Regular investors can actually take a cut of every single bill payment you and your neighbors make. Today, we’ll show you how…and give you three small-cap plays you need to get into right now…

When embattled in a game of Monopoly, the three sets of properties we typically shoot for are Boardwalk and Park Place, the railroads and the utilities. Why would Parker Bros. make such a fuss over these three assets?

Well, luxury real estate like the dark blues is typically lucrative. In today’s world, however, that probably isn’t your best bet.

How bout the railroads? Owning transportation and shipping systems is always a profitable venture. But with competition from cheap air cargo and trucking, railroads just don’t have the appeal they once did.

That leaves the utility companies. If you can own the transfer of water or electricity, chances are you’ll make a pretty penny. That’s why we’re big proponents of utilities.

These companies can pay such high dividends because they make so much money off the growing demand for natural gas, electricity and even water.

Buy why is now the best time to load up on utilities? Because they are as recession proof as it gets.

Time to Take a Trip on the Electric Avenue

Josh Peters of Morningstar writes, “Even during recessions, people have to heat their homes, take showers and keep that TV set aglow.” Even if television doesn’t sound like a necessity, try telling that to the majority of Americans. While ad revenue has crashed in the last 12–18 months, TV viewership is as steady as before…if not better.

While we think natural gas is the investment you need to make right now, electricity is the easiest and most lucrative. You see, the average American will actually use more electricity during recessions…a lot more time spent in their living rooms watching TV and surfing the Web.

Sure, industry has slumped a considerable amount. But electricity companies have seen only a nominal drop in revenue, most of which is already factored in. Meanwhile, they are paying larger and larger dividends.

When looking for an electric utility, the No. 1 characteristic to seek out is cash flow. The more cash running through a company, the better. You also have to consider whether the company is taking steps to curb spending. Today’s we have three small-cap utilities that have done expert jobs of both.

Buy These Three to Shore Up Your Income Portfolio

First up is UIL Holdings Corp (NYSE: UIL). UIL is an electric utility in New Haven, Connecticut. The company has a solid customer base of nearly 325,000. Only 5.6% of its revenue comes from industrial businesses, which helped the company escape the last market collapse relatively unscathed.

But the best part about UIL is its dividend. The company has paid out its income to shareholders dating back to 1977. Over that period, its dividend grew considerably. Now you can get a solid, consistent 6.3% dividend yield, without worrying about where the stock goes. You can’t get that with a savings account.

Next is NorthWestern Corp (NYSE: NWE). With both electricity and natural gas operations, the company has over 650,000 customers in South Dakota, Montana and Nebraska. NorthWestern has little-to-no competition in its operating region, which makes it a true semi-monopoly.

While it’s only been paying dividends for a little over a year, the company has already raised its payments to 34 cents per quarter. That works out to a solid 5.4% yield. Now is the time to lock in this growing income.

Finally, we found Empire District Electric Co (NYSE: EDE). Empire generates, transmits, and distributes electricity in Kansas, Oklahoma, Arkansas, and its home state of Missouri. While the company’s stock is a bit more volatile than others, it does offer another upside most don’t.

Empire also has water operations in various places in Missouri. This could become a lucrative business, as the cost of water continues to skyrocket.

Empire’s 7% dividend yield is enough to give it a serious look. High yielders like this don’t come along too often. We suggest you jump on it.

All three of these should be consistent income generators for years to come. If you are worried about a second market drop, or you just want to get your share of your neighbor’s energy bills, these are your best bets.

After all, where else can you get safe income in this market?

Sincerely,
Jim Nelson

October 27, 2009

Get Paid When Your Neighbor Turns on His Kitchen Light was originally featured in the Penny Sleuth.

Oil peaked at $147 per barrel in July 2008 — right before the house of cards came crashing down on the global economy. Once banks started to fail and credit dried up, other businesses slowed production and laid off workers. This created a massive trickle effect on the overall economy.

Big corporations and individual consumers alike were using less energy. That meant the prices of every energy-related commodity plummeted.

