June Idea of the Month: Drugs and Money

By Travis Johnson, Stock Gumshoe, June 14, 2013

I always have a few ideas floating around in my head and rising to fight for prominence when I’m working up to our monthly “Idea of the Month” piece for you, and this month is no different.

When it comes to taking risks and making long-term speculative investments my temptation has been to look to frontier markets like Mongolia and sub-Saharan Africa, I’ve got a few LEAP call options on Turquoise Hill (TRQ) on the assumption that Mongolia and the miners will reach a peaceful coexistence once money’s flowing from the Oyu Tolgoi mine, and I have a small position in Mongolia Growth Group (YAK.V, MNGGF), an “on the ground management” play in a potential real estate boomtown, despite the fact that their real estate may be sharply overvalued at the moment.

I also recently put a few dollars into the Africa Opportunity Fund closed-end fund (AOF.L, AROFF) in London (which is illiquid, long-term, and carries high expenses … but is, at least, diversified and at a discount to NAV), and here at home I’ve been adding to my positions in those TARP warrants (PNC-WT and BPFHW) — PNC, in particular, may turn out to be a huge winner over time if their core business gets profitable enough (interest margins improve) that they can sell more of their hugely valuable stake in Blackrock (BLK), the world’s largest asset management company. But all of those are quite speculative, with more likelihood of a huge loss than you get with most stocks.

For real money, it’s always safer to stick with real earnings, real value, real dividends, or real and foreseeable growth. That keeps me coming back to Intel (INTC), which I own and have sold covered calls on for a bit more income, Apple (AAPL), which is hotly debated no matter what you say or when you say it (and Dan Ferris at Extreme Value added it to his “World Dominators” list this week), Seadrill (SDRL) for the yield-happy, and Berkshire Hathaway (BRK-B) and Markel (MKL) for the patient, among others — but other than Apple, I don’t think any of those are brow-beatingly cheap at the moment. Other recent ideas that I’ve opened up relatively small positions in (when I say “small” I mean 1% or less of my personal portfolio) like Xerox (XRX), MFC Industrial (MIL), Rosetta Stone (RST), are pretty quiet as I wait for ...

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