price of the gas itself. They could drop in the short term if we are in recession, because volumes in the pipelines would be lower. But the companies are solid, their pipelines aren’t going anywhere, even if we have a recession it probably won’t last long, and the future is bright. What’s especially nice for a retired guy like me is that they pay good dividends.

Energy Transfer (ET) is the biggest pipeline company in the US. It trades like a stock, but it’s a partnership. So the returns are a mix – some dividends, some capital gains, some distributions to partners. One of the advantages is that the capital gains and dividends are taxed as long term capital gains, unlike interest which is fully taxed like ordinary income.

Coal

Coal was hated by the environmentalists because they actually believe the nonsense about CO2 emissions being bad for us. Coal plants also have other emissions but they are much cleaner than they used to be. The IRA (Inflation Reduction Act) of 2022 has caused the closing of many coal plants, but the tide has changed since the election. It is now recognized that coal is the most reliable of all power plants (except nuclear) because gas power plants occasionally get hit by pipeline valve failures or problems caused by extremely low temps. A 2 month supply of coal can be stockpiled right at the plant. I picked CNR (Core Natural Resources) as a good investment in coal.

I’ve written about coal before …

And

Nuclear

Like coal, nuclear power is making a comeback. When you look at the long term, there’s no comparison between short-lived, inefficient, on-again off-again weather dependent solar and wind farms and the 100 year lifetime of a full scale nuclear power plant. The problem is that it costs a lot of money up front to build, and at least 5 years (until now, government over-regulation has made it over 10 years). So it’s probably a little early to invest in nuclear power opportunities. I have bought some URNM, an ETF that invests in nuclear power-oriented companies, as a long term pick.

Infrastructure

Our infrastructure – roads and bridges, for example, are in desperate need of maintenance and repair.

CAT (Caterpillar) and HDMLY (Heidelberg Materials, (a German concrete company) are my investments in infrastructure.

Utilities

Utilities are a traditional hedge against inflation. They are slow growth, but have a guaranteed income and reliable dividends, so recession resistant. AEP (American Electric Power)

Consumer staples

KR (Kroger) - we all need to eat no matter what the economy is doing.

Foreign stock index ETFs - it’s not a bad idea to diversify with foreign stocks. President Trump has said he’d like a weaker dollar because that would improve our trade balances. If the dollar is weaker, foreign currencies will be stronger.

PIN (India), VNM (Vietnam), EIS (Israel), and EWJV (Japan)

Crypto

You may be surprised I’m including anything on crypto at a time when I’m interested in solid dividend payers on sale because of the market correction.

I have some Bitcoin and think everyone should consider buying some. It still isn’t practical as a currency because of slowness and high transaction costs, although ‘lightning’ can speed things up. As for considering it a store of value like gold, I’m not fully convinced. Gold is real, with real uses, and a record of value since biblical times. Recent market activity is confirming this.

Bitcoin also has to keep going up compared to the dollar because its software guarantees no inflation of quantity. Plus there is a unique advantage to bitcoin, since it’s digital - in times of extreme turmoil, like a revolution, it’s hard to flee a country and get across the border with physical gold. Crypto is not a problem. We saw this unfold in Venezuela a few years ago.

There are two risks to be aware of - it may go out of favor - nothing goes up if nobody wants it - and there is a possibility that AI might figure out how to hack it - in which it would probably go to zero.

Stocks I wouldn’t touch with a 10 foot pole

EVs, wind farms, solar farms, battery energy storage systems, biomass, biodiesel, fusion and hydrogen projects. Private rooftop solar isn’t as bad as commercial solar farms, but I still don’t want any in my portfolio.

Even Tesla, the one US EV that posts a profit, is questionable. I’m not sure any of these companies will be around in 10 years. Hybrid electric might find a permanent niche. The federal subsidies and rebates will soon be gone. That leaves states’ subsidies, which may also start disappearing when they wake up to the fact that CO2 emissions aren’t even a problem. But some enthusiasts are still not facing facts. Ford continues to dump billions into their EV department. They lose more every year, even with all the government incentives. Last year they lost $5.1 Billion on EVs, and are they wising up? No. This year they’re pouring good money after bad, projecting a loss of $5.5 Billion.

These are the kinds of companies I wouldn’t touch with a 10 foot pole today. At my age, I need capital preservation and dividend income more than growth. If you’re young, you will probably look at things differently.

Summary

Don’t forget - I’m not an investment adviser. Besides, things can change, and have been changing very quickly. This is just what I’m personally doing with my own investments and a glimpse of what my thinking is.

So to sum up, I’m not doing anything risky right now -too much uncertainty - but I’m optimistic longer term.