Five ideas teased as the best picks from all of Casey’s Analysts

by Travis Johnson, Stock Gumshoe | October 24, 2013 2:39 pm

Casey Research hints it's "the oddest - and maybe most profitable - email you'll ever receive."

David Galland[1] at Casey[2] Research sent out an email last night that has lots of Gumshoe readers guessing — it’s a bit of an odd “stream of consciousness” walk around the offices at Casey Research[3] to check on the “abundance of opportunities” his team sees across all of the sectors they follow with their various newsletters.

Those sectors, by the way, are mostly the same sectors as everyone else — they have a energy letter, a tech letter, a gold[4] letter, and some “big picture” letters that cover the economy and lots of different sectors.

So what’s the deal? Well, they’re trying to sell the “big deal” package that most publishers offer in one way or another. Most publishers have been trying to offer similar deals up as a big up-front one-time fee with annual small “maintenance” payments to keep lifetime access to everything they publish forever, but Casey is calling theirs OnePass and it basically is a discounted annual package — you buy a subscription to all of their newsletters for about $1,750 a year, with the same payment in subsequent years as you renew.

Whether or not that sounds like a good deal is up to you, of course — we don’t subscribe to any of these newsletters we cover, since it just wouldn’t be sporting — but we can, at least, read through this email ad with you and tell you what Galland’s hinting at as the “best picks from all our analysts.”

They do give you a freebie up front, by the way, so we’ll start with that:

Alex Daley[5] of Big Tech, their new large-cap technology letter, said his current favorite is …

“a leader in the automated navigation of construction and farm equipment, an $8 billion company with a $25 billion trajectory on global growth[6].”

And Galland “gave that away” as a “bonus” for reading the ad, that’s Trimble Navigation (TRMB). I’ve never looked at this one all that closely, and they’re up pretty close to their highs but are expected by analysts to keep growign revenues by at least 10-12% per year and earnings by better than 20%, so that makes it a bit easier to stomach the trailing PE of about 38.

We’ve got more to cover quick, though, so we’ll let you research each individual one on your own. Next?

“The Energy Team, headed up by Marin Katusa[7], is convinced it has uncovered the ‘Next Bakken[8]’ – a massive new energy play with every bit as much potential as the original. Best of all, they are now locked onto a small-cap company that has built a stunning 2-million-acre concession on this potentially game-changing new play. (We recently heard from participants at a major energy conference that, during a Q&A session, a major oil[9] company executive acknowledged they are paying close attention to the small company. A takeover in the works?)”

That’s one we’ve covered before (then been snookered on with a red herring, then covered again), PRD Energy (PRD in Toronto, PREGF on the pink sheets). Since Katusa started pitching it as the lead play on the “next Bakken” (in Germany), the shares have just about doubled — they were staking a big bet on the fact that early results were expected from their first well in mid-September, but that drilling hit technical difficulties so they’re now expecting results in mid-October, which has really passed with no word from PRD.

The first well is not the only thing happening with this company, I’d describe it as more of an important “proof of concept” that will help them get more partners and funding and government enthusiasm for expanding their exploration program. The longer-term promise of PRD Energy might rely on fracking[10] and large scale stimulation, but they’re shying away from even using the word fracking now because it would undoubtedly cause a huge fight — they are hoping to use stimulation, modern techniques, and horizontal drilling without hydrofracturing to revive a bunch of old, proven, but abandoned wells and fields in Germany that were conventionally “played out” decades ago.

That’s my assessment, not exactly what the Casey folks or the PRD folks are saying, and they undoubtedly know a lot more about this one than I do. But since the Casey folks have played up these first results as huge for PRD, I expect the stock will probably fall dramatically if those results are disappointing or there are more technical drilling issues that delay results again. That’s just my guess.

Next?

“The Casey Report[11], our flagship publication headed up by Dan Steinhart with co-editors Doug Casey[12], Bud Conrad, and Terry Coxon, focuses on identifying the most powerful trends driving the global economy and the investments best suited to the current environment. Deep-value stocks, precious metals, energy, agriculture[13], and income are all represented in the Casey Report portfolio.

“In response to my request to Dan for his current favorite, he came right back with a master limited partnership (MLP) that owns two refineries in the middle of the country, giving them easy access to cheap shale oil in Oklahoma and Kansas. Dan elaborated, “Most US refineries are on a coast, which was a strategic advantage just a couple years ago when the US imported so much oil by boat. Now the place to be is the heartland, near the newly unlocked oil.”

“Remarkably, this MLP currently yields around 19%. Why so high? According to Dan, ‘The market doesn’t believe in it yet. It only went public this year. We’re closely monitoring the situation. That’s because as the company proves itself, we would expect the yield to be bid down to around 12% – meaning there’s nice capital appreciation potential and a juicy yield.'”

This one, sez the Thinkolator, is CVR Refining (CVRR)[14], a Carl Icahn[15]-controlled company (he controls CVR Energy, CVI, which spun out but still controls this refinery MLP and the CVR Partners fertilizer[16] MLP, ticker UAN). Their primary asset is indeed two refineries in Oklahoma and Kansas, and they pay out a huge current yield that’s now about 20%. Refineries have been seeing their margins squeezed this year after some spectacular years, so investors are indeed a bit fearful that these huge yields will continue. I haven’t looked at this one closely of late, but it was also Bryan Perry[17]’s top pick for his Cash Machine[18] newsletter back in June and we did go into a bit more detail then (the share are down about 15-20% since then, though they did recover from a recent sharp drop).

CVRR was spun off publicly just in January, so it’s still early days and, well, if you see a 20% distribution yield you pretty much know that the market doesn’t think it’s sustainable — the question is really whether you agree with the market or not, and to make a smart decision along those lines you’d need to know a lot more than I do about the refining business, their specific assets, and the prospects for oil and refined products prices. If you’ve been doing that thinking yourself, feel free to share it with a comment below.

