Blend Portfolio Additions: Profiting from a Copper Shortage
Capitalize on short supply and rising demand with these 3 stocks.
Hello Antagonist members,
I’m adding more asset diversification to our long-term Blend Portfolio. We’re already set up for a rise in stocks, but I also want us to profit if stocks slow down or decline.
These new positions give us exposure to a commodity with exploding demand, yet limited supply. This combination could lead to incredible returns for investors.
Here’s what we’ll cover in this issue:
Copper: The Red Metal with a Golden Future
A Green Tech Enabler
Urbanization and Demand for Copper
Are We Ready to Meet the Demand?
Investing in Copper
Understanding the Risks
The 3 Copper Stocks in the Blend Portfolio
Closing Thoughts
Copper: The Red Metal with a Golden Future
Copper isn’t just one of the oldest known metals. It’s the lifeblood of our modern world, the conduit that delivers electricity from power plants to devices.
Beyond its electrical uses, copper is also found in everything from plumbing to the pennies in our pockets.
Infrastructure: Copper is integral to the construction sector where it's used for wiring in buildings, plumbing, air conditioning, and heating systems.
Electronics: Because of its excellent electrical conductivity, copper is used in everything from power generation to transmission lines to your everyday household electronics.
Transportation: Automobiles use copper in their motors, wiring, radiators, connectors, brakes, and bearings. Traditional gas-powered vehicles require 18-49 pounds of copper each, but hybrid electric vehicles (HEVs) demand up to 85 pounds!
A Green Tech Enabler
In addition to its traditional uses, copper plays a significant role in renewable energy technologies. For instance, a single wind turbine can contain up to 4.7 tons of copper.
The demand for electric vehicles (EVs) alone is set to dramatically increase copper usage. Current estimates suggest that a full EV requires around 183 pounds of copper, nearly four times as much as a conventional vehicle.
Furthermore, as the world moves toward green energy sources, solar and wind farms will require significant quantities of copper. A single megawatt of solar power requires about 5.5 tons of copper, while onshore and offshore wind installations require between 3.6 and 21.7 tons of copper per megawatt, respectively.
Urbanization and Demand for Copper
Increasing global urbanization is another factor poised to drive copper demand. As more people move into cities, the need for modern, electrified housing will surge.
Similarly, as developing nations upgrade their infrastructure, they'll also need more of the red metal.
Are We Ready to Meet the Demand?
Copper demand is projected to grow from 25 million metric tons (MMt) today to about 50 MMt by 2035, a record-high level that will grow to 53 MMt by 2050.1
Current supply does not come close to meeting that projected demand. For example, in 2022, global copper mine production sat at approximately 22 million tons, short of even the 25 million tons of demand we saw in 2021.2 This means that even with recycling efforts, new copper resources will need to be developed.
There are a number of reasons why current supply doesn’t meet projected demand.
Copper mining is a lengthy and expensive process, often taking up to 10 years from exploration to production.
Environmental regulations are making it more difficult and expensive to mine copper.
Political instability in some copper-producing countries present significant challenges.
While there are substantial known copper reserves, the growing demand from green technologies and infrastructure development will likely outstrip supply.
The combination of the above factors is creating a supply deficit that will likely lead to higher prices for copper and other copper-intensive products.
But it also provides an investment opportunity and a way for you to diversify your portfolio beyond stocks and bonds.
Investing in Copper
You can profit from a copper boom in several ways:
Physical Copper: While buying physical copper bars and coins is possible, it's not practical for most investors due to storage and liquidity issues.
Copper Futures: These are contracts to buy or sell a set amount of copper at a future date. This method is more common among professional traders, and it involves a degree of risk that might not suit retail investors.
Copper ETFs: Exchange-Traded Funds (ETFs) are a simple and accessible way for retail investors to gain exposure to copper price movements without the need to handle physical copper. Some ETFs track the price of copper futures, like the United States Copper Index Fund (CPER), while others invest in a basket of copper mining stocks.
Copper Mining Stocks: Investing in copper mining companies is another indirect way to gain exposure to copper. When copper prices rise, these companies can benefit, particularly if they have low production costs. Of course, investing in individual companies also involves company-specific risks.
Understanding the Risks
Like any investment, investing in copper comes with risks. Commodities are known for their price volatility, and copper is no exception. Factors such as geopolitical tensions, currency fluctuations, and changes in global economic growth can significantly impact prices.
It's crucial to remember that while the future looks bright for copper, investing in commodities should be just part of a diversified investment strategy. As always, do your own due diligence, understand your risk tolerance, and limit your position sizes so that you are not putting too much of your portfolio in danger.
Play the Long Game
It’s hard to imagine a future where copper prices don’t rise. To capitalize on this trend, I’m adding 3 copper stocks to our portfolio.
Each company meets the business fundamental criteria and scoring system that I discuss in my stock picking process.
Before I cover each stock, however, please note that commodity investing can be a wild ride. Even if my copper hypothesis is correct, it’s likely that these stocks will experience periods of high volatility (i.e. big jumps and drawdowns).
But remember, the Blend Portfolio is for long-term holdings. That means that we’ll weather the storm because given enough time, we expect the stocks’ prices to increase. We’ll also implement a trailing stop as a layer of risk management.
I also recommend only investing 1%-2% of your long-term portfolio in each position. That way, even if the stocks go to zero (extremely unlikely), the maximum amount you will lose is 6% of your portfolio.
You may also want to scale into the position. For example, if you plan on investing $150, buy $50 worth of shares now. Next month, buy another $50 worth. And the month after that, make your final purchase.
If your personal risk tolerance doesn’t permit volatile price swings, however, I suggest passing on these recommendations altogether.
The 3 Copper Stocks in the Blend Portfolio
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