According to the big guns, the discussion at this year's meeting of the World Economic Forum in Davos will center on how to manage a synchronized global recovery in which both the developed and the developing world participates. We think that's a laudable goal. Where we differ is that we think any recovery that occurs will be fairly short-lived. Our reason: the resources necessary to sustain growth simply don't exist. As in 2008, resource scarcity will accelerate with any increase in growth.
We can't help notice that Brent Crude, one of the best benchmarks of oil prices, is only down 1 percent on the day, despite the Saudis hinting that they could raise oil production. Of course, any new oil the Saudis bring to market will probably not be the light sweet crude everyone desires but a goodly portion of heavy, sour oil. Hence, production and refining costs may be higher. Meanwhile, oil demand is on a convex curve such that any increase could drive prices significantly higher.
Consequently, a worldwide recovery could easily generate a sell signal from our oil indicator. (Sell signals occur when oil prices rise 80% or more year-over-year.)
That doesn't mean we can't take advantage of the reprieve that seems to be emerging. Money is flowing today, and growth is on the horizon. Even the euro seems to have stabilized, thanks to Germany's need to maintain its exports by keeping the euro afloat. By all means, let's harvest the crops before winter. So with that in mind, here are some low-hanging profits worth picking over the next 6 to 12 months...
HOW HAVE OUR 5 POTENTIAL 100% GAINERS FARED?
You may recall that last September, we gave you a list of 5 aggressive stocks that we thought could double within 18 months. Only one of the five is up 100% as of this morning (but then it has only been six months). Nonetheless, let's review and tweak the list.
NovaGold Resources (NG)
is our 100%+ winner, having gone from around $6 to $13. We think it still has enormous potential and could even double again this year. Our only question is whether to call it a copper or a gold company (it has substantial holdings of both). For now, we'll call it a copper company because we think copper prices may have more potential this year. Do not discount gold, however.
Over the longer term, you simply must own the yellow metal. It will be less volatile than copper and is fast becoming the world's leading currency. Luckily, with Nova you get a play on both metals.
Silver Wheaton (SLW)
did double at one point since our recommendation. Though it has pulled back recently, it is still up some 55% since September. We think Silver Wheaton has further upside (as does silver bullion), but we have to admit that other silver stocks are looking more attractive today. One such stock is Tahoe Resources (THOEF)
. This start-up company is fully funded, giving it more downside protection and the potential for more reliable gains. We think it stands a better chance of doubling over the next 12-18 months.
Gazprom (OGZPY) also made our list, and while it is up 20% since September, we had hoped for a better showing. The company has a virtual monopoly on natural gas in Europe. We thought the European economy would beat expectations, and it has. Despite this, and despite Gazprom's compelling valuations, we think there are other energy stocks with more potential. One in particular will be featured in your next issue of TCI. For now, we will say you should look to smaller Australian energy producers. The giant Australian resource company, BHP Billiton, has been foiled in its attempt to make some large foreign acquisitions (Rio Tinto and Potash), so it will probably look to buying closer to home.
If you want to stick with American energy stocks, consider BorgWarner (BWA)
, a company with technology for increasing the energy efficiency of automobiles and trucks. Maybe it won't double this year, but it could grow by 20-25% a year for the next 3-5 years.
TEVA Pharmaceuticals (TEVA)
was the one pharmaceutical stock on our list. Again, it has performed well, but not outstandingly. However, its leading drug has recently received a new lease on life and the company has other promising drugs in the pipeline. The only downside is that Teva is not a small company anymore. Nonetheless, we think the stock is worth sticking with for now.
Our final choice was the China Fund (CHN).
It is currently up about 10%, which is a little disappointing. But the Chinese economy has struggled mightily with inflation since last September, putting in a big burst of growth in the 4th
quarter. We feel China is transitioning successfully from an export-driven economy to a consumer-driven economy. We like the China Fund because most of its holdings are geared towards the Chinese consumer. Rural income in China gained 11% last year, outpacing growth and just about any other statistic anywhere in the world. (If only America's working poor had seen such a pay raise – it would have been excellent medicine for our economy.) China is slowly becoming a more egalitarian society and to bet against the country today you would truly need to stick your head in the sand.
Bottom line, for now the broad market should do fairly well. Our favorite sector remains commodities, while our surest long-term investment remains gold (despite its recent pullback). Aggressive stocks will perform well until the music stops. (Again, keep an eye on oil.) But take advantage of this positive period.
Disclosure: Leeb Group, its officers, directors, shareholders, employees and affiliated entities and/or clients of such affiliated entities may currently maintain direct or indirect ownership positions in financial instruments (i.e., stocks, bonds, options, warrants, etc.) of companies or entities whose underlying exposure is in the companies mentioned in this article.