Reader Mail: Marijuana, Crude Oil, Gold, 5G…and More
Letter writing, even in electronic form, is an increasingly neglected art that still serves an important function. Trying to get the youngsters in our family to correspond in ways other than smartphone texting is like asking Superman to pick up a piece of Kryptonite.
Hence my gratitude for the extra effort readers make in sending emails to our address: email@example.com. Let’s get to the latest batch of letters.
Mesmerized by marijuana…
The “green rush” is generating a high volume of letters on the topic. Here’s one such reader inquiry:
“I’m curious about marijuana stocks, but I’m still trying to make a decision. This is a new direction for me. Any advice?” — Tulasi A.
Marijuana, for years demonized as the “Devil’s Weed,” is becoming a mainstream multi-billion-dollar consumer products industry in both the recreational and medical sectors. Canna-business, as it’s sometimes called, represents one of the greatest investment opportunities that you’ll experience in your lifetime.
Powerful, multi-year tailwinds are propelling marijuana companies. This chart tells the story:
As an increasing number of countries and U.S. states legalize marijuana, pot companies are proliferating. However, you must remain wary of the micro-cap marijuana stocks that exploit investor fascination with this investment theme. Many of these companies are dubious penny stocks.
Without a doubt, there’s money to be made in the marijuana industry — big money. But you should steer clear of thinly capitalized companies that lack significant products in the marketplace.
The key is picking the right pot stocks. The good news is, we’ve done the homework for you. Our strategists scour the marijuana landscape for the best investments. We’re finding stable cannabis companies with viable products, seasoned management, and actual earnings growth.
For our special report on marijuana investments, click here.
The crude facts…
As the pandemic-induced economic contraction weighs on energy prices, several readers are expressing concern over the viability of oil and gas stocks. Here’s one such letter:
“Energy prices are in the doldrums again. Should I be concerned about energy sector indebtedness?” — Gary C.
With oil and gas prices sputtering this year, it’s no surprise that the number of bankruptcies in the energy sector this year is growing.
The following chart shows the wild ride over the past 12 months of per-barrel prices for U.S. benchmark West Texas Intermediate (WTI) and the international benchmark Brent North Sea crude (as of Wednesday’s market close):
In this unpredictable climate, your smartest strategy is to look for energy stocks with the lowest ratios of long-term debt-to-equity. They’re less vulnerable to wild oil price swings and they’ll grow the fastest when energy prices inevitably bounce back and stabilize.
The right allocations…
“I’m wondering what falls into your 15% allocation to ‘hedges’?” — Frank S.
You’re referring to this asset allocation pie chart, which I’ve conveyed in recent columns (see below). This allocation is recommended by our flagship publication, Personal Finance.
Considering today’s investment conditions, these allocations provide a prudent mix, generally speaking.
I define “hedges” as precious metals such as gold and silver, real estate investment trusts (REITs), and commodities, among other investment classes. Choices depend on your investment profile and how much risk you’re willing to shoulder.
Of course, in a bull market, your allocations should emphasize stocks. In a bear market, you should lighten up on stocks in favor of bonds and cash. And in a transitional market that’s “in between,” you should strike a balance. At all times, your portfolio should steer clear of overvalued equities.
An appealing hedge right now that often gets ignored by investors are assets linked to agricultural commodities.
By investing in plays that benefit from sweeping global transformations, you can settle in for the long haul and tune out the white noise about fluctuating indicators.
The confluence of four relentless trends — political turmoil, agricultural destruction, population growth, and an expanding global middle class — make agricultural assets effective hedges against inflation. For convenience and safety, consider benchmark exchange-traded funds (ETFs) that hold stocks of companies involved in agriculture.
About 5%-10% of your hedges sleeve should be in precious metals such as gold. I prefer the stocks of gold miners. To be sure, gold mining stocks entail more risk than bullion or ETFs, because these individual companies must contend with the tribulations of running operations in sometimes unstable political environments. However, when there are profits, they tend to be very big.
Investors should consider junior gold miners. Those with a higher tolerance for risk are reaping tremendous profits from these small fry. Small mining companies not only make prime takeover targets, but as a whole they’ve been strongly performing asset classes this year.
Looking for the best gold mining stock? My colleague Dr. Stephen Leeb has pinpointed an under-the-radar gold miner that shines above the rest. This small-cap “rocket stock” is poised to blast off, but most of Wall Street hasn’t even noticed the company.
Dr. Leeb is chief investment strategist of the premium trading service, The Complete Investor. The time to invest in his gold mining play is now, before the rest of the investment herd catches on. Click here for details.
The big “melt-up”…
“A certain stock newsletter adviser predicts a huge ‘melt-up’ in stocks. The reason, he opined, is that central banks across the globe are planning to buy trillions of dollars’ worth of stocks. He mentioned the very low, even negative, interest rates in these countries.
The banks figure they can’t make money on lending at these rates, so they’ll buy up a ton of stocks, which would cause the stock prices to rise, and then will sell them. After this melt-up, a disastrous melt-down would occur, just as happened in the housing and dot-com bubbles. Do you have a take on this?” — Robert B.
This scenario is plausible and the recent actions of financial institutions bear it out. But investors face other risks. This “melt-up” also is getting fueled by a syndrome known as FOMO (Fear Of Missing Out). That’s usually a bad sign and this fear could soon lapse into just plain fear.
Correction triggers abound. Notably, corporate earnings are projected to be sharply negative for the rest of 2020 and bottom line surprises on the downside are likely.
The virus-damaged economy is in desperate need for more fiscal stimulus but Congress this week has been gridlocked. Enhanced unemployment benefits expire July 31. A Census Bureau survey released last week shows that 24 million Americans fear missing their next rent payment. You should expect further stock market volatility and sell-offs in the second half of 2020.
The big picture…
“Can you recommend stocks and bonds that should be in your portfolio?” — Joel B.
Joel, the purpose of my Monday-Friday column Mind Over Markets is to examine macroeconomic trends in the business, financial, economic, and political realms. I provide context, as well as a compass.
For specific money-making picks, turn to our premium trading services, where our team of strategists (including myself) pinpoint investment opportunities.
The mega-trend of 5G…
“Technology stocks have been soaring lately, but I’m worried that they’re overvalued and ready to fall. Can you pinpoint a tech trend with staying power and multi-year momentum?” — Nancy J.
Yes, a tech mega-trend now is the roll-out of 5G, the next generation of wireless technology. 5G will pave the way for a new wave of technological advancement, which explains why so many companies both large and small are jumping onto the 5G bandwagon.
The existing standard of 4G accelerated the smartphone boom by allowing a single device to handle a multitude of functions. But 5G’s reach will extend far beyond phones.
5G will facilitate the Internet of Things by allowing several interconnected electronic devices and machines to communicate with each other instantaneously at ultra-fast speeds.
5G adoption enjoys a multi-year upward trajectory. Regardless of the worsening pandemic or the renewed U.S.-China trade war, the momentum of 5G can’t be stopped. That spells opportunity for the shareholders of the chipmakers, telecoms, systems builders, and device makers that benefit from lightning quick connectivity.
For our new report on how to profit from 5G, click here.
Questions or comments? I’d love to hear from you: firstname.lastname@example.org
John Persinos is the editorial director of Investing Daily.