This spring, things started to turn around… The unemployment rate quit falling at such a rapid rate. Inventories were too low in many industries, creating a ramp up in production again. Energy prices climbed…

Since the start of this year, the price of crude oil has nearly doubled. In just the last six months, heating oil jumped as much as 90%. These two commodities are still cheap as far as we can tell. But they aren’t the real story…

Two other commodities are still low, but won’t be for long…

Coal and Natural Gas Are Commodity Buddies

Back in June, Greg Guenthner told you about coal’s recent history. Coal, being the most widely used fossil fuel in the U.S., took an extra-hard hit during the past several months. It’s down nearly 70% and hasn’t recovered in the slightest.

Demand will flood back into the system. In fact, that’s already happening. We have no doubt that the coal play we let our Penny Stock Fortunes readers in on is the best way to take advantage of the coming coal boom. But there’s another energy commodity about to shoot even higher, even faster…

Natural gas prices have utterly collapsed. After trading above $13 in June 2008, natural gas fell the whole way down to $2.70 today. Its decline happened as gradually as can be. Most of the financial world has been trying to time the bottom for months. But it keeps falling.

We don’t know if this is the bottom, but it can’t be far from it. It doesn’t matter to us even if it’s not. You see, we found the best natural gas seasonal laborer in the world, and we can just wait it out… no matter how long it takes.

Before we get into any specific natural gas play, we need to know how big natural gas’s recovery will be…

Why We’ll See Natural Gas 209% Higher By Year-End

Natural gas and coal go hand in hand. They are oftentimes found together in the same place. Natural gas hides beneath and between coal beds. It’s not uncommon for a coal company to come in and mine the same site an oil and natural gas driller just left.

When one of these two is no longer in demand, it usually spells trouble for the other. That’s one of the main reasons natural gas has taken such a hit. But just as they fall together, they rise together.

We already laid out the reason coal will see a price spike in coming months and years. Natural gas is just as lucrative, if not more…

Natural gas demand is continuing to increase around the world at an unprecedented pace. Many nations are starting to choose NG over traditional coal and oil in power plants. It burns about 29% cleaner than petroleum and 44% cleaner than coal.

And because of its recent price collapse, it’s now the cheapest choice for customers. Why pay more for coal or oil when you can get natural gas for $2.50 per thousand cubic feet?

The supply side of the coin is even more compelling…

The U.S. imports around 17% of its natural gas — almost all of which comes from Canada. Unfortunately, Canada’s natural gas reserves are drying up. Daily Canadian natural gas production peaked in 2001. We’re already back down to 1995 production levels, and falling.

Natural gas production here in the U.S. has also fallen off a cliff. Most drillers can’t drill for a profit at these prices. So they aren’t. We have almost no production right now. We’ll eventually burn through stored natural gas reserves. When they go too low, it will spur a panic.

This panic will be enormous. Natural gas is simply too cheap. It hasn’t been this cheap for decades. The average oil-to-natural gas price ratio is about 9.3. Now it’s at about 29.

It wouldn’t take much for prices to shoot upward from here. To reach the 20-year average natural gas-to-oil ratio, NG prices would have to climb 209%.

That doesn’t take into account the future boom in demand. It won’t take long for it to correct itself…certainly before the end of this year.

This panic is inevitable, and there are a number of penny stock plays that could take advantage of it… Union Drilling (NASDAQ: UDRL) and Pioneer Drilling (AMEX: PDC) are two that could be worth looking at right now.

Sincerely,
Jim Nelson

September 23, 2009

Natural Gas’ Triple Could Give Us a 416% Gain By Year-End was originally featured in the Penny Sleuth.

In the last year, my Resource Trader Alert readers have already had the chance to book 143%, 148%, even 200% gains thanks to the commodities market. And in the current economic climate, as commodity prices start to heat up once again, the profit potential is amazing.

Here are the resource plays that I see rocketing right now…

Gold and Silver are leading the markets higher with the decline in the U.S. Dollar.  The greenback is at its lowest levels in since September 2008.  Gold is solidly above $1000 an ounce and looks positioned to easily make new all time highs on a course to $1200, from my projections.

Silver has made an impressive rally as well – one that I see continuing into the upper teens.

