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Seven shocking Commodity predictions
S R Nunnally
Nearly a year ago, I told Material Profits readers about seven predictions I had for 2007. I made the following predictions:
1. Gold will rise in order to make the gold-to-oil ratio come back in line.
2. Demand for nickel-metal hydride batteries would soar with hybrid demand.
3. Arctic drilling for oil will be the next wave of oil exploration.
4. Climate change will strain power grids and cause massive overhauls.
5. Water will become the most precious resource on the planet.
6. The Rocky Mountain will be the next natural gas hub.
7. China will need to start importing grain to feed its people.
Let’s see how I’m doing thus far.
1. Gold will rise in order to make the gold-to-oil ratio come back in line.
Gold prices at the time of the report were $628 an ounce. Oil prices were $59 a barrel. Currently, those prices are $770 and $88.50. So while gold prices did rise in 2007, the gold-to-oil ratio is still way out of range at a paltry 8.7, meaning 1 ounce of gold can buy 8.7 barrels of oil. Anything below 11 means a sharp correction is in order, and more times than not, gold has risen rather than oil prices falling.
We made three recommendations: the StreetTracks Gold Shares ETF (GLD:NYSE), XAU call options, and the Energy Select Sector SPDRS ETF (XLE:AMEX). The XAU calls flopped horribly, but let’s see how the ETFs have done.
At the time of the report we entered the GLD and the XLE into our model portfolio at $60.85 and $61.15. Today, these ETFs are trading for $75.80 and $75.20. We took gains of 9.47% and 4.89%, respectively.
2. Demand for nickel-metal hydride batteries would soar with hybrid demand.
Sales for hybrid vehicles have indeed soared, and we’ve seen many other hybrids hit the markets, though none have come close to Toyota’s prowess. In fact, Toyota’s hybrid sales helped the company challenge GM for the top position in the U.S. as far as production and sales.
We recommended Energy Conversion Devices (ENER:NASDAQ) for our model portfolio. It was entered at $37.80, and then the markets retraced significantly at the end of the year, stopping us out of the play.
But how’s ENER doing now? It’s going for $27.50. Despite being the maker of Toyota’s hybrid batteries, ENER has dropped. So while our overall theory of hybrid demand was sound, ENER just didn’t back up our assertion. Interestingly, Toyota’s had a similar retracement. Perhaps I’ll explore that relationship next week.
3. Arctic drilling for oil will be the next wave of oil exploration.
I’m sure all of us are aware that Russia’s been exploring the seas on its northern border to see how far its land juts out into the arctic. It wants to drill for oil and gas. Talks are still raging about drilling ANWR in Alaska. Arctic areas truly are the last frontier in oil drilling.
We recommended Norsk Hydro (NHY:NYSE) for our model portfolio. It was entered at $31.13, and we eventually exited the play with a 31% gain. But NHY decided to jump out of the oil business altogether, and sold its oil and gas assets to Statoil (STO:NYSE).
Now, NHY is trading for $15 a share after climbing as high as $44.28 on October 1. This came after the merger between STO’s and NHY’s oil and gas assets was complete. Just as a reference, STO has climbed 25.57% in the last year.
4. Climate change will strain power grids and cause massive overhauls.
I predicted that power grids across the nation would begin a massive -- and expensive -- overhaul due to rising demand and aging equipment. My theory was that as summers get warmer due to climate change, utilities will be forced to contend with strained grids and inefficient transmission lines, something that causes brownouts and blackouts, and costs companies a lot of money.
I recommended General Cable Corp. (BGC:NYSE), and it was entered into our portfolio at $44.12. Today, BGC trades for $70.70! BGC has been on a buying spree, snatching up Phelps Dodge International Corp. and the cable and wire division of Freeport-McMoRan in the past year. These two acquisitions could have BGC making $1.4 billion in additional revenue.
We exited BGC with “paltry” gains of 9.18% after it looked like the stock was flatlining.
5. Water will become the most precious resource on the planet.
The prediction doesn’t really surprise anyone anymore. Just look at what the drought situation has wrought in Southern California. Water will continue to become an increasingly in-demand resource -- both in real assets and in investment strategies. Last year I decided to play the agricultural angle.
