Long Term Trends: Part 1: Energy, Oil, Coal, Nuclear, Cleanup

Forever Portfolio Series

James Altucher, of TheStreet.com and Stockpickr.com, is writing a book: The Forever Portfolio: How to Pick Stocks That You Can Hold for the Long Run.

James Altucher hopes to show investors how to build a strong, consistent long-term portfolio, diversified enough to withstand the various cycles of the market.

Inspired by this, we will be starting a series over a period of time highlighting some long term trends. Some of the trends may be working right now, but some of them may start several years from now but last a long time.

Energy

Energy is a long term trend. Oil price is zooming. Demand will be increasing over the long term as countries all around the world, especially those countries in the emerging markets (such as China and India) demand more energy and oil.

Supply will remain limited, and rising energy prices (or consistently expensive energy prices) will remain a long term trend.

Integrated Oil Companies

Some integrated Oil Companies to look at:

1. Exxon Mobil (XOM)
   
2. Conoco Philips (COP)
   
3. CNOOC (CEO), Chinese Oil Company
   
4. Petro China (PTR), Chinese Oil Company
   
5. Petrobras Energia (PZE), South American Oil Company
   
6. Lukoil (LUKOY.PK), Russian Oil Company
   

Oil Services and Exploration

Oil companies need help searching for new oil, drilling, extracting oil from oil sands, and all other forms of help. Some of these oil services companies could benefit.

1. Schlumberger (SLB)
   
2. Halliburton (HAL)
   
3. Transocean (RIG)
   
4. National Oilwell Varco (NOV)
   
5. Nabors (NBR)
   
6. Ensco International (ESV)
   
7. Petroleo Brasileiro (PBR)
   

Canadian Oil Sands and Other Energy

Canada has the Largest Crude Oil Reserve, but much of it is in Canadian Oil Sands, which can be difficult to extract, but becomes profitable as energy prices remain high.

1. Suncor (SU)
   
2. Canadian Natural Resources (CNQ)
   

Natural Gas

As oil zooms higher, other forms of energy resources are needed and this incldues Natural Gas.

1. Chesapeake Energy (CHK)
   
2. Canadian Natural Resources (CNQ)
3. Andarko Petroleum (APC)
   
4. Encana (ECA)
   
5. Devon (DVN)
   
6. Apache (APA)
   

Oil and Gas Pipelines

Gas and Oil needs to transported.

1. Williams Co (WMB)
   
2. Spectra Energy (SE)
   
3. Enbridge (ENB)
   
4. Kinder Morgan Energy (KMP)
   
5. El Paso Coroporation (EP)
   

Refinery

Oil needs to be refined.

1. Valero (VLO)
   
2. Marathon Oil (MRO)
   
3. Sunoco (SUN)
   

Oil Shipping

Oil needs to be shipped all around the world.

1. Frontline Ltd (FRO)
   
2. Nordic American Tanker Shipping (NAT)
   
3. Overseas Shipholding Group (OSG)
   
4. Teekay (TK)
   

Coal

Coal is one of the most inexpensive forms of fossil fuel. Some people complain about the environmental implications. There are new technologies out there.

1. Peabody Energy (BTU)

Coal Services

1. Bucyrus (BUCY)
   
2. Joy Global (JOYG)
   

Railroads for Coal

Railroads are needed to transport energy products such as coal:

1. Union Pacific Railroad (UP)
   
2. CSX Transportation (CSXT)
   
3. Norfolk Southern Railway (NS)
   

Nuclear

Nuclear can provide a lot of energy for very long time, but detractors do not like the environmental implications.

1. Cameco (CCJ)

Environmental Cleanup including Nuclear

With all these byproducts, the environment needs to be cleaned up.

1. American Ecology (ECOL)
   
2. Clean Harbors (CLHB)
   
3. Energy Solutions (ES)
   

Alternative Energy

Alternative Energy is still a very speculative area, but if you wish to research, you may. Alternative energy includes ethanol, bio-fuels, solar, wind, and even wave power. As of this moment, more funding will be put in alternative energies in a world where energy prices are zooming too high. Students and researchers will be researching new and more profitable ways to provide energy.

1. First Solar (FSLR), A Solar company
   
2. Any Agriculture Company
   
3. Energy Conversion Devices (ENER)
   
4. Imperial Sugar (IPSU), another source of ethanol
   
5. Toyota Motors (TM), a leading hybrid engine car company
   

Natural Gas Boom, Oil Sands, Rising Oil Prices, Breakout: Try CNQ, Canadian Natural Resources

What company benefits from all the trends below?

