Justin’s note: Today, we turn to Strategic Trader editor E.B. Tucker, who shares the details behind what he calls “the world’s most explosive securities.”
As you’ll see, now’s the perfect time to own this specific kind of security.
It’s a critical part of the overall strategy in his brand-new letter. And it’s paying off big time right now. One of his recommendations is up 74% since late February… while the underlying stock is up only 1% during that same time frame. Another is up 218% in just three weeks.
Below, E.B. shares all the details on how these securities work and why you should seriously consider investing in them today…
Justin: Hi, E.B. First things first… What is the world’s most explosive security?
E.B.: When I say the “world’s most explosive securities,” I’m talking about stock warrants.
I’ll explain why in a second. But let me back up.
A stock warrant is a security that gives the holder the right, but not the obligation, to buy a share of stock at a fixed price at any time during a pre-determined period.
In simpler terms, it’s a better way to make more money than just buying a stock outright… and it’s also a much cheaper way to get in.
Warrants are as easy to trade as common stock. But they offer far better returns because they essentially offer leverage to a rising stock price.
Justin: How are they different from options?
E.B.: Right. So, many people compare warrants to options.
And they’re similar… But there are two major differences.
One, warrants are issued by the company itself – not a third party, like an exchange. The second difference is gains. Warrants offer far more upside.
Best of all, you aren’t really looking for anything to happen when you buy warrants. They’re a longer-term bet.
Still, many investors don’t even know warrants exist.
Justin: Why do companies issue warrants?
E.B.: Companies issue warrants to “sweeten the deal” for big investors at times. And companies will often do this to attract investment when support is thin. They’ll issue them when times are tough.
Think banking in 2010, gold mining in 2015, or the offshore oil industry in 2017.
Another time you see warrants issued is when a company exits bankruptcy restructuring. In bankruptcy, debtholders end up owning the restructured company. They’ll often demand a warrant so they have exposure to the company’s future success. It’s the same thing we want when we buy warrants.
You see this all the time. But that does not mean that warrants are only issued in companies that are trash. Bank of America, Goldman Sachs, and SunTrust all had to issue warrants in 2010.
These warrants delivered tremendous returns over the next 10 years, because the banking sector turned around.
Justin: Do you have to be a sophisticated or even an accredited investor to buy warrants?
E.B.: No. That’s the best part: Anyone with a brokerage account can buy them. No options agreement, no margin account, and no special accredited status are needed.
And you don’t want to trade warrants around the clock like you might with some other securities. Warrants are for the long haul. Most of them you’d hold for three to five years. That’s plenty of time.
The overall market’s going to do what it wants during that period.
Warrants are a great way to get exposure to the long-term trajectory of the stock market, which tends to be up regardless of crashes. That’s the idea that we developed my newsletter Strategic Trader around.
Justin: Interesting. So would you say warrants are a good investment in this environment? I ask because many investors, including Doug Casey, believe we’re headed for a major financial crash.
E.B.: Right. So I’m in the camp where the market seems a little expensive and overdone. But you’re just watching a plane take off and fly away from you if you don’t have any exposure to the market.
Warrants are perfect for this environment. Remember, you can buy many of these warrants for pennies. I’m looking at one that’s priced at $0.40 as we speak. And you have three years for this warrant to pan out.
Think of it this way. You could have 95% of your money in cash and 5% in warrants, and you’d still have the same upside as if you were all-in on stocks. But with much less risk because you’d be mostly in cash.
I say this because warrants offer capped downside while still giving you a real shot at 1,000%-plus gains. You’re not going for 20% returns.
Those are the kinds of trades you want to be making right now. You don’t want all your money tied up in $40 stocks.
Justin: Okay. That makes sense. What sorts of warrants are you buying? In other words, what industries or sectors do you see opportunity in?
E.B.: First off, we want to acquire these rights to buy stock of well-financed companies in stable, long-term industries. We look for businesses with growing cash flows.
Right now, we like the oil market, particularly offshore companies.
