by email@example.com | May 22, 2015 5:28 pm
Maybe the scariest thing I can tell you is, “I’m not selling everything.” The drumbeat in my head continues to be one of worry, I continue to be a little bit surprised at how high stocks are going, and how resilient stocks are. But thankfully, I haven’t been acting on those macro worries — because I had much the same worries a year ago and, well, here we are with the S&P 500 up about 15% since January of 2014, when I felt similarly concerned (my portfolio has trailed the S&P since then, largely because of commodity exposure — it’s up about 13% during that same period, just FYI).
There are many things that cause me to make mistakes, but each year I learn a little bit more about the importance of not “calling” the direction of the market. That’s a fool’s game, or a pundit’s game (after all, they have to say something when they’re on TV every day), it’s not going to do me any good as a long-term investor to guess whether I think the S&P 500 is 20% overvalued today, or 20% undervalued. It is what it is — and it will be what it will be. All I can do is continue to look for investment ideas (or speculations) that I think look compelling at whatever their current valuation is, baking in my hopefully rational expectations about that specific investment, and not invest so much in any one idea that my mistakes are truly painful.
That, really, sums up investing for me. Sure, I do lots of looking at my portfolio to see how the asset allocation lines up (and though they are also an advertising partner, I still find Personal Capital to be my favorite tool for this). I try to take into account the really important ways that diversification matters (not that you have to hold 50 or 100 stocks, but is half of your portfolio tied in some way to the price of oil being higher or lower? To market valuations of one particular sector? To one currency? That should be scary.) I try to control risk through position sizing and occasional trading around stocks I own large portions of, and I try, sometimes unsuccessfully, to have some discipline about adding to or shedding the tiny positions in my portfolio so I don’t spend too much time analyzing the stocks that don’t matter that much.
But mostly, I try not to make calls based on the direction of the market, because there’s no particular indication that I’m much of a forecaster — and the more I dabble in macro thinking, the more I make truly foolish decisions (Need a couple examples of actual stupidity that graced my head over the last five or six years? How about not buying Starbucks at $14? Gosh, that’s obviously a bargain for a dominant brand… but golly, things look so bleak in the world, mightn’t it go cheaper? And Disney, isn’t that a tremendous opportunity we’ve got because their stupid John Carter movie flop caused the briefest of dips in the share price? Well, sure, but US GDP is falling and China might be slowing down and the Eurozone is really a mess, better wait…. I’m sure I could come up with others, but it hurts my head.)
When I look over the markets today I see a few possible breakout growth opportunities that are sector specific — like the often-tempting uranium market (more on that in a moment), or the fast-dancing mistresses of biotech or technology, or even the tempting “mean reversion” speculations in the oil patch… but I don’t see any big areas where I think, “hey, the market is offering up a shocking bargain!”
So what does an intrepid Gumshoe do? Do you buy the stocks that you know are fantastic companies, even if they’re a little bit expensive? I do that sometimes — I ignored the PE ratio and bought Facebook because they are so dominant and growing so fast, and no one else knows what a billion people are thinking right this minute like Facebook does. And I tried the product and bought ad tech firm Criteo (CRTO) because it was growing fast and making a profit early on, when competitors didn’t show much sign of scalable cash flow from their competing technologies, and both of those buys have worked out well even though the stocks were and are expensive.
But I also keep raising my “buy up to” prices in my head for “hold almost forever” stocks like Berkshire Hathaway (BRK-B) and Markel (MKL), even as I remain frustrated that their share prices keep outpacing my valuation scenarios… and I keep holding off on buying interest-rate-sensitive stocks because I keep crossing my fingers and hoping that the Fed will cause a freak-out in dividend-focused stocks (including REITs)… is the 8% or so dip that most of those stocks took a month or two ago going to be all we get, or might I be a bit greedier? Ugh.
So as you can see, I remain conflicted. I do have some cash just sitting there waiting for a purpose, and I get itchy when I hold too much cash for too long — especially when that cash is losing money with zero interest rates, and I’d like to have that money working for me.
