Justin’s note: Today, I sit down with former money manager and Strategic Investor editor E.B. Tucker for a big-picture view of the markets… and the specific sectors you should be looking at today.
Read on to see why E.B. says today’s market has many people fooled… and to learn about the top ways to protect your wealth (and profit) in this environment.
Justin: Thank you for joining me today, E.B. Lately, you’ve stressed how important it is to be highly selective in your investments.
Why do you say that? After all, the last few years have been very kind to passive investors. You could basically own the S&P 500 and make great returns. What’s changed?
E.B.: In the fourth quarter of 2018, the S&P 500 went from 2,925 down to 2,350. It effectively fell 20% in a quarter. Of course, it’s since rallied back to around 2,800.
So everybody’s saying, “Okay, well that was just a scare.”
But it wasn’t just a scare.
The market went down substantially and still hasn’t fully recovered. The S&P 500 is still 4% below where it was in early October. That’s a wild ride. A lot of people don’t want to go through that again.
What if the ride down isn’t over? What if the S&P 500 falls another 30%… and then rallies 25%… before falling another 30%? That’s not something you want to sit through again if you have a lot of money on the line.
Staying on this roller coaster ride could turn out to be really expensive.
Justin: What should investors do? Move everything into cash?
E.B.: No. You still want to have skin in the game. You just don’t want to have that much skin in the game.
You also don’t want to own the glory stocks of the last boom. I’m talking about the name-brand stocks that practically every investor bought during the last run-up.
Justin: Like the FAANG stocks?
[FAANG is one of today’s most popular investing acronyms. It stands for Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL) – now known as Alphabet.]
E.B.: Exactly. If you talk to the average Joe, he’ll tell you that he owns a few Amazon shares and he’ll probably say, “Boy, I sure hope it goes back up.”
And if he doesn’t own Amazon shares directly, he owns it through the SPDR S&P 500 ETF (SPY) – which tracks the S&P 500 – or another major fund. The average investor owns these companies one way or another.
And sure. Amazon, Netflix, and Facebook all had great runs. But their valuations are sky-high. Plus, they’re now under attack by the federal government in the United States. The European Union is getting on their case, too.
Of course, Amazon’s a great company. It’s convenient that you can buy a pair of shoes on Amazon in the morning and it will show up at your house 12 hours later. But that doesn’t mean you should buy its stock.
Huge amounts of capital have flooded into Amazon and the other FAANG stocks in recent years. But this won’t continue forever.
Markets tend to fade hot stocks like this. Eventually, people get carried away. They overexert themselves. The market corrects. Money then rotates into something new. That’s just how these things work.
So, in this environment, we want to own companies that provide services and goods that people need. We also want exposure to major trends, but we also want to have as little money on the line as possible.
We’re happy to invest in those companies regardless of whether there’s trouble on the horizon or not.
Justin: What types of stocks fit that bill for you?
E.B.: One sector that we find very interesting is offshore energy services. I say this because a lot of offshore drilling companies in the Gulf of Mexico went bankrupt after the Deepwater Horizon oil rig explosion happened.
But oil company BP recently announced it found a billion barrels of oil in the Gulf. That’s huge because the Gulf is not a dangerous place to operate. There aren’t any pirates like you’d find off the coast of Somalia. There aren’t people tearing apart the rigs and stealing oil. It’s very safe.
We think the Gulf is a forgotten land.
Justin: How should we play this? Do you invest in oil producers?
E.B.: We’re not so interested in producers. But we do like oil services companies a lot.
These companies sell machinery and equipment to oil producers. They also provide services like seismic testing and rig transportation.
You can think of them as the “pick-and-shovel” companies of the oil industry.
Oil production in the Gulf is very capital-intensive. Wells there produce for years and years.
A shale oil well, on the other hand, produces a lot of oil in the first six months but it’s barely squeaking out oil by year two or three, relatively speaking. By year 20, that sucker is tapped.
It’s very different in the Gulf. When a company taps a well there, it churns oil out for decades. Because of this, oil producers spend a ton of money on the front end. We’re talking billions of dollars.
And they spend that money on the right oil services companies to help ferry the parts to the rig.
Justin: What other sectors or stocks do you like in this environment?
E.B.: We’ve found some very interesting service companies that will thrive during the electric vehicle [EV] revolution.
EVs are here to stay. There’s going to be a lot more of them. Now, this isn’t going to happen a year from now. But there will eventually be a lot more EVs on the road.
They’re going to require a lot more power and a lot of batteries. And we want exposure to those kinds of companies. We’re really interested in opportunities where we can pay pennies on the dollar for quality assets. That way we don’t have to invest a lot of money to capture a ton of upside.
Justin: It’s interesting that you’re long oil but also betting on EV companies. After all, the EV revolution poses a serious threat to oil demand over the long term.
E.B.: Yeah. So, one thing people should know about me is that I’m not an ideologue. I’m a mercenary. I won’t disregard specific investments if I think the opportunity is right. I’m not going to say, “I like oil, so I’ll never like an electric anything.” That’s just not how I am.
Plus, everyone these days walks around with a smartphone in their pocket. That phone has a lithium-ion battery that will keep a charge for days if you don’t use it. It’s very similar to the ones that power EVs. At the same time, most people drive cars powered by gasoline. And they get on planes that run on hydrocarbons.
We’re going to witness a shift towards all kinds of things that are battery-powered. The technology’s going to improve. Charging times are going to shorten. The life of the useful battery is going to grow. And the size is going to get smaller as well.
But again, this shift won’t happen overnight.
Oil is still going to have a place in commerce. The world still consumes around 90 million barrels of oil a day. So the price of oil won’t go to zero.
Justin: Interesting. Aside from making small, concentrated bets on major trends and high-quality companies, what else should investors be doing? Should they be taking precautions to protect themselves?
E.B.: Yes, and owning physical gold is one of the best ways to do that.
It has limited downside and big upside from here. Not only that, it has also survived every major financial crisis in history. This makes it the ultimate safe-haven asset.
In December, I went on Kitco News in New York City. I predicted gold would hit $1,500 an ounce in 2019. At the time, gold was trading at around $1,220 per ounce. It’s now at $1,329… so the price of gold has jumped about 9% since then. And yet, gold still isn’t getting much press.
I still believe gold can hit $1,500 this year. And I think there’s never been a better time to own it.
Justin: Great stuff, E.B. Thank you.
E.B.: My pleasure.
Justin’s note: E.B. will have more to say about the gold sector in tomorrow’s Dispatch. Stay tuned…
In the meantime, if you haven’t already, there’s still time to sign up for Wednesday night’s big event: The Stock Market Escape Summit.
During this event, which is sure to be one of the most important in Casey Research’s history, E.B. and legendary speculator Doug Casey will share the details on a unique type of security that could make you 1,000%-plus gains in 2019 – outside the market.
It’s not a stock, option, cryptocurrency, or bond. And it has nothing to do with the latest fund, currency play, preferred stock, or private investment. But it’s a strategy that E.B. and Doug have both used to book big winners over the years. And now, they’re sharing the full details on how it works – and how you can start using it, too.
Today, high praise for Casey Research founder Doug Casey and his recent interview on class warfare…
I absolutely agree with Doug Casey.
Thank GOD for someone who just tells it like it is.
I’m so thankful for his putting into words what I and many others feel in our hearts – without worrying about how the PC-types will howl about the truth he speaks. Best regards.
As always, send any questions, comments, or suggestions to [email protected].