Recently I’ve been concerned about the lack of recent strength in Crude compared to new highs in stocks and metals.  Last week, that disconnect was repaired with a 5% move in prices putting oil solidly above $70 a barrel again. And it looks like oil hasn’t stopped its ascent either…

More Fuel for Higher Market Prices

The Organization of the Petroleum Exporting Countries (OPEC) did a good job of pushing oil prices up this summer. While OPEC managed to boost oil prices in the last six months, at current levels black gold is still a far cry from where it was a year ago – and where it could be again soon. This from Bloomberg:

“OPEC’s success in more than doubling oil prices since a five-year low in December will probably persuade ministers to maintain production quotas after this week’s meeting.

“Reducing shipments beyond record cutbacks last year would endanger the global economic recovery, the Organization of Petroleum Exporting Countries’ president said last week. Oil rose to $75 a barrel on Aug. 25, the price Saudi Arabian King Abdullah says is fair for consumers and producers.”

A major flaw in the governments’ unfair obsession with speculators is the failure to acknowledge the role of OPEC in energy prices.  They are a cartel!  Traders can buy and sell but only OPEC colludes to determine price levels.  Until hybrid cars, solar and geothermal technology, and algae fuel replace black gold we can fight the battle for financial gains.

We’ll continue to do just that.

It ALL comes back to commodities,
Alan Knuckman

September 14, 2009

What You Need to Know About the Future of Silver, Gold and Oil was originally featured in the Penny Sleuth.

It seems like utilities are the only industry that haven’t had a great year in 2009. That’s a shocking fact for many investors who counted on stable recessionary profits from utilities stocks.

In the past, utilities have been touted for their recession resistance. Brokers even went so far as to call them “widow-and-orphan stocks” because as USA Today’s John Waggoner puts it, “A stockbroker could sell utilities stocks to old Widow Brown (or Orphan Annie) without worrying that the townspeople would someday chase him down Main Street with dogs and torches.”

The torches would certainly have come out in 2008 when the sector shed 27% of its value – and again this year, when utility stocks lost another 30% as the S&P 500 rebounded by 15%.

Indeed, while the average publicly traded stock has increased in valuation by 40% since March, utilities have only seen a 24% reprieve from the depths of the market’s lows.

Believe it or not, that’s exactly why one subset of the utilities industry is such an attractive investment right now.

Why an Industry Mired in Doubt Could Pave Your Path to Profits

Don’t get me wrong; there are plenty of reasons to continue to stay away from the utilities sector as a whole. Utilities stocks are slow growing, they deal with all of the drawbacks of extensive government regulation, and with interest rates again on the rise, the cost of capital is liable to increase dramatically for the second-largest corporate borrower behind the financial sector.

But each of those arguments against investing in utilities is a double-edged sword that falls short when it comes to international utility stocks.

That’s because international utilities that operate in emerging markets are actually growing at a breakneck pace as countries like China and India develop their infrastructure and deliver things like electricity and clean water to their citizens. Overseas, where in many cases utilities have more say in the regulatory process, these companies act like government-sponsored monopolies.

And with dovish economists nervous to overcompensate on the interest front, it’s unlikely that any interest rate increases that we see in the next several quarters will materially hurt utilities stocks – especially those in high-growth areas.

So while domestic utilities continue to be mired with doubt and concern, investing in international utility stocks seems like a pretty exciting recession play right now.

Another of the utilities sector’s biggest draws is dividend income. Historically, utilities are one of the top-paying sectors when it comes to dividends – yet another reason why they’re so well-liked during recessions. When capital gains dry up during a bear market, dividends can often mean the difference between keeping your head above water and sinking with the ship. Even as utilities staged their disappointing tumble last year, consistent dividend income has lived up to expectations.

International Utility Profits Through ETFs

Naturally, one of the best ways to get exposure to international utilities is through exchange-traded funds (ETFs).

At present the ETF offering for utilities is staggering – from broad based utilities index funds like the Utilities SPDR ETF (NYSE: XLU), which is based on the S&P 500’s utility components to the PowerShares Progressive Energy ETF (NYSE: PUW), which invests in utilities that engage in environmentally friendly practices. But for international exposure, there are only two funds that stand out right now…

First is the iShares S&P Global Utilities ETF (NYSE: JXI). This fund, which is based on the utility components of the S&P 1200 Global index offers investors a good spectrum of international utility stocks as well as the stability of a few domestic plays thrown in. The fund’s top five holdings are all diversified overseas utility providers that operate in emerging and high growth markets, including E.ON AG, GDF Suez, and Enel SpA.