When the big picture stuff makes me nervous, I tend to find that I’m most comfortable looking for strange investments — what folks usually call “special situations,” like stocks with activist pressure, or spinoffs, or special dividends, or buyout targets, or other situations where it’s not likely to be the market or a big sector move that drives a stock up or down but something comfortingly discrete and company-specific, like when companies are better than they look because they’re in the middle of a relatively predictable growth pattern.
There are some very appealing mergers out there — like Freescale Semiconductor (FS) and NXP Semi (NXPI), which I think will create a pretty phenomenal company with dominant auto and wireless businesses, but it’s sure not cheap so it’s a case of having to pay up for high quality again, and that’s extra-scary in the chip business where competition and pricing pressure are often much tougher than they appear to outside investors (see Invensense, INVN, for example). Still, maybe a little nibble on Freescale, which as of yesterday’s close was at a 2% discount to the takeover value? Cripes, couldn’t it be just a little cheaper?
And there are some other “special situations” — I’m a bit tempted by Cnova (CNV), which is the e-commerce arm of the Casino Group with a strong presence in France and Brazil, this was carved out as an IPO in the Fall and the price has come off of the post-IPO highs and is getting closer to reasonable, with substantial long-term growth potential in all the many international markets (mostly former French colonies) where Casino has a strong retail infrastructure… but I’ve also got a general exposure to Brazil’s retail economy, which might be sinking into real recession, through Cielo (CIOXY), and Cnova is dropping partly because they’re pretty explicitly warning investors that growth can’t keep the same torrid pace they’ve had for the last couple quarters.
So what should we look at today as our “Idea of the Month?” Well, we’re going to be both a little bit contrarian and a little bit boring, but still ride the health care trend a bit — I’m going to ignore the interest rate fearmongers and suggest that you diversify your portfolio of income investments with a small initial buy of Physicians Realty (DOC), a growth REIT that’s probably a year from really “growing into” it’s dividend.
DOC is fairly similar to my hospital REIT, Medical Properties Trust (MPW), in some ways, but what intrigues me more is that it actually reminds me a little bit of one of my core REIT investments, Retail Opportunity Investments Corp (ROIC), in that it’s a new startup (as ROIC was when I bought it) that has a firm focus on relationship-based acquisitions in a defined sector, it is starting off with very little debt and rapid acquisitions of key properties, and it looks like (though it’s very early on) they’re developing a culture of ownership at the company — with employee stock purchase plans and some meaningful, if not huge, insider purchases happening in recent months.
I wrote about DOC a few months ago, it was teased by Chris Versace and it has been written about before in several places online — it got quite a bit of attention in the last six months or so because of the dramatic pace of their growth in acquisitions, with the value of their portfolio increasing almost 10X since they went public.
They have had the good fortune, over the last year or so, of being in an income-starved market, so they have been able to raise equity (sell stock) to make acquisitions thanks to the dividend they’ve been paying (and not covering) since they went public. They haven’t been borrowing much money, but they have effectively been raising cash at a 5-6% cost of capital since that’s what they’ve been paying as a dividend.
The tailwinds for the health care REITs in general are strong — universal health insurance in the United States is widely debated, of course, but one fundamental thing it will do, over time, is increase the use of healthcare facilities. More people will visit the hospital, more people will go to the doctor, and increasing use of these facilities will mean that facilities need to expand, and the best facilities (the newest ones, or the best-located ones) will remain valuable and probably become more valuable.
But that’s not the real tailwind: The real tailwind is the aging population. That’s obviously a crisis for the country and the healthcare system, even though it’s a crisis that moves in slow motion, but it will also continue to put pressure on healthcare facilities. More people are living longer, giving them the opportunity to get sick, and our largest generation is really just now hitting their prime health care “consumption” years — a 70 year old, on average, will have twice as many doctor’s appointments per year as a 50-year-old. This is a possible source of future problems for healthcare businesses as well, of course, as the government’s hand becomes ever stronger in the marketplace, but a growing demand for services is much more foreseeable than any future possible government response. Let’s bet with what we know is coming, not what we fear might come.
