Hi Antagonist reader,
Welcome to the April monthly deep dive and Blend Portfolio update. Here’s what I’ll cover:
What should I invest in now?
Natural gas: a massive arbitrage opportunity
New stock pick
Blend Portfolio dashboard
1. What should I invest in now?
If you’re new to The Antagonist membership, or if you’re just looking to invest more, you may be wondering, “Which Blend Portfolio stock should I invest in now?”
Since everyone has unique goals, risk tolerances, and needs, I can’t provide a one-size-fits-all answer. I can, however, highlight some areas and positions that would be my top picks if I were starting right now. I’ll also provide links to the articles where I originally recommended the positions so that you can read the reasons behind them.
My top pick(s): uranium
If I could only choose one Blend Portfolio area to invest in now, it would be uranium. We added our first uranium holding at the end of June. In less than 10 months, that position has soared 70%.
The uranium industry started to cool off at the end of January, but I see this as a buy-the-dip opportunity. The current and forecasted supply-demand deficit is simply too big to ignore, and I believe we’re still in the early stages of a multi-year bull run.
If you don’t hold any uranium positions, I encourage you to read the articles that I’ve written on the industry and individual companies. Simply type “uranium” into the search field on the Antagonist home page to quickly filter for these.
If you’re an Antagonist premium member, it’s even easier. Just go to the dashboard and click the links in the position listing. Our uranium holdings range from the resource itself to ETFs to large and small companies.
Gold’s time has arrived
Gold is another commodity that I’ve written extensively about. The combination of inflation and reckless government debt has created substantial demand for the metal.
That demand isn’t just from investors either. Central banks around the world have accumulated gold at a pace not seen since 1967. Amazingly, it’s even become less volatile than U.S. treasuries.
With gold recently closing the quarter at record levels, there’s a good chance that we’re at the beginning of a secular bull run too.
As bullish as I am on the metal, I think gold miners are an even better play. They are still undervalued even as gold has rallied over the last several weeks.
That’s starting to change, however. The gold company that we added at the end of December has gained 35% over the last month alone. Even after this stellar rally, it’s still a “buy” along with the other gold positions in our Blend Portfolio.
The red metal
Our second-best performer is a copper company. It’s gained 69% since we added it less than 11 months ago.
Copper is another commodity that will benefit from a massive supply/demand imbalance. The red metal is necessary for everything from green tech to the internet of things (IOT), and cloud computing.
To read about our 3 copper stocks in the Blend Portfolio, check out this post:
Non-commodity pick
If you’re looking for more traditional (i.e. non-commodity) stocks, consider the ETF we purchased a year ago.
It’s similar to the S&P 500 index except that it’s weighted by business fundamentals instead of market cap. Similar investing strategies have been shown to outperform the S&P by 2.5% per year for 30 years!
Also, with the stock market as top-heavy as it is now, this ETF gives you downside protection without sacrificing potential gains.
Don’t ignore the other positions
While the above 4 areas would be my top picks for new money, I’m definitely not saying that you should avoid the rest of the positions in our portfolio. I’m also not recommending that you sell the stocks in your portfolio either.
As I mentioned at the beginning of this article, everyone has unique needs, goals, and risk tolerances. It’s essential that you perform your own due diligence. For specific ideas, check out all the holdings in our Blend Portfolio and see which ones make the most sense for you. If you’re not yet a premium member, you can get a free trial through at the link below. Cancel any time.
2. Natural gas: a massive arbitrage opportunity
I’m adding one new position to our Blend Portfolio this month. It’s a company that aligns perfectly with our growth-at-a-reasonable cost (GARP) strategy.
Even though it’s an excellent business that should reward shareholders for years, its stock (and its industry) is still extremely undervalued. Not only does this give our investment plenty of upside, it also means that it doesn’t have much downside risk.
Before I announce the stock, let’s review the industry and why I’m so bullish on it right now.
Price discrepancies lead to big profits
As you can see from the historical price chart below, natural gas in the United States is ridiculously cheap right now.