A relatively low expense ratio (0.48%), coupled with a 4.81% dividend yield make JXI a very attractive fund right now.

The other fund worth looking at is the WisdomTree International Utilities Fund (NYSE: DBU), which has thinner volume than JXI and a somewhat higher expense ratio (0.58%), but offers slightly more exposure to small-cap utility plays. Both funds share a very similar investment philosophy and hold many of the same stocks.

A 20% Upside in the Technicals

Taking a look at JXI’s chart above, even at first glance it’s pretty clear that this ETF is already in a sustained uptrend, one of the most important things that we look for in any trade. In early July, the stock’s 50-day moving average (the light blue line) crossed over its 200-day moving average (the dark blue line). Moving averages, which chart the average price of a stock over a given number of days, give us a glimpse at how a stock is trending relative to its past. Seeing a shorter-duration moving average cross over a longer-duration average is a bullish signal that suggests the real uptrend is only just beginning in the stock.

What’s also significant to us is the trading channel that JXI finds itself in right now. The fund has been bouncing in the same channel since March, and is currently toward the bottom of the channel, primed for a bounce back to the top. If this stock follows the pattern that its been exhibiting for the last six months, there could easily be a 20% upside on a JXI play.

As you might expect from such a closely related fund, DBU’s chart is nearly identical to JXI’s… That means that these two ETFs can be traded interchangeably.

From a fundamental perspective, it’s clear that international utilities are being undervalued by investors right now. And from a technical perspective, these two ETFs look primed to take off in the short term with a potential 20% upside for investors willing to take the plunge.

Cheers,
Jonas Elmerraji

September 11, 2009

These Utility ETFs Are Set to Soar was originally featured in the Penny Sleuth.

From where I’m standing, the market looks very overbought right now. That means that after the last three consecutive weeks of rallies that we’ve just experienced, the market is currently at risk of topping off and heading back down. But technical analysis is more than just speculation, so it’s time we look at a chart…

While we usually use the Dow, OTC Composite and S&P 500 charts to get a glimpse at what’s going on with the market at large, today we’ll be looking at the Wilshire 5000 and the S&P 500 for a view from the top.

It doesn’t take a rocket scientist to see that major indexes have come a long way, and are now sporting major bearish technical indicators. But you sure wouldn’t know it by watching TV.

Traditional Wall Street “buy and holders” would do themselves well by taking note of this…

When the markets see bad times on the horizon (forward thinking) they run the markets higher. Why would they do that you ask? So the big, smart money that is never on CNBC can get out. Said another way: You have to sell peanuts when the circus is in town — and one look at the last 10 days suggests that the market is the high wire act currently on stage.

Looking at the daily charts of the indexes, as well as a number of Investor’s Business Daily leaders, all we see are peaks and stocks in overbought territory.

While we aren’t seeing anything but a peak on the daily charts, we sure are seeing topping/bearish structure in the shorter-term frequencies — not just on the indexes but also in leading stocks.

So, what’s the bottom line right now?

In the short term as well as the long term all the ingredients are there for a pullback to initial breakouts (green lines).

The real test will be what happens after a pullback to initial breakout levels. Will we see a bounce? That bounce is what you really want to watch for, as more often than not the markets have a way of testing and returning to the scene of the crime.

If we are going to top in the next week or two, then a pullback of the recent breakouts are in order with another move up to put in a top.

Sincerely,
David Grandey
AllAboutTrends.net

July 27, 2009

Be Ready When the Market Tops was originally featured in the Penny Sleuth.

ExxonMobil is the Big Oil player that’s causing all the fuss. The company has thrown $600 million into a research partnership to study the potential of algae oil. Now, ExxonMobil will team up with human genome researcher Craig Venter in an attempt to make algae oil a more viable fuel source.

“There has been so much hype and hope about the potential for algae that this announcement should act as a reality check for everyone,” Venter told the Financial Times.

Up until this point, the algae oil industry was rarely mentioned in mainstream media sources. Yet it remains one of our most viable alternatives to conventional fossil fuels.

The argument is simple: Algae are the fastest growing plants in the world. And algae consume more carbon dioxide than any other plants. As they grow, algae produce lipids, or vegetable oil.