I recommended Lindsay Manufacturing (LNN:NYSE) and it was entered into our model portfolio at $34.96. Unfortunately, we were stopped out of the play at a loss, but LNN has since bounced back and is currently trading for $47.92.
Other water stocks are continuing to do well, too. You can find a full report on this issue on our Material Profits Special Reports page on the Web site, www.materialprofits.com.
6. The Rocky Mountain will be the next natural gas hub.
While this prediction is innately true, the process for it coming to fruition takes a lot longer than a single year. I can say that companies are continuing to delve for oil and gas resources in the Rockies.
The recommendation for this prediction was EnCana Corp. (ECA:NYSE). It was entered into our model portfolio at $48.90, and exited with a gain of 30.47% in early June. Now, ECA trades for $67.12, a couple dollars above where the play was exited.
As you know, natural gas prices plummeted this year. Luckily, we were out of ECA for most of the damage. Now that natural gas is on the rise again, look for more gains in this sector, and more drilling in the Rockies.
7. China will need to start importing grain to feed its people.
With its GDP growing at double-digit rates still, as well as its consumption for nearly every commodity available on earth, this was an easy prediction to make… or so I thought. Interestingly, in the first seven months of 2007, China imported only 1 million tons of grain, or 54.9% less than the amount imported in the first seven months of 2006.
I had recommended Syngenta (SYT:NYSE) for this prediction because of its strong sales growth in China. It was entered at $37.72 in our model portfolio and didn’t move much. In fact, we eventually exited the play for a loss of 6.71%.
Now, SYT is trading for $46.51, above our entry point by 23.3%. Its third-quarter sales were up 21% over last year, but this move was mainly backed by demand in Latin America rather than China. It seems as though China’s handling its own problems by growing more of its own grain.
So, let’s tally these up… By my estimate, I’ve gotten five predictions right, and two wrong.
Now those five correct predictions include the water prediction, which we were stopped out on (though the stock did rise in 2007), and those two wrong predictions include the hybrid battery prediction, which was true, but with a recommendation that didn’t reflect it.
S R Nunnally
Nearly a year ago, I told Material Profits readers about seven predictions I had for 2007. I made the following predictions:
1. Gold will rise in order to make the gold-to-oil ratio come back in line.
2. Demand for nickel-metal hydride batteries would soar with hybrid demand.
3. Arctic drilling for oil will be the next wave of oil exploration.
4. Climate change will strain power grids and cause massive overhauls.
5. Water will become the most precious resource on the planet.
6. The Rocky Mountain will be the next natural gas hub.
7. China will need to start importing grain to feed its people.
Let’s see how I’m doing thus far.
1. Gold will rise in order to make the gold-to-oil ratio come back in line.
Gold prices at the time of the report were $628 an ounce. Oil prices were $59 a barrel. Currently, those prices are $770 and $88.50. So while gold prices did rise in 2007, the gold-to-oil ratio is still way out of range at a paltry 8.7, meaning 1 ounce of gold can buy 8.7 barrels of oil. Anything below 11 means a sharp correction is in order, and more times than not, gold has risen rather than oil prices falling.
We made three recommendations: the StreetTracks Gold Shares ETF (GLD:NYSE), XAU call options, and the Energy Select Sector SPDRS ETF (XLE:AMEX). The XAU calls flopped horribly, but let’s see how the ETFs have done.
At the time of the report we entered the GLD and the XLE into our model portfolio at $60.85 and $61.15. Today, these ETFs are trading for $75.80 and $75.20. We took gains of 9.47% and 4.89%, respectively.
2. Demand for nickel-metal hydride batteries would soar with hybrid demand.
Sales for hybrid vehicles have indeed soared, and we’ve seen many other hybrids hit the markets, though none have come close to Toyota’s prowess. In fact, Toyota’s hybrid sales helped the company challenge GM for the top position in the U.S. as far as production and sales.
We recommended Energy Conversion Devices (ENER:NASDAQ) for our model portfolio. It was entered at $37.80, and then the markets retraced significantly at the end of the year, stopping us out of the play.