So more people have insurance, more people are getting older, does that mean all healthcare investments will go up? No, of course, not, but it provides a foundation on which strong organizations can build substantial businesses. Physicians Realty Trust (DOC) seems to me to be a strong organization, though young, with incentivized management, and they are building their business the right way and at the right time.
This is a very competitive market, to be sure — Physicians Realty Trust focuses on medical office buildings, and though it’s still a very decentralized market out there in general for those buildings (most are owned locally, or by small real estate developers or hospitals and healthcare organizations), there are other REITs and other investors who buy those buildings, including some groups that are far larger than DOC. That means they do occasionally have some opportunities to buy larger multi-building portfolios, like a couple of $100+ million acquisitions they made late last year that each included a dozen or so buildings, but their biggest opportunity is likely to come from the fact that they’re still fairly small and nimble, and they can easily buy a few buildings from local physician groups for $20-40 million without it being a waste of their time — like it might be for their huge competitors like Health Care REIT (HN), or even for the more comparable firms that are just a few times larger than DOC like Healthcare Trust of America (HTA) and Healthcare Realty Trust (HR).
They also have a strong focus on physicians, and on working with doctors and local health systems to sustain projects that they have built — which may be a competitive advantage going forward for them because of the relationships they’ve built, and the fact that the demographic wave is hitting the medical profession, too (they’ve commented a few times on conference calls about the fact that relationships have brought some deals to them that were either pre-market, or made at prices a little cheaper than sellers might have gotten from the huge REITs).
The company itself believes that they’re in a sweet spot for future medical trends — they think we’ll continue to see more focus on ambulatory care and outpatient care, which means we need more flexible medical facilities for outpatient visits, and for same-day surgery and similar requirements, and perhaps fewer “beds” in hospitals.
Why get interested in Physicians Realty now? Well, I would, frankly, like to see it 10% cheaper — but in the absence of the price coming down that sharply I like it for an initial nibble now for two reasons: First, I like income because income is in tremendous demand in the stock market… I like the ability of well-managed REITs to compound in my portfolio as I reinvest the dividends, and DOC has a high yield that they’re in the process of growing into (and maybe growing, though probably not before next year); and Second, they’re on the cusp of a transition that, while it does come at a worrisome time for income investors, has the potential to significantly boost their stock market value. That gives us two ways to win: collect the dividend, and perhaps see capital gains over 18 months or so as the growth and initiation of cheaper leverage starts to outpace the impact of their capital raising activities.
On the first front, yes, I know that many folks are worried about REITs because of interest rates. That’s why I keep hoping for the shares of the REITs I like to drop a bit more in an irrational overreaction to Federal Reserve chatter about raising rates (many of them are already off their highs by 10% or so this year, but I’m greedy and would like more). But REITs do not, in fact, do badly in times of rising interest rates unless you focus solely on a brief period of dislocation. Over the longer term, REITs as a class have done fine during the recent several periods when we’ve had rising interest rates — and I think the strong ones should continue to do that.
The real bet, here, is that Physicians Realty will become a strong REIT — and will have an opportunity to add some cheap long-term debt to their balance sheet — before long-term rates increase meaningfully. They’re not really strong yet, but they have a solid foundation that they’ve built in a very short period of time, and they are on a path to become large enough and strong enough to get cheap debt financing pretty soon.
And, in the meantime, you collect that dividend — which puts a bit of a floor under the share price, assuming no dramatic panic in the market — and you wait for them to be able to grow that dividend. They should be able to become a relatively steady dividend growth company (though at a low growth rate, probably) by 2017, perhaps sooner, and until then the payment is 90 cents a year (four quarterly payments of 22.5 cents). That provides a yield of about 5.5% at the current $16.50 share price, and that’s the most I would want to pay for the shares.