The math is greatly skewed in favor of algae. One acre of corn can yield about 28 gallons of oil in one year. In more tropical regions, an acre of palms can yield about 6,700 gallons of oil per year. An acre of algae can yield anywhere between 20,000-100,000 gallons of oil per year.

This tremendous potential exists because of a lightening-fast growth cycle. An algae plant can completely reproduce up to six times per day. And we all know it takes corn all summer to mature.

Of course, ExxonMobil’s new partnership does not mean we will be filling our tanks with pond scum biodiesel just yet. Developers will still need to tackle genetic engineering and oil extraction issues…

But ExxonMobil’s leap into the algae oil market effectively legitimizes the industry. But as you probably have already guessed, the budding algae oil industry offers very few public companies in which you can invest. However, there are a few compelling names you’ve probably never heard of…

Here are two algae penny plays you might want to watch:

PetroSun Inc. (PINK SHEETS: PSUD): Last month, this diversified energy company signed an agreement with a town in Arizona to develop a algae-to-biofuels wastewater pilot program…

Green Star Products Inc. (PINK SHEETS: GSPI): Green Star is involved in the business of environmentally friendly lubricants and fuel additives, as well as algae fuels and other biodiesels. Recently, the company has also announced plans to build electric vehicles.

Several private startups and partnerships are worth watching, too…

We’ve mentioned Sapphire Energy before. It’s scored more than $100 million in private financing — including a chunk from Cascade Investment, a holding company owned by Bill Gates.

Then there’s Algenol Biofuels. This company has partnered with Dow Chemical on a project that would use algae as a vehicle to harvest CO2 for ethanol.

“The ethanol would be sold as fuel,” reported The New York Times, “But Dow’s long-term interest is in using it as an ingredient for plastics, replacing natural gas. The process also produces oxygen, which could be used to burn coal in a power plant cleanly, said Paul Woods, chief executive of Algenol, which is based in Bonita Springs, Fla. The exhaust from such a plant would be mostly carbon dioxide, which could be reused to make more algae.”

The company’s target price is $1 a gallon — incredibly cheap compared with corn-based ethanols. A breakthrough like this one could put the U.S. on the road to energy independence at breakneck speeds. We’ll keep you posted…

Best,
Greg Guenthner

July 23, 2009

A $600 Million Boost to Your Clean Energy Portfolio was originally featured in the Penny Sleuth.

The American auto industry’s fall from grace coincides with a shift in the public’s perception of personal transportation. Higher gas prices and a new environmentally conscious attitude have pushed gas-electric hybrids and efficient diesels to the top of car buyers’ wish lists — leaving hulking SUVs to rust on the side of the road.

Add in climate change concerns and you have yet another dilemma for automakers. New government standards mandate total fleet averages to meet or exceed 35.5 miles per gallon by 2016. The new measure is part of an attempt by the federal government to limit greenhouse gas emissions.

It won’t be impossible to buy a gas-guzzler after the new fuel-efficiency standards take effect. However, your choices will probably be very limited. It’s doubtful that a struggling automaker will dole out the development costs to bring a nine-seat SUV to market only to have to drag down its required mileage average. So even if you are able to locate the SUV of your dreams seven years from now, it will probably cost much more than you would expect…

While Gas Guzzlers Are Punished, Coal Wins Big

Of course, cars and trucks aren’t the only cause of carbon emissions. Coal, the fuel of choice when it comes to power generation in the U.S., is right near the top of the list. In fact, coal carbon emissions have increased by more than 18% since 1990, while petroleum carbon emissions have increased 10.8% during the same time period.

Despite coal’s impact on the environment, new proposals to curb coal’s carbon footprint appear extremely lenient. So while new mileage laws are set to clamp down on American autos, coal will essentially get a free pass — all thanks to a proposed “cap and trade” system.

Cap and Trade: Government Concessions Guarantee Coal’s Future Success

Proposed legislation addressing carbon emissions isn’t exactly a carbon tax. Instead, the president and his allies in Congress have come up with a cap-and-trade system. Essentially, carbon emitters would have to buy permits that correspond to the amount of carbon dioxide they pump into the atmosphere. If these companies find a way to clean up their act a bit, they could sell some of their permits to more notorious polluters.