But how’s ENER doing now? It’s going for $27.50. Despite being the maker of Toyota’s hybrid batteries, ENER has dropped. So while our overall theory of hybrid demand was sound, ENER just didn’t back up our assertion. Interestingly, Toyota’s had a similar retracement. Perhaps I’ll explore that relationship next week.
3. Arctic drilling for oil will be the next wave of oil exploration.
I’m sure all of us are aware that Russia’s been exploring the seas on its northern border to see how far its land juts out into the arctic. It wants to drill for oil and gas. Talks are still raging about drilling ANWR in Alaska. Arctic areas truly are the last frontier in oil drilling.
We recommended Norsk Hydro (NHY:NYSE) for our model portfolio. It was entered at $31.13, and we eventually exited the play with a 31% gain. But NHY decided to jump out of the oil business altogether, and sold its oil and gas assets to Statoil (STO:NYSE).
Now, NHY is trading for $15 a share after climbing as high as $44.28 on October 1. This came after the merger between STO’s and NHY’s oil and gas assets was complete. Just as a reference, STO has climbed 25.57% in the last year.
4. Climate change will strain power grids and cause massive overhauls.
I predicted that power grids across the nation would begin a massive -- and expensive -- overhaul due to rising demand and aging equipment. My theory was that as summers get warmer due to climate change, utilities will be forced to contend with strained grids and inefficient transmission lines, something that causes brownouts and blackouts, and costs companies a lot of money.
I recommended General Cable Corp. (BGC:NYSE), and it was entered into our portfolio at $44.12. Today, BGC trades for $70.70! BGC has been on a buying spree, snatching up Phelps Dodge International Corp. and the cable and wire division of Freeport-McMoRan in the past year. These two acquisitions could have BGC making $1.4 billion in additional revenue.
We exited BGC with “paltry” gains of 9.18% after it looked like the stock was flatlining.
5. Water will become the most precious resource on the planet.
The prediction doesn’t really surprise anyone anymore. Just look at what the drought situation has wrought in Southern California. Water will continue to become an increasingly in-demand resource -- both in real assets and in investment strategies. Last year I decided to play the agricultural angle.
I recommended Lindsay Manufacturing (LNN:NYSE) and it was entered into our model portfolio at $34.96. Unfortunately, we were stopped out of the play at a loss, but LNN has since bounced back and is currently trading for $47.92.
Other water stocks are continuing to do well, too. You can find a full report on this issue on our Material Profits Special Reports page on the Web site, www.materialprofits.com.
6. The Rocky Mountain will be the next natural gas hub.
While this prediction is innately true, the process for it coming to fruition takes a lot longer than a single year. I can say that companies are continuing to delve for oil and gas resources in the Rockies.
The recommendation for this prediction was EnCana Corp. (ECA:NYSE). It was entered into our model portfolio at $48.90, and exited with a gain of 30.47% in early June. Now, ECA trades for $67.12, a couple dollars above where the play was exited.
As you know, natural gas prices plummeted this year. Luckily, we were out of ECA for most of the damage. Now that natural gas is on the rise again, look for more gains in this sector, and more drilling in the Rockies.
7. China will need to start importing grain to feed its people.
With its GDP growing at double-digit rates still, as well as its consumption for nearly every commodity available on earth, this was an easy prediction to make… or so I thought. Interestingly, in the first seven months of 2007, China imported only 1 million tons of grain, or 54.9% less than the amount imported in the first seven months of 2006.
I had recommended Syngenta (SYT:NYSE) for this prediction because of its strong sales growth in China. It was entered at $37.72 in our model portfolio and didn’t move much. In fact, we eventually exited the play for a loss of 6.71%.
Now, SYT is trading for $46.51, above our entry point by 23.3%. Its third-quarter sales were up 21% over last year, but this move was mainly backed by demand in Latin America rather than China. It seems as though China’s handling its own problems by growing more of its own grain.
So, let’s tally these up… By my estimate, I’ve gotten five predictions right, and two wrong.
Now those five correct predictions include the water prediction, which we were stopped out on (though the stock did rise in 2007), and those two wrong predictions include the hybrid battery prediction, which was true, but with a recommendation that didn’t reflect it.