But no, DOC is not really a beaten-down REIT — it took its haircut like most of them did in recent months and is about 10% off of its highs, but it’s not necessarily cheap, and it didn’t come down as much as its competitors like HTA and HR did recently. It is a bit contrarian, because part of the “conventional wisdom” of Wall Street is that healthcare REITs grow slowly and have long-term leases, so they behave worse during interest rate increases than do other REITs. Most healthcare REITs, including the office building ones like DOC, do have long 5-15 year leases, and they do generally have limits to their inflation protection — DOC generally has escalators that boost rents by 2-3% a year, which seems to be somewhat the industry standard (MPW has better inflation protection, with CPI-tied increases, but the net result is likely to be similar as long as we don’t have wild hyperinflation). They can’t re-set their rents each year like an apartment REIT might — but they also get much more of a stable and predictable business with those longer lease terms.
The closest comparisons are HTA and HR, both of which also largely focus on outpatient facilities and medical office buildings, and both are just a few times larger than DOC ($3 billion or so vs. $1 billion market cap for DOC). The big daddies of the healthcare REIT business, HCP and VTR and HN, are all much more stable than DOC (or HTA or HR or MPW) will be, and they may be safer bets if you value stability over growth potential and current yield.
They also do some things a bit differently, in some cases there are more managed properties versus triple-net leases (triple-net lease means the tenant pays for everything, including maintenance and property taxes, managed properties provide more of a full-service, turn-key environment and charge more). Here’s how they stack up on the basic metrics that most dividend investors care about:
Physicians Realty Trust (DOC) — 5.5% yield, market cap $1.2 billion, debt to equity 0.19, normalized FFO per share 20 cents most recent quarter, most recent quarterly dividend 22.5 cents, payout ratio (of “normalized FFO”) of 113%
Healthcare Realty Trust (HR) — 5% yield, market cap $2.4 billion, debt to equity 1.175, normalized FFO per share 38 cents, most recent dividend 30 cents, payout ratio of 79%
Healthcare Trust of America (HTA) — 4.7% yield, market cap $3 billion, debt to equity 1.028, normalized FFO per share most recent quarter 37 cents, most recent dividend 29 cents, payout ratio of 78%.
You can see two things that really stand out in those comparisons — first, DOC is essentially unlevered, the others have more debt than equity (and they also trade at a steeper premium to book value, though I didn’t include that number); and Second, DOC is not “covering” its dividend yet, but the other two are — they generate more than enough FFO to cover their quarterly payments to investors.
And that’s partly where the opportunity lies for DOC to close the gap on their peers a bit more when it comes to valuation — thanks to the fact that HR and HTA have gotten hit much worse than DOC over the past couple months, they’ve already started to close the gap (not by increasing in value, but by falling less than their peers), but this next year or so should help to further close the valuation gap and will provide the opportunity for DOC to continue to grow slightly faster than HTA and HR — that’s because they’re going to try to get an investment grade bond rating in the relatively near future, and that will enable them to lever up the company a little bit, which will grow FFO per share a little bit, which will bring their payout ratio down below 100 and make future dividend increases possible.
This is not going to happen overnight, but with a very, very low debt balance they have much more flexibility than many of their peers — and they are already closing in on covering the dividend and should be covering the dividend with cash flow from operations within a few quarters as they acquire more properties — if they can acquire a property at a 7% cap rate, which has generally been the case, and pay out less than 6% for the capital to make that acquisition, they get some growth potential and scalability.
Selling new stock now means they have to earn more than 5.5% on the property, since that’s what the equity “costs” them in dividends, but taking on long-term debt increases the profit margin because they could probably borrow, once they get an investment grade rating, at about 3.5-4.5% for 6-10 years (HTA is a “low end of investment grade” borrower and their bonds currently yield about 4% for seven years). These are fairly small differences, but they add up on the income statement pretty quickly — especially for a company that’s growing their asset base as quickly as DOC.
I still prefer Medical Properties Trust (MPW) as an opportunistic buy, because the yield is a bit better and I like their more unique focus on hospitals (and their international diversification, though that’s limited still) and the fact that they’re likely to continue to slowly grow the dividend… but they’re on the other end of that debt spectrum — they’re growing into the debt on their balance sheet, since they had gotten overlevered a couple years ago and had to wait several years before they could afford to increase the dividend. I like MPW as an opportunity again now that they’ve dipped, but I don’t want to further concentrate my portfolio in that particular name, so if I were adding to my health care REIT holdings now I’d think about putting a bit into DOC and see what the next few months of interest rate panics brings by way of buying opportunities. I haven’t bought it personally at this time (and will now have to wait at least thee days, though it will almost certainly be longer than that).