The intention of a system like this one is clear. However, there’s no way a proposal with any teeth will ever become law. The Economist reports:

“The system would motivate everyone to reduce emissions in the most cost-effective way. It would raise energy prices, which is the point, but it would also raise hundreds of billions of dollars, most of which Mr. Obama planned to give back to voters. Alas, that plan looks doomed.”

By the time the cap-and-trade proposal was watered down to potentially win enough votes, supporters were left with a bill that offered almost all of the carbon permits for free, with only 15% being auctioned. And the auctioning won’t even kick in for more than two decades.

While stricter mileage requirements will keep automakers in line, coal (and other traditional, dirtier energy sources) will essentially be allowed to thrive unchecked for years to come.

That’s why now is the perfect time to invest in a small-cap coal company. More on that in just a minute…

Coal: America’s Most Plentiful Energy Source

If you live in the United States and your house is on the electrical grid, chances are very high that at least some of the energy used to power your home is courtesy of a coal-fired power plant. In fact, almost half of the energy in the U.S. comes from coal…

It’s undeniable that coal is one of our most precious resources. So why did this seemingly recession-resistant commodity crash and burn last year?

Coal was hit hard by a broader pullback in commodity prices and the recession — which has weakened the demand for steel — whose production relies on higher-grade coal used in fire blast furnaces.

The recent boom in coal prices in 2007–2008 has left the industry nearly crippled today. Because prices were rising so fast, most coal companies kept an open book. They left contracts unsigned, to benefit from what they believed would be continually rising prices.

But when it all came crashing down, coal companies’ stock followed suit. And to make matters worse, most companies did not possess any locked-in contracts to keep business booming during the bad times. Consequently, profits suffered across the industry.

However, one penny stock I’ve been looking at is a small coal miner that possesses some foresight. While every other coal company was leaving contracts open, this miner was closing deals left and right — even during the height of the commodities boom in 2008. It’s a move that appeared foolish at the time. But now this tiny miner is poised to become the “comeback kid” of its sector this year…

If you’re a Penny Stock Fortunes subscriber, you already know the name of this prescient coal play – you got my recommendation to buy its shares early this week.

If not, visit the Penny Stock Fortunes website to learn how my CXS Money-Multiplier System has raked in profitable penny plays in 2009…

Best,
Greg Guenthner

June 17, 2009

How the Death of the SUV Saved American Coal Companies was originally featured in the Penny Sleuth.

The smart money, however, is looking elsewhere to take advantage. We found the perfect penny play to do just that…

Spreading Your Bet Without Losing Any Profits

Instead of outright betting on oil’s price, let’s use the spread between oil and gas. After all, some of the largest companies in the world do this. All the large oil companies (ExxonMobil, BP, Shell, etc.) do it by owning refineries.

Now, to be fair, most of their profits don’t come from the refinery process. But big money is still out there for the taking. Just take a look at industry leader Valero. Last year, while it may not have been a normal environment for a energy related business, Valero brought in $119 billion in revenue.

Unfortunately, most of the money disappeared because, as a refiner, the company had to purchase the oil to process. Oil hit $147 last year, which certainly put a dent in Valero’s bottom line.

So, the question if oil is rising again, will gas and heating oil follow? And if so, by how much?

Inviting the Mathematicians to the Oil Field

The most important figure in the refinery business is something called the crack spread. Using a West Texas Intermediate (WTI) crude refining model, the ratio is three barrels of crude (cost), two barrels of gasoline (gain), and one barrel of heating oil. That’s written like this: 3-2-1. If you are using OPEC grades, which produce less gasoline, the ratio is 2-1-1.

Until you see where it’s been and where it’s going, all this info is useless. Here’s a frame of reference:

Cracking the Crack Spread

As you can see, it’s been all over the board the last few years. It even went negative at one point last year, which means the refinery loses money on every single barrel of crude it processes.

We expect, over time, that this spread will stay above $7, probably even north of $10 or $12. This is not an exact science. Not only are we guestimating, we’re using a number that is only relevant to refinery investors, not refineries.

You see, every refiner has pays a different price for its oil, and has contracts set months ahead of time for the sale of its gas and heating oil… not to mention the other products that come out of this system (coke, propane, butane, slurry, sulfur, etc.).