1. Crude oil is zooming.

2. Jim Cramer has proclaimed 2008 the Year of Natural Gas. In Jim Cramer's CNBC Show Mad Money, Jim Cramer expressed his optimism:

Cramer extended his optimism to the entire natural gas sector. With the growth rates for a natural gas drillers averaging 15%, he said investors will be hard pressed to find such high growth in any other sector. He also mentioned the sector's excellent visibility as another plus.

3. Oil Sands Exposure

Over the long term, as crude prices zoom higher, alternative sources of oil need to be found. Canada has the Largest Reserve of Crude Oil, and extracting the Oil from Canadian Oil Sands becomes a much more profitable experience. Right now, oil sands account for 50% of Canada's Production. By 2010, it is estimated to account for 70%.

This particular company has a Horizon Oil Sands Project and Phase 1 of the project is almost 100% complete.

4. Breaking Out, 52 week high

As of May 6, 2008, this company has broken out to a multi-year high.

The Company?

So what is the Company? The Company is Canadian Natural Resources (CNQ), and this company benefits from all the trends above. It has a forward PE of 14.5.

Canadian Natural Resources (CNQ) is a company worth looking into.

PE to Growth Ratio for International ETFs

Vlada, from the Czech Republic (stockweb.blogspot.com), posted a great link.

Vlada looked at several international ETFs and calculated the PEG ratio (Price Earnings Ratio to Growth Ratio) based on a countries 2008 GDP growth and a countries P/E Ratio (the Economic PEG).

The countries with the highest 2008 GDP growth include China (9.3%), India (7.9%) and Russia (6.8%).

The countries with the lowest 2008 GDP growth include Italy (0.3%), the US (0.5%) and Canada (1.3%).

The countries with the lowest PE ratio are France and the U.K. (11) and Italy (11.1).

The countries with the lowest PEG ratios are China (1.6) and India (2.3).

The countries with the highest PEG ratios are Italy (37) and US (26.8)

While one could look at the Economic PEG on its own, I think one additional thing we can look into is the rate of GDP growth, or the direction of P/E ratios. At some point, will China and India growth slow? And will Italy and US Growth start to increase?

Jim Cramer Cameo on Iron Man Movie

While watching the Iron Man Movie, I was surprised to see a hilarious cameo by CNBC Personality and host of the CNBC Show "Mad Money." Based on the audience reaction, looks like there were enough people who recognized Jim Cramer.

The Iron Man Movie itself is worth going to the theatre for.
















WARNING: SPOILER ALERT COMING UP!

In the movie, Tony Stark, weapons developer and the man behind Iron Man, mentions that he will be suspending his weapons development operation division.

We later see a television, where Jim Cramer is on the CNBC Mad Money show, passionately ranting as he put Stark Industries (with the fictional symbol: SIA) on the Sell Block, hits the bear button sound and visual effect, and then gets his baseball bat and crushes a Mad Money cup.

Yes, watch the Iron Man movie. It is a good movie and it's also interesting to see Jim Cramer's great Cameo.

Herbalife (HLF) a Commercial Cult?

Some time ago, I would occasionally look into Herbalife (HLF) as a play on weight loss and health.

Then to my surprise, I saw Herbalife (HLF) and Multi-Level Marketing in the Commercial Cult List!

I make no judgement on Herbalife as a Commercial Cult but I am providing the link and yet another link here and you can make your own judgement.

Reasons for Global Food Crisis/Riots/Shortages. Can we Profit from Trend?

In many parts of the world, there are food riots as the price of rice has gone up to painful levels. What are the reasons behind this and how can we profit and play this trend?

According to Raj Patel, author of Stuffed and Starved: The Hidden Battle for the World Food System, there are five main reasons for the high food prices:

1. Food production is heavily dependent on fossil fuel and oil prices are soaring.
   
2. Biofuel production is boosting prices.
   
3. As nations get richer, they demand more meat, shifting grain "out of the bowls of the poorest people into the stomachs of livestock."
   
4. Poor harvests may be the front end of climate change.
   
5. Speculation on food prices fuels spikes.
   

Soaring oil prices are a main reason as food production is dependent on fossil fuels. In addition, higher fossil fuels encourage alternative energy solutions which includes biofuel production such as ethanol. Rather than providing food for people, fields are being used to produce biofuels such as ethanol. Some people have criticized subsidies for ethanol for encouraging hunger and global warming.