What’s the upside? Well, if they can lever up a bit starting in a year or so, and if they make the $500+ million in acquisitions that they intend this year, they should be covering the dividend by the first quarter of 2016. If they can do that, and increase the dividend by some small amount, say 5% to get it to 94 cents/year, and if the market then gives them the same yield as HTA (4.7%), then the stock would be at $20. That’s roughly a 25% increase in a year, plus the 5.5% yield on cost you’d enjoy from your initial position today.
No, it’s not dramatic or fantastic, and there’s no guarantee that we’ll get that kind of performance, but I think that’s about what we’re limited to on the upside — and on the downside, even if we get a brief panic about interest rates, I would be very surprised to see DOC trade below a 7% yield (which would be about $13)… so that’s my expected range, assuming there’s no company-specific disaster: Down to $13 or so if investors really freak out about interest rates, up to $20 if rates rise very slowly, as I expect, and they earn an investment grade bond rating and lever up a bit, and raise the dividend slightly next year as they continue acquiring new properties.
Would you prefer something crazier? Stick with me for a minute…
I mentioned uranium and I thought I’d give you the solution you’re looking for about the “Obama’s Secret Pipeline” uranium stocks, and let you know that in the face of what seems to me to be continually increasing odds of higher uranium prices over the next several years I’ve put on some small, speculative positions in a couple of the little miners being teased… I’ll be quick with this one, but let me tell you what the stocks are first:
Nick Hodge has been pitching his uranium ideas as “Obama’s Secret Pipeline” for at least a couple weeks now, and uranium in general is on the minds of pretty much all resource investors — it’s one of the few areas where there seems to be a pretty clear supply crunch and demand spike coming, and although it’s a troubling market to invest in because it’s highly regulated and political as well as economic, and, frankly, because most mining companies are junk, it’s really too tempting to ignore completely.
The cabal of newsletter writers and pundits who crow about commodities, including Kent Moors, the Agora/Stansberry folks, Rick Rule and Eric Sprott, and Doug Casey’s crew (though Stansberry just bought Doug Casey’s newsletter business recently), have all been touting uranium over the last two years as the one real breakout opportunity in the commodity markets — but it does clearly take some patience and a strong stomach as global spot prices (and actual contract prices, since most uranium is sold on long-term supply contracts to utilities) tend to react pretty slowly to changing dynamics… and, well, most uranium deposits that get discovered don’t actually get mined, and most mines take a decade or more to delineate and permit and develop — with big delays beyond that if the economics of the business get squashed for a while along the way.
Marin Katusa runs a hedge fund that has some Doug Casey/Rick Rule money in it, and he used to work for Casey on a newsletter or two and has now gone off on his own (he didn’t join Stansberry when the business changed hands) and is writing a free blog as he builds up his name recognition for his next hedge fund. He’s been talking up uranium for at least a couple years, and he had a good, thoughtful piece about uranium on his new website a couple weeks ago that you can check out if you want more of that core argument. The basic spiel about rising demand from China and India and from restarted reactors in Japan, and reduced or possibly curtailed supply from lack of investment in mines and from Russia (both because of political issues and sanctions, and because Russia’s big “megatons to megawatts” program of downgrading weapons-grade uranium and selling it to US utilities ended a couple years ago), is similar to most of the other uranium arguments you’ll see, but his piece is pretty thorough and is well-reasoned and data-supported.
The spot price of uranium is now back down around $35 after having bounced briefly up to the mid-$40s in the Fall (and falling to the $20s last Summer), and that gets watched pretty closely by individual speculators and clearly impacts the prices of uranium stocks — but really, uranium isn’t traded much on the spot market, no one is mining uranium “on spec” to sell to the highest bidder, they’re making deals before they build mines, and selling most of their production on long-term contracts, so we can think of the spot market as just one indicator of the sentiment about uranium prices. There’s a good piece here on the different prices from the World Nuclear Association, if you want a more thorough look at the market.