So every refinery has its own crack spread number. And that can vary far less than what the above example would have you believe. For instance, do you think that a refiner will take a contract to sell its products at a lower price than its contract to purchase the crude? Absolutely not. So, other than extreme cases, its unique spread will never be negative.

We found a refiner that is doing just fine, and even has a leg up on competition through a unique business pairing.

Unlikely Paring Presents a Lucrative Penny Stock Opportunity

We’re talking about CVR Energy Inc (NYSE: CVI). CVR is a domestic refiner with operations in Coffeyville, Kansas — about 100 miles from Cushing, Oklahoma, which is a major crude oil trading hub.

Its refinery business brought in $4.8 billion last year. That’s quite a bit of business for a penny stock. And that’s not even the most interesting part about this play.

The company has a second segment that accompanies this petroleum business perfectly: nitrogen fertilizer manufacturing. You might not think of these two operations as brother and sister, but I assure you they are.

There are two ways to make nitrogen fertilizer: by using coke or natural gas. Natural gas is the obvious one everyone chooses because it is convenient and easy to transport.

CVR is the exception to this rule. It uses coke from its refinery, which is located right next door to the fertilizer plant. This cuts out one of the major costs of running a fertilizer business, and coke is just a by product of its refinery business.

Both segments have been a bit volatile over the last 12 months. With oil and gas prices spiking mid-summer last year, it caused the company to become much more flexible.

CVR’s refinery business, for example, moved from a complexity of 10.3 to 12.1 last year. A refinery’s complexity is a number that describes its flexibility to maximize yields (getting the most out of every barrel of crude and staying economical). This is a fantastic complexity ratio. It beats Valero’s average, which is the lowest cost refinery business in the country.

When you combine the next-to-no cost of CVR’s fertilizer business with the efficiency of its refinery business, you get one of the most attractive companies in either industry. And right now, it’s a steal for just a little over $8 per share.

You can’t ask for a better way to play America’s two favorite vices: gas and food.

Sincerely,
Jim Nelson

May 21, 2009

The Perfect Refinery Penny Play was originally featured in the Penny Sleuth.

Brazil is certainly in this basket of falling markets. Fortunately for you, it shouldn’t be.

Sure, more than half of Brazil’s exports are commodities like soybeans and iron ore. But there’s a very good reason why Brazil is a safer investment than most — stability. Before you get started, let me explain…

Over the past two decades, Brazil has gone through many crises. Each one taught the country how to handle poor economic situations. But it was the most recent one that puts us in a tremendous advantage.

After so many years of falling on its face, Brazil elected President Luiz Inacio Lula da Silva. Leaving our opinions aside, Lula has done something to put the country in the driver’s seat this time around.

At the beginning of this decade, the world punished Brazil for its high debt levels. Its market crashed, erasing years of growth. Since this pseudo crisis, the Lula administration has stabilized the country’s economy and paid down debt. On top of these moves, it’s also put tough regulations in place across many industries. Most investors thought these regulations limited growth, which they did. But now investors – or, at least, smart ones – see the regulations as necessary evils.

By regulating industries like energy and finance, Brazil kept a steady, stable growth rate of about 4% in recent boom years. The rest of the emerging nations of the world were getting used to a 7% rate. These other “emergers” were funding their growth by leveraging their assets and creating massive debts. Brazil was paying its down, while accruing next to no new debt.

The overall stock market hasn’t noted this major difference, however. Brazil’s major index, the Bovespa, is down 40% over the last 12 months – alongside the rest of the world.

While others struggle with “bad assets” and massive debts, Brazil will be ready to strike.

Energy is our favorite way to play Brazil. Without energy, you can’t expand. Just look at what China is doing these days. As it continues to come online, it burns through more coal and oil than anyone could have imagined. Brazil, while it’s no China, is still demanding an enormous amount of energy.

The largest difference between Brazil and China is the regulations. There are many more aggressive mandates in the Brazilian energy industry than most Chinese, or Americans for that matter, can even fathom.

For instance, there’s been a lot of talk in recent years here in the U.S. about switching regular gasoline for ethanol to power our light vehicles. Brazil has been doing this since 1975. That’s over 30 years of mandates, which require all light vehicles to use at least 25% ethanol blends. The country is the world leader in ethanol efficiency. That came from strategic mandates.

