Every investor should own these two stocks
Crux note: If you ask value investor Dan Ferris for his take on the market today, he’ll tell you that we’re nearly 10 years into a bull market… And when almost nothing out there is trading cheap, the risk surrounding most U.S. equities simply outweighs the potential returns.
But that’s not the case for one “left for dead” industry… where Dan has found an investment that’s worth the risk…
From Dan Ferris, Editor, Extreme Value:
Today, I’m talking about the mining industry.
For the most part, mining is a truly awful business that investors should avoid. These companies have zero control over the price of the products they sell. Mines require hundreds of millions (or even billions) of dollars of investment before they can generate a single penny of revenue. It takes decades to explore, find, develop, and build a new mine.
Many countries are hostile toward mining, which is considered environmentally unfriendly. That’s why many mines wind up in political hellholes like the banana republics throughout Latin America and Africa. The process of getting permits and approvals can scuttle a mine, possibly rendering millions in capital investment totally worthless.
It’s a tough business, which is why you should avoid it most of the time.
But, like the overall stock market, it pays to know when mining stocks are near all-time lows…
That tends to happen when the overall market is super expensive. Back in 1999 and 2000, the numbers that matter showed that U.S. stocks were almost as overvalued as they are today. Gold – a decent proxy for the investment prospects of the overall mining industry – fell below $300 an ounce after a bear market that lasted two decades.
We’re at a similar moment right now.
U.S. stocks are at their most offensive valuations in history (higher than 2000 and 1929). And gold is around $1,200 an ounce today, well below its all-time high of about $1,900 an ounce in 2011, and still near its 2015 bottom of around $1,050 an ounce.
Investors have left precious metals for dead. They couldn’t be less interested. And therein lies our opportunity…
In Extreme Value, I’ve found what I believe are the world’s two best businesses in the mining industry today…
Neither is a mining company.
They don’t require huge upfront capital investment to make their businesses work. They both feature royalty or royalty-like businesses at their core. Both have world-class management teams and multiple sources of massive upside and little downside at current valuations.
Whether you’re young or old, have a portfolio of $10,000 or $10 million, I believe every investor should own these two stocks today. I expect these stocks to rise five to 20 times their current value within the next five to 10 years, dramatically outperforming many overvalued stocks today.
Together, these two stocks constitute the single greatest equity opportunity of my 56-year lifetime. If you don’t buy them right now, I can almost guarantee you’ll be kicking yourself in five or 10 years. For any serious investor, the returns I expect would pay for a lifetime Stansberry Alliance membership, let alone a subscription to Extreme Value.
Of course, we’ve found a lot more than just two stocks…
Another recent Extreme Value recommendation is a true World Dominator business. It’s trading at a valuation priced for zero revenue growth for the next four years – an absurdity for one of the greatest businesses on Earth.
And the stock we recommended in the September issue of Extreme Value is a one-of-a-kind collection of assets with revenues that have remained stable through good times and bad. It currently yields almost 5%, a number we believe is likely to double in the next three or four years in relation to today’s share values.
Even with most U.S. stocks way too expensive, we’re still able to find excellent value, with greater upside potential and smaller downside risk than the stuff most people are buying right now. You just have to know where to look… And you have to be a lot more careful than normal, given what’s happening in the overall market.
Most people will buy super-risky micro-cap mining stocks trying to make a quick fortune…
But most are garbage and will go to zero.
We won’t touch stocks like that. Our mining-related picks are cash-gushing businesses with major competitive advantages. They’re among the best businesses in the world, and we intend to hold on to them long enough for readers to maximize their profit potential. (Our average holding period is more than three years, an eternity in the newsletter world.)
Most of the time, these businesses are priced for poor returns and too much risk. Today, they’re dirt-cheap and should easily outperform the so-called “FANG” stocks over the next several years.
Markets rise and fall, but market cycles are marked by valuation and sentiment, not time…
Markets are expensive – priced to lose you money – when everybody loves them and believes they’re totally safe (like U.S. stocks and most bonds today). Markets are cheap – priced to make you rich – when most investors hate them and believe they’re too risky and guaranteed to fall forever (like mining and other cyclical industries today).
Great investors respect the cyclicality of markets. Warren Buffett is famous for saying, “You only find out who is swimming naked when the tide goes out.” Investor and author Howard Marks has written two brilliant, must-read chapters on cycles in his book, The Most Important Thing. As he concludes…
There are a few things of which we can be sure, and this is one: Extreme market behavior will reverse. Those who believe that the pendulum will move in one direction forever – or reside at an extreme forever – eventually will lose huge sums. Those who understand the pendulum’s behavior can benefit enormously.
(As a side note, if Marks’ newest book, Mastering the Market Cycle, out yesterday, is anything like The Most Important Thing, it’ll be a must-read for any serious investor.)
Extreme behaviors in the stock and bond markets are going to lose a lot of people a lot of money in the next few years, and maybe sooner. It’s impossible to say when such losses are imminent, but it’s easy to know the conditions under which they become inevitable. Those conditions are present today in stocks and bonds… and the opposite conditions are present in the mining industry.
I’m not saying stocks and bonds won’t rise for a while longer. I’m not saying gold and other mining stocks won’t fall for a while longer. I don’t make those kinds of predictions. Remember, my No. 1 job is to identify risk. The risk is high and the upside potential is low in most stocks and bonds right now. The risk is relatively low and the upside potential is much higher in select high-quality mining-related stocks today.
Learn the names of these stocks with a subscription to Extreme Value by clicking here. (This won’t take you to a long promotional video.)