So does the fact that spot prices have come back down a little bit recently mean we can make gobs of money by buying uranium stocks cheap? Are the junior uranium names going to have another ridiculous bull run, like they have a couple times in the last decade or so?
Well, with that wordy intro let’s move on to the Nick Hodge tease about uranium — yes, we finally got there!
Here’s a bit from the ad:
“Obama’s Secret Pipeline
“The REAL reason why he’s rejected the Keystone XL Pipeline
“And why this $3.4 trillion move could ignite a $1 stock…
“Turning every $1,000 invested into $1,304,000 in 2015….
“Starting June 30”
“You see, while $3.4 trillion is flowing to these pipelines worldwide…
“And while the price tag for just one could reach $8 billion…
“It’s NOT in the construction or operations where everyday investors can get rich.
“It’s in the unusual type of fuel, the companies that produce it, and a crisis brewing right now that could send these little-known plays shooting to the heavens….
“Worldwide, it’s quickly becoming the #1 source of power for over 2 billion people.
“For the first time ever, over 76 countries are adopting it to meet their growing energy demand.
“In fact, in order to meet the growing need for electricity worldwide, use of this fuel has to grow by 136%!”
OK, so that’s all about nuclear power and uranium… and all the stuff about “secret pipelines” is just references to nuclear power plants — which, I would agree, are a key part of our global energy future, and the only way to really replace a lot of the coal-fired power plants that we clearly want to minimize in order to help clean the air. Alternative energy is wonderful, and solar has come down dramatically in price, but nothing can hold a candle to nuclear power when it comes to huge baseload power supplies that can replace fossil fuels without emissions.
And the market has recovered somewhat from Fukushima, which set nuclear power back probably a decade because it spurred Germany to shut down their plants — new plants are under construction in China, particularly, but also in India and around the world, and the Japanese are starting to talk more about returning their stronger and better plants to servce… and they will all require uranium.
And you know what? They almost don’t care how much it costs. Nuclear energy is one of the few sources of energy where the fuel cost doesn’t really matter to the energy producers, because the uranium cost is such a small part of the investment in nuclear energy — if coal prices go up, production shifts to natural gas plants… but if uranium prices go up, nuclear plants don’t change their behavior at all. They don’t consume less fuel just because prices fluctuate, because once you’ve sunk a billion dollars into building a power plant, the cost of the uranium for each refueling operation is almost irrelevant. Nuclear power is expensive because the plants are expensive, not because uranium is expensive (uranium, including handling and disposal costs which are at least half the material cost, is probably no more than 25% of the cost of energy production at a typical nuclear plant — versus 80-90% at a coal or gas power plant).
So which little miners does Nick Hodge think are poised to profit from the “third wave” bull market in uranium, starting on June 30, when he says Japan will get attention for restarting more of their reactors (some of their reactors should indeed be back online this summer, you can see updates here)? Here are the clues:
“The $1 Stock Jumping 10,000% in 2015
“It’s a $1 stock.
“And it’s currently sitting on the most valuable uranium deposit in history… the last source of untapped high-grade uranium in the world.
“It’s located in Canada’s Athabasca Basin, the site of the world’s most valuable uranium mines.
“And this field is the crown jewel of the region.
“A recent resource estimate confirms it holds 105 million pounds of high-grade uranium.”
“Even at the current ultra-low uranium price — $35 per pound — that’s a $3.6 billion asset….
“… this stock has a very tiny market cap… just $428 million.”
This one is Fission Uranium (FCU in Toronto, FCUUF on the pink sheets) — it does indeed have a “maiden resource estimate” of 105 million pounds at their Triple-R deposit in Athabasca, announced just a few months ago, though “resources” are quite different from “reserves” (I think of it as resources being “how much are we pretty sure is there” and reserves being “how much we’re quite certain we can produce economically at the current price”).