This industry had a tough time after Deepwater Horizon. Any offshore energy company that needed money had issued warrants.
We bought several warrants in that space. And we’ve done quite well with those. In one offshore supplier, for instance, we’re up 74% owning warrants when the company’s stock is up only 1% over the same period. Plus, we think the business is just finding its footing… meaning we’re expecting a lot of great quarters ahead.
We also own warrants in emerging industries. Take the cannabis industry, for instance. It didn’t exist several years ago. It’s part of the Trump administration’s legalization of several industries.
This is a multibillion-dollar industry in the making. Look at the warrants of these companies. They’ve skyrocketed. But no one even thought about buying these warrants a few years ago. They didn’t think we’d see cannabis legalization, for instance. They’d say, “Oh, that’s a good story, but I don’t know if I believe it.”
When cannabis companies first came around, they had no choice but to issue warrants because people were like, “Man, that’s illegal. I can’t invest in that.” So they offered warrants to get investors to trust them.
Justin: How do you go about finding warrants worth buying?
E.B.: Yeah, so it’s a bit more complicated than finding quality stocks.
It’s easy to search for stocks if you have access to the Bloomberg Terminal. You can search for stocks that start with the letter E and with a share price under $10, and Bloomberg will spit out the stocks that fit those parameters.
It’s not as easy with warrants. Ask Bloomberg for a list of warrants, and it will give you thousands. But you have to manually sift through every warrant.
But we’ve already done that. We built a database of warrants. We weeded out the warrants that don’t trade. We also got rid of warrants from industries that we don’t like. We were left with a big list of prospective warrants.
Out of that pile, we look at three factors: the time remaining on the warrant, its volume, and most importantly, the setup for the underlying stock.
And we update our database regularly.
It’s a lot of work. And it’s paid off. We have several dozen warrants that fit our criteria and have tremendous upside.
Justin: Great stuff, E.B. Thanks for sharing this exciting, money-making opportunity with us today.
E.B.: My pleasure.
Justin’s note: In E.B.’s Strategic Trader letter, he’s already pinpointed some of the explosive warrants available today. One is already up an astonishing 218% in three weeks. Another is up 74% in just over two months. Three are up 20%-plus… and E.B. says the gains are just getting started.
You can learn how to access these names, and all of E.B.’s research, by watching this urgent video presentation.
One reader has high praise for our founder, Doug Casey…
Your words are precise, unexaggerated and effective. I’m grateful that there are those of your caliber who dedicate time and energy to help the rest of us understand our human weaknesses (and economics is not a subject we gravitate to).
We haven’t made much progress since we hit the ground, and we may not survive our technological adolescence. But don’t be too hard on us – we have politicians and the press to deal with. Enlightenment won’t be found in our major institutions anywhere and people are either drugged or have their noses pointed at the latest widgets to care. I’m so glad I grew up in the ’40s. I’m 81 and remember the years when folks were proud to be called American. Bygone days. What a revolting development this is!
Another reader voices her concerns with the nuclear sector…
The China Syndrome movie may not have been your cup of tea …but watch instead a new TV production regarding nuclear energy, “Chernobyl.” It’s based on a real-world event. For all the planning and technology, accidents can and do happen at nuclear power plants. Equipment failures, human error, and natural catastrophes – think Japan – can override all the best-laid plans. Minimizing and dismissing concerns about nuclear energy by terming it “hysteria” is naïve.
As always, send any questions, comments, or concerns to [email protected].
Bonner & Partners founder Bill Bonner writes to his Dear Readers every day in his Diary, and recently he revealed the latest way our government will take advantage of the many.
He tells us that Modern Monetary Theory (MMT) states that governments can, and should, print and spend as much money as they want… Politicians will predictably always take the low road.
Read on here for Bill’s explanation on how, “Money is time. Time is life. MMT is just the latest swindle to take it away.”
If you’re interested in Bill’s wisdom… you can sign up to receive his Diary every day with one click right here. It’s an excellent complement to your subscription to the Dispatch.