Why would a commodity that most of the world depends on for survival sell for so low?
One word: oversupply.
The U.S. is experiencing a production boom in natural gas, much of which is a byproduct of oil extraction.
This surplus has led to a noteworthy situation where local prices hover around $1.80 per million British Thermal Units (BTU). That’s significantly lower than in regions like Rotterdam or Shanghai, where prices can reach $8-$9 per million BTU.
This price disparity creates a golden arbitrage opportunity. Since the cost of transporting gas internationally is relatively low, substantial profit margins are available to those positioned to exploit it.
Infrastructure investments and global energy dynamics
This arbitrage isn’t a secret, however, and it won’t last forever. It’s also far more likely that natural gas prices will rise to close this gap rather than oil prices falling. The industry’s actions support this idea too.
The United States became the largest liquefied natural gas (LNG) exporter last year, and its exports are expected to double by the end of the decade. Companies have also been investing billions in infrastructure to liquefy and export U.S. natural gas to other countries.
That may come to a screeching halt, however.
In January, the Biden administration placed a ban on issuing new permits to export LNG until the Department of Energy can review its environmental and economic impact. This decision comes even as gas shipments to Europe and Asia have soared since Russia’s invasion of Ukraine. In response, 16 states have sued the Biden administration claiming that the ban unlawfully disrupts the industry and ignores regulatory processes.
Meanwhile, the competitive pricing of U.S. natural gas is luring energy-intensive companies, particularly from Europe, to relocate or expand their operations stateside to take advantage of the cheaper prices. This trend further shows the potential for U.S. natural gas producers to benefit from the current market dynamics.
Balancing the short and long term
Shockingly, despite the fact that natural gas prices are so cheap, some producers are still generating strong free cash flows, making good returns to shareholders, and reinvesting enough of their cash flows to maintain production. That’s remarkable even to those who have spent their entire careers in this space. Rick Rule, a highly respected natural resources investor, emphasizes the importance of a contrarian approach in this sector:
The idea that you can play a theme, which will resolve itself in four years with no discount for present value because the dividends are so high, is nothing that I've ever seen before in my career.1
The allure of high dividends in the natural resources sector is undeniable, but you shouldn’t just buy any company in the sector that pays a fat dividend.
Instead, you need to focus on companies that are not only rewarding shareholders today but are also reinvesting adequately to sustain future production. This balance is critical to avoiding the pitfalls of companies that, while profitable now, may jeopardize their long-term output and value.
Investing in LNG companies is a long-term play, but the potential rewards make it worth the wait. While I can’t predict exactly when natural gas prices will rise again, given that the resource is truly a need for humanity, that necessity will inevitably drive recovery and growth.
Rule’s comments on this idea are worth quoting at length:
In terms of natural resource investing, you are either going to be a contrarian, or you’re going to be a victim. There isn’t very much by way of middle ground.
Everybody wants to invest in commodities, where the price action has already justified the narrative. But the price action takes the value out of the narrative. You have to look for commodities that are in liquidation, where the price is so low, that the industry is liquidating. And where if the price of the commodity doesn't increase, the commodity will become unavailable to humankind. And finally, humankind needs to need that commodity.
Another way to put that phrase, in terms of the time value of money, is that you need to invest in things that are inevitable, even if they aren’t imminent. And you need to know the difference between those two words.2
Rule’s insights are a perfect introduction to the stock that I’m adding to our Blend Portfolio. The company is set up beautifully to reward shareholders now and for years to come.
The stock also meets the criteria made famous by Dr. Steve Sjuggerud: cheap, hated, and in an uptrend. Shares are cheap, the company is in a hated industry, and the stock has been in an uptrend since February.
This same criteria helped me identify 2 small-cap energy stocks last April. They’ve returned 46% and 60%, respectively, since then. That performance has trounced the S&P 500’s 28% gain over the same time period.
Our new stock has the potential to achieve similar, if not better, results. Without further delay, here it is…
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