This is the key area of North American uranium production — near Cameco’s huge mines, where hugely rich concentrations of uranium that are the envy of the world make it probably a bit dangerous but oh-so-efficient to do hard rock uranium mining. And Fission does certainly have a big discovery — I don’t know whether they’ll end up trying to mine it, or will get bought by a big producer, but if uranium interest heats up Fission is a natural place where some of that investor enthusiasm might be targeted — I’ll buy a few shares and put them in my back pocket.
Here’s more from Hodge on why he’s so frantic about this particular one:
“But here’s why this is REALLY a perfect storm of profit…
“The company’s PEA is expected for release sometime in July, right as the uranium price is soaring.
“The markets will already be piling into these stocks.
“And believe me, when they do, even weak uranium miners will skyrocket.
“So an incredible company like this — one with an unprecedented asset… releasing its PEA report right as the uranium market begins soaring in July and right as dozens of big uranium producers are entering into a fierce bidding war…
“Well, it’s about as close to guaranteed as anything I’ve ever seen in all my years in the markets.”
So, that’s probably more enthusiasm than you can handle for one stock — they are indeed planning to have a preliminary economic assessment (PEA) of their project released sometime this Summer, according to their most recent investor presentation, and whether or not uranium is actually soaring by June or July, well, I guess we’ll find that out when we get there.
How about the other stocks he hinted at? Your clues:
“Third Supercycle Play #2: My next pick is a spin-off of the first company I mentioned and could hand investors the same profits, if not more. You see, this play mimics the performance of its parent company. For instance, when my first pick recently jumped by 20%, this one soared by 50%… in just two weeks. Only thing is, it trades for just 1/10th the price — which means you only need a very tiny stake to see the windfall of your life. I expect it to double, even triple the gains of my first pick. So 20,000% gains or more is not out of question. That’s enough to turn a $500 investment into a million-dollar retirement nest egg. Similar plays like it have done just as well. Better, in fact.”
This one’s Fission 3.0, the spinoff from Fission Uranium — ticker is FUU on the Venture exchange in Canada, FISOF OTC in the US. Teensy, teensy stock, market cap around C$20 million, this is the owner of all the very early stage developmental properties that Fission Uranium didn’t want to be distracted by as they develop their Patterson Lake South project. Their properties are also all near or in the Athabasca Basin, and the most immediately promising ones (as I interpret it) are the ones directly north and south of Fission Uranium’s project — you can see their properties on the map on their website.
This is wildly speculative, depending not just on a recovery of the uranium market and of “animal spirits” for junior miners in the sector, but also on them actually discovering meaningful, commercially viable deposits. So, what the heck, I’ll buy a slightly smaller position in this teensy weensy one.
This is what happens when I go for too long without hitting the Blackjack tables, but don’t worry — all together these little uranium speculations I’m putting on are substantially less than 1% of my portfolio. This is speculating, not investing — if I get more convinced in the value of some of these stocks later on I may add to my holdings, but for now I’m just dickering around with something that has a seemingly appealing trend and shouldn’t be terribly correlated with economic growth, or a richly valued stock market, or the strength of the dollar, or whether Janet Yellen parts her hair on the left or the right.
How about a little more?
“Third Supercycle Play #3: This third pick may be the one I’m most excited about. Legendary investors Rick Rule and Doug Casey own a 16% stake in this company. And Marin Katusa, one of the world’s leading energy experts, calls it a “screaming buy.” You see, the CEO and founder of this company has a proven track record of making shareholders very rich, very quickly. He previously brought to market the major uranium miner UEC Corp. And during the second supercycle, UEC returned incredible gains. First it jumped 583% in just four months. Then it took off for 3,426% gains. Now, he’s brought to market a play just like it with similar profit potential. What’s more, it’s highly likely that its one high-grade uranium project, located on the uranium-rich Athabasca Basin, will become a spin-off company. This move will hand investors a fortune. And analysts project this to happen within the next six months, right as uranium is heating up. The combination of these two developments, plus its high-grade quality project, could send this $0.60 stock soaring by over 10,000% in 2015.”
