By Justin Spittler, editor, Casey Daily Dispatch
“Situations like this don’t last forever…
“Eventually, the pendulum swings the other way. The trick is knowing when that will happen.”
I wrote that in June. I was talking about energy stocks.
At the time, energy was one of the most beaten-down sectors.
It had been lagging the broad market for nearly a decade.
You can see what I mean below.
This chart, which I originally shared in June, compares the performance of the Energy Select Sector SPDR ETF (XLE) with the S&P 500. XLE invests in 32 major U.S. energy companies.
When this line is rising, it means energy stocks are doing better than “the market.” When it’s falling, they’re underperforming.
You can see that energy stocks have been underperforming the S&P 500 since 2008.
During that time, you would have done much better by blindly investing in a major index fund.
This led many investors to give up on energy stocks. It’s also why the sector now makes up just 5.9% of the S&P 500. That’s half of what the sector’s weighting was in 2011.
• In short, people have been acting like the oil and natural gas industry is on its last leg…
And that’s exactly why I became interested in it.
You see, most people chase high-flying stocks. They buy whatever is the flavor of the month.
I’d rather buy what other investors won’t go near. This allows me to get incredible deals.
That was the case with energy stocks back in June. They were a screaming bargain.
That said, I’ll never buy something just because it’s cheap. After all, a cheap asset can always get cheaper.
I need to see a stock stop falling before I step in.
• A few months ago, energy stocks did just that…
See for yourself. XLE bottomed out in August.
After seeing this, I told readers in September that this was the buy signal we’d been waiting for. I encouraged them to buy energy stocks.
If you took my advice, congratulations.
XLE is up 7% since then. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which invests in 68 oil and gas producers, is up 12% over the same period.
But don’t worry if you didn’t get in on this trade. There’s still time to strike it rich.
That’s because energy stocks still have a ton of catching up to do.
This rally could soon turn into a mania.
• That’s because energy companies are raking in cash…
According to research firm FactSet, energy companies in the S&P 500 are expected to post a 275% jump in profits once fourth-quarter results are tallied.
That would mark the biggest jump in earnings for the sector since 2011. That year, the sector grew just 13% from the previous year.
Not only that, FactSet projects earnings for the other 10 sectors in the S&P 500 to rise just 6.9% over last year.
In other words, oil and gas companies aren’t going away anytime soon.
Soon, everyday investors will figure this out.
When that happens, a tidal wave of money will pour into major energy funds like XLE and XOP.
So, consider investing in one of these funds if you haven’t already. A year from now, you’ll be happy you did.
New Orleans, LA
January 2, 2018
Chart of the Day: Lithium Stocks Are Poised for a Big Year
By Joe Withrow, analyst, Casey Research
Lithium stocks exploded onto the scene in 2017 thanks to the growing electric vehicle (EV) market.
The Global X Lithium & Battery Tech ETF, which tracks 35 lithium-related stocks, soared 56% in 2017.
That’s impressive…but this story is just beginning.
You see, Bloomberg projects the EV market to grow tenfold over the next three years. And that’s going to require a lot more lithium…
But here’s the thing: there aren’t that many lithium mines in production right now. And it can take three years to produce batteries using lithium.
That means we are racing towards a lithium supply crunch. Demand for lithium is spiking…but lithium production will not be able to keep up.
In fact, British consulting company Roskill – a leader in metals and minerals research – said we could see a 26,000-tonne shortfall in lithium supply by 2025.
And as regular readers know, rising demand and falling supply can only result in much higher lithium prices as the cycle plays out. And that’s good news for lithium stocks.
Look for LIT’s rise to continue in 2018 as a result.
Today, a flood of feedback for Doug Casey’s recent interview on what will trigger bitcoin’s collapse:
I like how everyone else has zero idea how high the price will go. But the one comment Doug makes that I think is the most likely outcome is that something at some point will cause bitcoin to collapse, whether that is government intervention or some other cause.
If I had to guess at this point, my guess would that a competing crypto that is more efficient, cost-effective, and faster will replace bitcoin. But for any crypto to last and become trusted and used in everyday commerce, the volatility is going to have to lessen substantially.
I agree with Mr. Casey's thoughts on bitcoin because governments are going to keep control of their own currencies, digital or otherwise. In addition, companies continue to develop more sophisticated computers.
I watched the conversation between Justin and Doug. Too many people think this bitcoin will go higher. And the sky is the limit. Aren't we duplicating the dot-com era?
I think Doug is right. Bitcoin went from $300 in early 2016 to $18,000 a few days ago. The increase is incredible. Things don't stay good forever.
I started with cryptocurrencies in November 2017. I had a small account. But in 6 weeks I doubled my money. It’s unreal.
I disagree with Doug's thoughts about bitcoin being disrupted by quantum computing. What he's overlooked is this: cryptographic algorithms will also advance, neutralizing the power of the forthcoming computers. It will be a long time before we even see a reliably working quantum machine, and the cryptography experts are not sitting still. I'm not losing sleep.
Nothing would give me more glee than to see NSA obliterate all cryptos with a discreet computer virus worldwide.
I agree with Doug on this. I would like to add that even now the crypto trading infrastructure is becoming unstable under explosive demand. I mean the exchanges, the wallets, and the fees are very wobbly right now. Unheard-of demand might cause a critical failure, a shutdown… and then a bust.
The final paragraph told me everything I needed to know. Doug fails to consider that bitcoin is truly INTERNATIONAL. Indeed, Japan already considers bitcoin a currency. Furthermore, if he hasn't already gotten the memo, the mintage of BTC is around 16.75MM, NOT the 21MM which will be achieved by year 2140.
I could rattle on more and more about this. I've actually mined bitcoin back in winter 2009, just to give my computer something to do while I was in class. I witnessed the insanity of Mt. Gox firsthand and avoided the "grab" as I never keep any crypto in one place, except to conduct a trade, sell, or buy—then I'm out of there! That's how to keep from getting Gox'ed or Cryptsy'ed!
I love your ability to put a small thing like bitcoin in perspective to the GDP. I must learn to do that sort of thing. Thanks.
I'm feeling pretty hopeful for the next few years ahead because of low commodity prices and trends in technology, especially batteries and Trump's infrastructure plans. At the same time, the debts of governments and banks loom. I'm hoping that the impending crash will leave some mechanisms intact. I'm still reeling from 2007-08.
Nevertheless, I also want to thank you for instilling in me enough confidence to switch to self-directed investing from mutual fund investing a couple of decades ago. It's a better lifestyle for me.