Hi Antagonist readers.
Welcome to our monthly deep-dive for August.
Today, I’ll focus on under-appreciated market segments that you should strongly consider adding to your portfolio, or even increasing your current position size.
Stocks have received most of the attention this year. With the run they’ve been on, it’s easy to understand why.
But stocks aren’t the only part of the economy—far from it. There are plenty of investing opportunities outside of equities (as well as in some corners of the stock market that are undervalued).
I’ll cover two of those opportunities in this issue. Here’s what’s on tap:
Oil stocks still have plenty of gains ahead of them.
Even more reasons to buy gold.
Read and tell.
1. Oil stocks still have plenty of gains ahead of them.
Regular readers know that I write about oil quite a bit. One reason I do this is because of the sheer size of the market. At over $2 trillion, it’s bigger than the top 10 metal markets combined in terms of production value.
But despite the market’s massive size, there simply isn’t enough oil to go around. As I wrote in this special report, nearly every area of our lives today depends on fossil fuels like oil.
Oil isn’t just for vehicles and machines either. It’s a vital raw material in plastics, fertilizers, cosmetics, and medicine. But while the world’s demand for energy isn’t slowing down, the supply of oil is.
This high-demand/low-supply dynamic is why we hold several energy companies in our Blend Portfolio. As oil reserves continue to run low, these stocks should soar.
The rally has begun.
I admit that I was a bit early when I recommended the first batch of companies last February. Those stocks pulled back shortly after I wrote about them. With the energy sector now flirting with recent highs, however, our stocks have recovered their losses and are showing a profit.
Another energy company that I recommended last April is already up 24%. That’s more than 4x the performance of the S&P 500 over the same time period!
Even with these gains, I am still very bullish on oil stocks for the long term. I believe the biggest returns are still ahead of us and that we can profit off these positions for years.
My conviction stems from the current status of global oil reserves.
Let’s start with the U.S.
The government recently announced that they were delaying the refilling of the Strategic Petroleum Reserve (SPR). Their stated reason for the decision? “Market conditions” being “too expensive.”
The SPR, however, was meant to be an emergency supply to be used in time of war or when foreign imports were otherwise cut off, NOT as a tool to suppress oil prices.
As a result, the SPR currently holds only a fraction of its historical level, which you can see in this chart:
The story is similar outside the U.S.
OPEC data suggests that the global oil market is headed toward a supply deficit of more than 2 million barrels per day this quarter. That shortage is largely due to Saudi Arabia slashing production (source: Yahoo! Finance).
You’re not too late.
Even if you missed the recent rally, you’re not too late. Tight oil supply will provide tailwinds for energy stocks for years.
If you don’t want to buy individual stocks, consider investing in sector ETFs like the Energy Select Sector SPDR Fund (XLE) or the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
If you’re looking for higher returns by investing in individual companies, check out the energy stocks we hold in the Blend Portfolio. Premium members already have access, and free subscribers can read about them with a 7-day trial. Cancel any time.
2. Even more reasons to buy gold.
Last March, I recommended three precious metal positions in our Blend Portfolio. Two of those are gold-related.
Here’s an excerpt of what I wrote then and why I urge you to consider dedicating at least a portion of your portfolio to gold:
[A]s award-winning financial researcher [and publisher of The Lead-Lag Report],
said, “If you don’t hate a portion of your portfolio, you’re not diversified.”What Gayed means is that if you love every part of your portfolio, your holdings are too correlated. They’re likely all moving up together.
But that’s not diversification. If the market turns sharply, your entire portfolio will drop as well.
That’s why it’s important to own gold. When things get crazy, investors tend to buy gold for the safe haven that it offers. That will cause the price of the metal to shoot up, which will reduce your portfolio’s losses from your other positions.
As the U.S. and other countries continue to face uncertainty around inflation and the banking system, gold is a must-own. Precious metals have been used as currency and a store of value for thousands of years. And, unlike paper money, precious metals hold their value.
All of the reasons above are still valid, and it remains a good time to buy gold. But there’s another factor that could be the strongest tailwind for the metal in the near future: central banks.
Central banks aggressive gold buying will likely continue.
In 2022, central banks globally accumulated gold reserves at a pace not seen since 1967, when the U.S. dollar was still backed by the metal.1
Central banks owning gold isn’t new. They’ve always held it as a long-term store of value and a portfolio diversifier. Recently, they’ve also turned to gold as an inflation hedge.
But now, non-traditional reasons are catalyzing the demand for gold, especially among emerging market/developing economies (EMDE).
The conflict in Ukraine shook the global financial order. Russian sanctions woke up non-Western nations to the vulnerability of their U.S. dollar reserves.
In a World Gold Council survey, 42% of banks expect the number of U.S. dollars held in reserve to drop. Russia and China aggressively bought gold, perhaps to help protect against foreign seizure. EMDE banks are seeking higher reserves of gold as a buffer against any payment crisis that may erupt from current or future sanctions.
(Source: Sanford Mann, CEO of American Hartford Gold, in Forbes
With geopolitical tensions still high and de-globalization accelerating, central banks’ hunger for gold will likely remain strong. This demand is good news for individual investors.
An alternative to U.S. treasuries?
Otavio (Tavi) Costa, partner and macro strategist at Crescat Capital, even sees gold as a superior alternative to treasuries for central banks outside of the U.S.
They are significant buyers of gold while some have become major sellers of U.S. debt. Escalating geopolitical conflict has increased the importance of owning a neutral asset with no counterparty risk that also carries centuries of credible history as a haven. Gold is the only asset that qualifies.
Central banks have thus pivoted to being substantial buyers over the last several years leading to a rising percentage of gold ownership on their balance sheets. As a percentage of foreign reserves, if this measurement were to return to its historical average of 40%, all else equal, it would be an injection of approximately $3.2 trillion of new capital into the gold market. Price would have to be the reconciling factor in accommodating this demand.
Since $3.2 trillion is 25% of the total value of all above-ground gold, or essentially all the gold ever mined, which now stands at $13 trillion, a 25% upward adjustment in price would get the gold price to $2,500 an ounce, Crescat’s minimum one-year target.
More importantly, this dynamic is expected to prompt other major institutions and individual investors to follow suit, triggering an even greater influx of capital into the gold and precious metals markets.
Source: Crescat Capital (emphases added)
Gold would need to increase 30% from its current price to hit Costa’s $2,500 price target. I don’t know if it’ll reach that within his one-year estimate, but that type of gain is more than doable.
Remember also that you don’t hold gold purely for the capital gains. It also serves as a diversifier and a hedge against multiple risks.
With so much uncertainty across the global financial landscape right now, it’s an excellent time to consider adding gold to your portfolio or even increasing your existing positions.
In last Saturday’s edition of Over the Weekend, I shared how you can gain exposure to gold through ETFs and physical assets. In the upcoming issue of our Blend Portfolio, I’ll discuss another way to own gold that could also provide you with significant tax savings. To get access to that issue and all of the portfolio’s holdings, upgrade to a premium membership today.
3. Read and tell.
That’s a wrap for this month’s deep dive.
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As always, thank you for reading!
Sincerely,
Jason Milton
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