Huh. Well, I was kind of expecting them to tease UEC, which gets touted quite frequently as a uranium stock, and for probably good reason — as an in-situ recovery company their grades are not nearly as high as the Athabasca mines, but they can produce uranium probably much more quickly if prices pick up — and the CEO, Amir Adnani, used to be somewhat of a stock promoter in Vancouver and is very investor-savvy, he’s trying hard not to spend any money on developing projects until prices rise, but UEC also probably has more “shovel ready” projects that could be started quickly than most. UEC is one of the more genuinely “levered to uranium prices” stocks, and has more or less doubled since Kent Moors started pitching it using these same big picture uranium trends about a year ago.
But apparently Hodge is not touting UEC, which means he’s touting Adnani’s other company, Brazil Resources (BRI in Canda, BRIZF OTC in the US), which is a roll-up of junior gold exploration properties in Brazil but (almost accidentally) ended up owning a uranium exploration property in the Athabasca basin as a result of one of their acquisitions. You can see their description of the uranium property, called REA, here on their website. It does make sense that this might be spun out at some point, particularly if we get a speculative craziness trend in the uranium stock market, but I don’t know if it will happen anytime soon — and that’s an extremely early stage exploration project, despite the fact that Areva is doing some drilling nearby and it’s only 50 miles or so from Patterson Lake South (Fission’s big discovery).
And yes, I own some warrants on Brazil Resources — the warrants started trading about a year ago, and they let holders buy Brazil Resources shares for 75 cents anytime before December 31, 2018, so they seemed to me to be an appealing low-cost way to get some leverage to gold for several years without putting a lot of capital to work, since Brazil Resources is pretty focused on not spending money or diluting shareholders… they’re just really waiting around, doing some exploratory drilling without spending too much, and hoping prices will get up high enough that miners want to partner with them to actually develop mines on their discoveries. Brazil Resources is a speculative company, very dependent on gold prices with that possible kicker from uranium, and the warrants are obviously more speculative still. Ticker for the warrants is BRI.WT in Canada, or BZRSF OTC in the US. I wouldn’t suggest these to anyone else, but I do happen to own some.
“Third Supercycle Play #4: My final pick is now the #1 developer of one of the world’s largest, most prospective uranium projects in the world. A recent acquisition has placed it in control of a whopping 100 million pounds of uranium — a multi-billion-dollar asset. It’s the kind of asset that would send this play through the roof on a massive uranium price upswing. During the last uranium supercycle, this company soared for incredible 11,700% gains. Right now, it’s trading dirt-cheap at just $0.04. And with this new billion-dollar asset, it could even beat that performance this time around.”
I can’t tell you much about this one, the only teensy tiny one that came close to making sense to me when I was browsing through the junior candidates was Anfield Resources (ARY in Canada, ANLDF OTC in the US), but that’s not a four-cent stock and hasn’t ever been, it’s more like 12 cents. Could also be Skyharbour Resources (SYH in Canada), Makena Resources (MKN in Canada), Azincourt Uranium (AAZ in Canada) or Athabasca Nuclear (ASC in Canada), all of these are absurdly small “shouldn’t be publicly traded” companies, with market caps well under $5 million, and I can’t bring myself to be quite that ridiculous. Perhaps it’s another one that I don’t remember or haven’t run across, or a company looking to develop a project outside of North America, there are a bunch of teensy weensy uranium juniors keeping their fingers crossed for a blowout bull market that will get someone to buy them at a premium — if you’ve got a favorite that I haven’t mentioned, feel free to let us know.
For now, I’ll be satisfied with my (very) small speculation on Fission and its daughter, Fission 3.0, and with my Brazil Resources Warrants, and I’ll be pretty sure that if uranium goes hyperbolic again, I’ll make some money… and if there’s another nuclear disaster or people cancel their reactor projects or Russia floods the market and the uranium price collapses, my portfolio can’t go down by more than 1% as a result and I’ll have gotten a little bit of my speculating urge out of my system. We’ll see how it goes.
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