The rest of the Brazil’s energy situation is no different. In recent years, hydroelectricity became the country’s energy solution. Now 80% of Brazil’s electricity comes from hydropower. This energy revolution places Brazil 42nd in CO2 emissions worldwide. It produces less CO2 than countries like Israel and the Philippines, which are just fractions of Brazil’s size and population.

Early investors in Brazil’s booming hydropower industry stand to make massive gains, while the rest of the world’s nations are trying to put their own economies back together. That’s where you need to be looking.

Sincerely,
Jim Nelson

March 9, 2009

Brazil’s Hydropower Advantage was originally featured in the Penny Sleuth.

Very simply, It ALL comes back to commodities; we will know that the financial markets will stabilize when… oil prices rise again.

The economic data that the media tend to focus on are often lagging indicators. Unemployment, GDP, corporate earnings and retail sales tell us what has already happened… not what is going to happen.

The stock and credit markets most times have discounted and factored in the dire information that we are getting every day. Markets are forward looking, and higher crude oil prices are a sign that the worst is over and a recovery is under way.

A temporary no-lose situation has taken place with the oversupply of oil in the spot market. Inventories are significantly built up and storage has become nearly impossible to find. In fact, tankers are now being used just to store millions of gallons of crude — and they aren’t set to move an inch.

Nowhere for the oil to go has presented a unique situation in which traders can guarantee a profit by storing now and selling in future months. But as you know, there is no such thing as free money, and this to me is just another sign of an extreme that market forces will correct.

Technically, we are at the third attempt to push through the $50 per barrel level.

Jan. 20 marked new multiyear lows, but many indicators showed divergence and renewed strength to the upside. Since then, crude has rallied over 10% in a week as the stock market oscillated around the Dow at 8,000. Higher oil prices are the sign that consumers and the markets can handle it.

Commodity Investing in 2009…

Some commodities have actually done very — very well — in the past couple of months. Cocoa has reached the highest levels since 1985 with the decline of the pound sterling currency in which it is denominated.

The British pound made new 23-year lows against the dollar last month with the damage in the United Kingdom financial system. According to the Financial Times , a full-scale nationalization of the banking industry is “very close.” When the pound is weak, worldwide traders have more buying power for the commodity when they convert their currency to purchase cocoa.

The central banks around the world have had a contest to see which could cut rates to zero the fastest (Japan doesn’t count; it has been a mess for over a decade). The goal in times of global slowdown is to devalue your currency to aid exports and jump-start the economy with cheaper relative prices and more money to spend in the system.

The dollar is not strong!! It’s just not as weak as some other currencies of economies that are also in serious trouble. The currency fun and profits are about to begin.

Back to Commodities…

I was looking up a recipe and uncovered some interesting facts about meals from the Great Depression. Just to let you know, cooking is research for this job. “A chicken in every pot” was not just a political slogan, but what every city dweller aspired to before factory farming methods made it so cheap.

According to the U.S. Dept. of Agriculture, the average American ate 10 pounds of chicken per year, compared with over 60 pounds today. Chicken is just corn inside another package, and high grain prices have a huge impact on profitability for producers. What caught my attention was the recipe for mock chicken legs. It was cheaper to make fake chicken out of veal before giant corporate plants met consumer needs.

Enough about history; it’s time to address the present. Super Bowl Sunday had its own set of problems. A shortage of chicken wings doubled prices in some areas. It is widely disputed, but the Anchor Bar of Buffalo, N.Y., is credited with starting the delicacy in the 1960s to use the wasted wing parts that couldn’t be given away.

It’s not that there is a chicken shortage. There are plenty of breasts and legs to go around, but wing demand has reached new heights. The cause is the bankruptcy of poultry giant Pilgrim’s Pride and the entrance of KFC and Pizza Hut mass marketing the tasty boney treats.

I like to be optimistic, but I want to let my concerned friends know that this may be only the beginning of the problem. As the dollar goes down, commodities rise, pushing up corn and oil prices once again. And the savvy investor stands to benefit from this move.

Regards,
Alan Knuckman

February 5, 2009

The Economic Stimulus Plan, Commodity Investing, and Oil Prices in 2009 was originally featured in the Penny Sleuth.