The best way to profit from the world’s biggest IPO
From Nick Rokke, Editor, The Palm Beach Daily:
The world’s largest company is about to go public…
Saudi Aramco has an estimated market cap of $2 trillion. That’s more than twice the size of the largest U.S. company – Apple.
Saudi Arabia owns the company, which is the world’s largest oil producer. Some call it the country’s crown jewel.
But now the government wants to take Aramco public. When it does, it will be the biggest initial public offering (IPO) ever.
Today, I’m going tell you how to profit from this historic event… And it won’t be to buy the IPO. (In fact, I recommend you avoid buying shares when they go public.)
Instead, we’ll play this another way. You see, the IPO will have ramifications across the oil market that we can take advantage of. More on that in a moment…
Setting the Stage for the IPO
The Saudi royal family runs Aramco as a virtual monopoly. But the government wants to diversify and modernize its nationalized economy.
That’s why back in January 2016, the government announced Aramco would go public. And on January 1, 2018, it revealed more details…
The country plans to sell 5% of Aramco at $100 billion. That would give it a total valuation of $2 trillion – nearly five times the size of ExxonMobil.
In my view, the Saudis are waiting until this year to offer an IPO because the timing wasn’t right in 2016.
You see, for an oil company to have a successful IPO, it needs high oil prices. And over the past seven years, oil prices have been falling.
Higher oil prices will make an oil company more profitable… And if the company is more profitable, investors will pay more to buy its shares.
And behind the scenes, the Saudis have been working to increase oil prices.
Saudi Arabia needed oil prices to rise before it launches Aramco’s IPO.
So in November 2016, the government pressured the Organization of Petroleum Exporting Countries (OPEC) and Russia to cut production.
As you can see in the chart below, OPEC oil production has dropped 1.7 million barrels per day since 2016.
Look what has happened to oil prices since then…
That’s no coincidence…
OPEC plans to extend production cuts through 2018. I predict these cuts will last until Aramco’s IPO later this year or early 2019.
(The government is still deciding whether to list shares in New York, London, Hong Kong, Tokyo, or its own stock exchange. That decision can take months.)
That means for the next year (or longer), we’re likely to see elevated oil prices. And this is good news for energy companies.
How to Profit in the Meantime
Higher oil prices will be a tailwind for the entire oil industry.
The best way to gain exposure to this sector is through the Energy Select Sector SPDR ETF (XLE).
This fund holds many of the world’s largest oil producers and suppliers, including ExxonMobil, Chevron, and Schlumberger.
If you want to profit from the biggest IPO in history, a basket of oil companies is the safest way to go.
Crux note: Most people don’t know this, but natural resources can produce triple-digit gains (or more) in a very short amount of time. This is the area of the market where an oil-exploration firm can shoot up 1,500% higher when a new, large field is discovered…
And when it comes to investing in natural resources like oil, no one knows more than our friends over at Casey Research. And they’ve created a guide to help you learn how to profit in the natural resource sector. You can learn how to get your free report right here.