If you’re curious about that Icahn connection and the structure of these companies, by the way, a Motley Fool[19] writer did a pretty good job of explaining it here.

Next?

“Miller’s Money Forever, our newest service, which cherry-picks sectors and investments best suited for individuals in or approaching retirement[20]. Headed up by Dennis Miller, the team works hard to find low-risk ways to earn more money on your money. As an example, Dennis points to just one of the solutions for anemic yields he’s uncovered that doesn’t entail big interest rate risk. These “target maturity” funds pay out better than 4% annual interest between now and maturity, just one or two years away, when they are liquidated. And, unlike low-paying CDs, you can buy and sell them online with zero penalty for early liquidation.”

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These are pretty interesting, actually — if the Thinkolator’s right on this one (and it usually is), then they’re teasing the new fixed-maturity ETFs that hold corporate bonds[21] maturing in a given year and liquidate at the end of that year and return the net asset value to shareholders.

This gets rid of one risk of most bond funds, that they never really mature because they have to constantly buy new bonds to replace the maturing ones (even if they’re not trading more aggressively than that), so you always have a hard-to-define risk in your portfolio when it comes to possibly rising interest rates. If your bond fund is just holding a basket of corporate bonds that mature in a given year, and they just hold the cash they get from those maturities until the end of the given year and return it to you, you are really controlling your interest rate exposure more directly.

The available “fixed maturity” bond ETFs I’m aware of are from Guggenheim and iShares. They are all quite new, and I’m not sure how they handle their pricing versus NAV or if the ETFs might end up trading at premium or discount prices to NAV, nor have I checked if they’re trading close to NAV right now … but if you want exposure to short-term corporate bonds and want a clear exit date and don’t want to worry about how a manager is managing the continuing replacement of a portfolio as interest rates change over the coming few years, they’re worth researching.

Presumably they could get into trouble if rates spiked or there was some sort of bond-related panic and a lot of people sold the shares and they had to liquidate ETF shares (and therefore sell bonds before maturity at lower prices), but my impression is that the risk seems more controlled than with standard high-yield bond funds and ETFs, but you still get some diversification across different companies and sectors.

Guggenheim’s are called BulletShares, details here[22] — if they’re really touting two years and a high yield[23] above 4%, it’s probably the Guggenheim BulletShares 2015 HY C Bd ETF (BSJF). Remember, “high yield” is getting close to what we used to call “Junk bonds” — these should be bonds from companies with higher credit risk. Hard to believe 4.75% is “high yield” now, but well, that’s the world we’re living in — and it’s one in which no one (for good reason) wants to tie up their money in bonds for more than a couple years.

iShares’ offering is called iSharesBonds, they don’t seem to have the “high-yield” offerings like Guggenheim but have maturities starting in 2016, including, for example, iSharesBond 2016 Corporate Term (IBDA)[24] which yields about 3%. They also have one that excludes financial firms that yields a bit less, iSharesBond 2016 Corp ex-Fincls Term (IBCB).

Hadn’t ever looked at these before today, so if you’ve ever researched these or own any of them I’m all ears, feel free to share your thoughts using our friendly little comment box below.

And then one more stock that was teased in the email:

“To give you some small sense of just how coiled the spring is under the gold stocks, on September 18, when the Fed surprised the market by saying it would continue its QE at a run rate of just under $1 trillion annually, gold leapt by over $50, or about 3.5%.

“However, the large-cap gold producers in our BIG GOLD portfolio did substantially better…..

“Senior Editor Jeff Clark[25]’s favorite current pick? A gold royalty company selling for half of what it was at its peak. Yet the company has never been in better shape and will soon begin receiving a royalty of, as Jeff put it, ‘a whopping $100 million per year at current prices.’ Oh, and it is sitting on over $1 billion in cash… about one-third of its total market value.”

This pretty well has to be Royal Gold (RGLD)[26], though according to their last quarterly balance sheet they don’t have a billion dollars in cash unless they’re hiding it somewhere other than the “cash” line, total cash is about $675 million and total assets about $750 million (they also have about $300 million in debt). The only other decent-sized publicly traded gold royalty or streaming companies are Sandstorm Gold (SAND), which I own but which is far too small for the tease, and Franco-Nevada (FNV)[27], which is more diversified but almost twice as big as RGLD and therefore too big for the tease.

But Royal Gold is generating good cash flow, and they do have a huge project coming online now that will generate probably more than $100 million a year — thats Mt. Milligan, the big new copper[28]/gold mine by Thompson Creek Metals (TC), it just started shipping concentrate last month and is supposed to be producing more than 250,000 ounces of gold per year for the next six years. Royal Gold has a streaming deal to get half of that gold at $435 per ounce, so at current prices that would be a net cash to RGLD of about $900 per ounce times 125,000 ounces (I’m lowballing a little, they actually expect 262,000 ounces total per year) and you get something like $112 million a year. Last year Royal Gold’s revenue was less than $400 million, so you can see this could bring a big jump — and it also adds some risk, since they’re relying heavily on one mine for growth (they have five “cornerstone” properties[29] that drive their results and expectations — one of the other ones, Pasqua Lama on the Chile[30]/Argentina[31] border, has been delayed).

And … sound like enough? It’s a varied basket of ideas, a junior oil explorer and a high-yield refiner and a GPS company and a gold royalty owner and a new way to get corporate bond exposure with some diversification and a fixed maturity, not a bad pile of stuff to chew on and I don’t own any of ’em — whaddya think? Let us know if any of this wets your whistle, the friendly little comment box below awaits your thoughts.

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