In addition, as the global boom continues, and as nations get richer, nations start preferring more meat. According to worldwatch.org, it takes an estimated five pounds of grain to produce a single pound of beef.

There is also a growing trend as the global food crisis continues where countries with a surplus, such as China, Cambodia and Egypt, have imposed policies that discourage outflow of surplus rice to conserve supplies for domestic consumption. According to an article by Lala Rimando, some exporting countries are holding on to their stocks waiting for the time to unload when prices go further up.

How do we play this Trend?

The most direct way continues to be the agriculture plays. Companies such as Monsanto (MON), the biotech of seeds, Potash (POT), the fertilizer company, and Deere (DE), the farm equipment company, stand to profit.

This trend will most likely continue to be a multi-year trend, and the agriculture sector appears to be a good play.

What about Fast Foods and Restaurants?

Demand for meat will increase, but that also means that the cost of food and meat will increase. But what will rise faster? Demand or the cost of the underlying food product? Let us wait and see what will happen.

Health Foods?

Some people propose and suggest that people go vegetarian because of this crisis.

But will this be a widespread phenomenon?

It would be a good idea to keep track of the health food companies, companies such as Hain-Celestial (HAIN) and Whole Food Markets (WFMI). In general, people will start to be more health conscious and this is good for the health food companies.

Your Ideas

Do you have any stock ideas or thoughts on this long term trend? Please do comment.

Is the U.S. Penny Worth More as a Metal (Copper, Zinc) than as US Currency?

With metal prices rising rapidly, people on television and radio often comment that a U.S. Penny is worth more as a metal than its value in the US as a unit of currency.

How true is this?

Many people notice that a penny is (mostly) copper and they see copper prices rising rapidly. Is the Penny mostly made out of copper?

Material Composition of a Penny

Each year, the composition of the U.S. Penny could vary from time to time. For those most part, before 1982, the U.S. Penny weighs 3.1 grams, and is made out of 5% zinc and 95% copper. After 1982, the U.S. Penny weighs 2.5 grams, and is made out of 97.6% zinc and 2.4% copper.


Current Price of Zinc and Copper

Currently, as of April 24, 2008, using a Cash basis, the price of copper is $8.701/KG, and the price of zinc is $2.220/KG.

Calculating the Value of the Penny Based on Value of Material

Calculating the value of each, we find the value of each type of U.S. Penny:

1. Pre-1982 Penny: 2.5968545 cents
   
2. Post-1982 Penny: .593886 cents

Answer to our Initial Question

So is the U.S. Penny really worth more as a metal than as U.S. Currency? It depends on the edition of the U.S. Penny. For the most part, pre-1982 Pennies are worth 2.59 cents each! That exceeds the value of the U.S. Penny (1 cent) by more than 2 times!

However, if we look at the cost of the post-1982 U.S. Penny, the value of the metals is currently equivalent to .59 cents, currently less than 1 cent.

Is the Penny Obsolete?

But if we add the cost of producing the U.S. Penny, even the post 1982 edition of the Penny, the total cost (cost of producing plus price of the metals) could exceed the value of the coin itself (1 cent as US Legal Tender).

Many law makers have been proposing to make the U.S. Penny Obsolete because of this.

Melt a Penny and Sell the Material? That's Illegal

If you are having thoughts of melting a pre-1982 US Penny and selling the raw material, you have to know that there is a law against that.

Calculation Assumptions

1. 1 KG = 1000 g
   
2. Zinc = $2.220 / KG
   
3. Copper = $8.701 / KG
   
4. pre-1982 Penny: 3.1 grams, 5% zinc, 95% copper
   
5. post-1982 Penny: 2.5 grams, 97.6% zinc, 2.4% copper
   

Calculations

Pre-1982 Penny = (3.1g) (.05 zinc) (1 KG / 1000g) ($2.220 / KG) +
(3.1g) (.95 copper) (1 KG / 1000g) ($8.701 / KG)
= $.0003441 + $.025624445 = $.025968545
= 2.5968545 cents

Post-1982 Penny = (2.5g) (.976 zinc) (1 KG / 1000g) ($2.220 / KG) +
(2.5g) (.024 copper) (1 KG / 1000g) ($8.701 / KG)
= $.0054168 + $.00052206 = $.00593886
= .593886 cents