Monthly Archives: November 2017

Black Friday – Economic Scarcity Reason for Violence

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Black Friday may mean a black eye for some shoppers. Black Friday deals are a recipe for violence in many parts of the US, and while I can’t deny this is unacceptable, I will comment that it is more common around the world than you might think.

Why do large defence contractors, for example Lockheed Martin (NYSE: LMT), make billions of dollars per year? What makes these types of companies fabulous investments? Conflict. Conflict around the world is essentially either fought for dominance of a certain group of people for a certain set of resources. Resources can be land size, energy, food, manpower, etc.

Black Friday is creating mini wars in parts of the United States where resources are scarce, generally speaking those who get involved in brawls really need these black Friday deals as their chance to get a unit of a limited supply of something – PS4, XBox, Flatscreen TV, etc. If you make people have to compete to get the resources, fights will happen.

Mining Stocks for 2018

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The Bingham Canyon Mine in Utah, USA

The following is a list of a few mining stocks to consider coming into 2018. Some investors are eyeing mining stocks as an unappreciated sector in the past few years, and are looking to diversify their portfolio from overpriced stocks to some bargains. I have reallocated some gains from 2017 into the first option below in anticipation for a gold price increase to follow the recent commodity price increases.  Please comment below if you have any other suggestions.

  1. Barrick Gold (Nasdaq: ABX)  – the largest gold mining company in the world.  With a PE Ratio (TTM) of only 7.00 trading at $14.00 this is a steal. The dividend is weak though, so the hope would be that the gold price rises or they can cut expenses and improve efficiency. This would probably be one of your best bets on gold prices. With the US dollar starting to decline against other currencies and commodity prices starting to rise this stock is essentially a bet on gold. The expected output of gold in 2017 is 5.3 million ounces and the expected output of copper is 420 million pounds. The size of the company means it is more likely to be able to weather an extended gold price trough. Another positive is that this company has not issued more shares for the past few years, meaning they are less likely to dilute the price. The drawback to this company is that is heavily dependant on gold and copper mining, so more or less betting on these two commodities. Today’s price is $14.00.
  2. GoldCorp (Nasdaq: GG) – another Canadian company, GoldCorp is essentially a smaller version of Barrick with a higher pricetag. GoldCorp estimates to mine 2.5 million ounces of gold in 2017 but claims to have plans to grow by 20% by 2021. If you want to invest in gold miners and want to spread across multiple companies, you can consider buying some of this stock. Today’s price is $13.22.
  3. BHP Billiton Limited (Nasdaq: BHP) – The world’s largest mining company. We aren’t talking gold – we are talking coal, iron, copper, potash, and petroleum. This company currently has a “average” P/E (TTM) ratio of 19, but boasts and excellent dividend of 1.72 or 4.1%. Today’s price is $42.30. Investing in this company is sort of like investing in the global economy, as the raw materials are used around the world. This company was hit by the economic slowdown of 2008, falling to $36, but then peaked in 2013 at over $94 per share. From 2011 to the end of 2015 the shares slowly slipped down to $22 per share but have since risen to their current price of $42.29.

 

 

Set Your Target and Be Happy with a Profit

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I purchased Twenty-First Century Fox (FOXA) for $26.77 near the end of September and sold it for just $29.00 yesterday. I could easily be upset about this sell, after all Fox is now trading at $31.15 with the news of Comcast’s supposed interest in purchasing a large stake of the company. Just last week Fox was in talks to sell some of its assets to Disney, so two potential suitors means a better price for Fox.

The reason I had to sell the shares I had for just $29.00 was because I had written a call option when I purchased they shares for exactly $29.00 per share with expiration date of November 17th. I figured an 8% gain within two months was a pretty good rate of return should I be forced to sell. My reason for buying FOX was due to it having a low P/E ratio and dividend, followed by the facts that it had fallen quite a bit from $32 per share in March. Having a profit margin about 10% and a return on average equity of over 20% this was a good candidate amongst other large media companies. Not to mention the “economic moat” that Fox has from its news competitors.

Writing the options yielded 64 cents per share, meaning the shares would have to exceed $29.64 for me to have to sell the stocks. The doubly whammy good news for Fox meant I had to sell the shares at a measly 10.7% profit  [($29.00 + $0.64) / $26.77] rather than a 16% profit [$31.15 / $26.77]. My conclusion is that I would have no idea of these pending acquisition talks, as I base my investment decisions usually on book value and economic moat evaluation. The option drove the stock sale, and now my liquidity is up.

It is easy to regret investments which could have made you more money. I regret not buying a whole bunch of bitcoin in 2011. However, instead as a investor you should be confident if your decisions are well informed and logical.