This article was originally published on January 29, 2019, when we first saw these ads from Cabot. The ad is still running, with little to no changes or updates, and the article below has not been updated.
When everyone’s worried about a trade war, look for the stocks that benefit from superpower rivalries… that’s a rational-sounding argument, and it’s at the heart of the latest pitch from Cabot Global Stocks Explorer, which used to be called Emerging Markets Investor (currently $197/yr, with Carl Delfeld at the helm replacing the recently retired Paul Goodwin)… with ads that are baited with a “secret $1 stock.”
So what is it? As usual, we’ll sift through the clues and identify it for you, share a few thoughts, and then you can go forth, researchify to your heart’s content, and make your own choice. Ready?
The special report they’re peddling in these ads is called “China’s Hardball Trade Move Will Send This Stock Soaring” … and the first part of the pitch lays it on good and thick:
“U.S.-China rivalry will soon send this secret $1 stock soaring
“… this stock reached $20 during the last confrontation
“Not long ago, the value of this company’s products soared 618% in three weeks
“Proven potential to turn $10,000 grubstake into $200,000
“CEO says recent pace of orders “absolutely buoyant”
“The company has held up well in recent turbulence, and its prospects for future growth are outstanding. When you read what I’ve learned, you’ll want to add it to your portfolio immediately.”
So… what is it? The ad goes into a long spiel about the strategic brinksmanship between the US and China over trade, but also between the US and several other major economies over a small sliver of the global materials business: Rare earth elements.
China dominates the production of rare earth elements (sometimes called rare earth metals or magnets), which are not all that rare but are rarely found in economically viable concentrations that are worth mining… and they’re also difficult to produce and refine. The list includes yrbium, tantalum, indium, neodymium, dysprosium, yttrium and lots of others that are even harder to spell, and they are indispensable for lots of critical modern electronics. Here’s a bit from the ad:
“Rare earths make possible all sorts of products from cell phones to advanced weapons systems, communications, electronics, aircraft engines, robots and hybrid batteries.
“For example, the addition of aluminum alloy with only 2% rare earths can cause the hardness to be nearly double that of pure aluminum.
“Here are three key things you need to know about these essential materials.
“First, the real value of these materials is their unique electrical and magnetic properties that allow for miniaturization and much lighter, stronger, resilient and efficient components—making the products we buy smaller, faster and more powerful.
“Second, rare earths are very difficult to extract from common ores like nickel, copper and zinc.
“Third, while America has slept, China has become the Saudi Arabia of rare earths.
“As Deng Xiapeng put it – ‘the Middle East has oil, China has rare earths.’
“In rare earths and many rare metals, China has a commanding 85% market share of global production.
“Furthermore, China is doubling down on its commanding lead by having its state-sponsored firms gobble up reserves and mining assets all over the world.”
So yes, we’re being teased about some kind of company related to rare earth elements. Prices for these elements are pretty well controlled by China, which has used its dominance in rare earth mining and processing to onshore more manufacturing over the past 20 years — cutting export quotas, but letting companies who build in China use rare earths there at low cost. It seems as though C