Profit from Looming Shortage of Rare Earth Elements needed for Hybrids and Green Technology

The world is moving more towards hybrids and future Clean and Green Technology such as wind turbines.

Honda and Toyota are dedicated to hitting and ramping their hybrid targets.

But all this demand will cause a shortage in elements needed by hybrids, wind turbines, and future technology.

According to a Reuters Article (By Steve Gorman), Hybrid cars are gobbling rare metals such as Lanthanum, Neodymium, Terbium and Dysprosium.

There will be a shortage in Rare Earth Elements.

At the moment, China produces most of the world's Rare Earth Materials, and as of 2008, the Resource Investor says "China has recently, [...], reduced its exports of rare earth metals to a total below that of the current demand just by Japan. In addition China has raised the export taxes on rare earth metals effectively raising the price of those metals directly to those who can still obtain them from China."

So is there a stock investing play on these Rare Earth Elements (REE), outside of China?

According to the Resource Investor, Six Companies in this area are:

Australia

1. Lynas Corporation Ltd (LYC.AX or LYSCF.pk)
   
2. Arafura Resources Limited (ARU.AX or ARAFF.pk)
   

Canada

1. Great Western Minerals Group LTD (GWG.V or GWMGF.pk)
   
2. Avalon Ventures Ltd (AVL.TO or AVARF.pk)
   

United States

1. Chevron Mining Inc. (CVX)
   
2. Thorium Energy, Inc.
   

Many of these stocks are international stocks and it may be difficult to find research materials. Do research these stocks (and other related stocks), well.

Disclosure: Author has a small position in AVARF.pk.

Profit from Those $1 Per Day (to Rent) Red DVD Kiosks?

Have you ever seen those Red DVD Kiosks at your local supermarket? For $1 a day, you can automatically select any movie and rent the DVD. There are no late fees, and if you keep the movie after a certain number of days, the movie is yours to keep.

In this economy, and in general, this is a very appealing option. Blockbuster (BBI), for example, offers rental of a DVD for around $4 per day. Other options include Netflix (NFLX), which mails DVDs through the mail.

The Company that profits from those Red DVD Kiosks is Coinstar (CSTR). Yes, this is the same company that makes those machines that convert loose coins to cash for a fee.

Movie studios are not happy with the underpricing of these DVDs.

Coinstar is a $1 Billion company, with a forward PE of 22, and 5 Year Estimated Growth Rate of 28%, for PEG of 0.79, a very good value. (Anything PEG under 1 is a good value).

It is said that Redbox has a 13.8% market share of the DVD rental market, up from 9% last year, and just 2.3% in 2007.

Today's Stock Chart of CSTR

Compare Performance of CSTR, BBI, NFLX

The Rise of Social Gaming

The Rise of Social Gaming

Social Gaming is the fastest growing game market.

Social games are "built to be enjoyed and shared with friends through existing social networks and platforms like the iPhone." They are often free to play, and they heighten the sense of camaraderie and competition with other players.

Full Article on "Social Networking is next big thing for gaming"

One of the most popular games is "FarmVille" made by private company "Zynga".

Social Gaming may usher in new business models by attracting many players with a free price and then monitizing a fraction of them.

Is it Time to Get Back in the Market? (S&P 500)

After seeing the market go through a strong rally since early March 2009, and seeing today's action in the U.S. Markets, with the S&P 500 going up 2.58% to the $SPX Index level of 942.87, many people are asking whether it is time to get back in the stock market.

That question requires more details. What are you going to do with money? If the money is in a retirement account (the one with tax benefits), and you do not need the money for a decade or more, allocate your assets appropriately to reach that long term goal. This may include a large percentage in the stock asset class.

If the money is in a discretionary account, then there are even more options.

When do you need the money by? If you need the money in the short term (five years or less), you should consider putting the money in safer investments like money market accounts, or high yield online savings accounts.

Other considerations you may want to take are looking at your overall debt and pay off any bad debt such as high credit card balances. Paying off a credit card balance with 15% interest, means a 15% guaranteed risk free rate of return. This is a very good deal.

You may also want to consider other asset classes such as using that money for a down payment on housing, or starting a business.

A six month emergency fund in very low risk investments (such as high yield online savings accounts) is also a must, and adequate health insurance is a must.

After looking through all the above, and deciding that you do have long term discretionary money you can use to invest, then invest appropriately. You do not need to have an all-in, or all-out mentality. You can get in the market gradually,(20% now, 30% in a few months, 40% a year from now, 10% in cash), or increase cash positions gradually (if you are fully invested).

You would have saved around 32% in the S&P 500 if you had followed the following advice:

On February 26, 2008, this blog wrote and asked if you had too much risk in your Discretionary Portfolio. The S&P 500 at that time was around 1384. At the low, the S&P 500 reached 666, for a loss of 51.8%. Many people could have panicked at that time.

Even after the recent strong rally, the current S&P 500 is at 942, for a loss of around 32%.

Today's S&P 500 Stock Chart

Reversion to the Mean Trade on SRS: Double Short Real Estate ETF?

In the Previous Post, this blog speculated how far this rally could go.

The S&P 500 rally does appear to be stalling, after being severely underneath the 50 day and 200 day moving average. Over the last several months, the S&P 500 has broken above the 50 day moving average, and approached the 200 day moving average (200 Day Moving average was approximately 950, and the S&P 500 reached 930).

Now as we look at several sector ETFs (Exchange Traded Funds), we notice that some are severely underneath the 50 and 200 day moving average.



The SRS ETF, the Proshares Double Short Real Estate ETF, is currently at 24.56. The 50 Day Moving Average is currently at 44.73 and the 200 Day Moving Average is 77.82.

This means that currently, SRS (a very volatile ETF), is 45% below the 50 day moving average and 68% below the 200 day moving average. These are very large percentages below the moving averages.

Maybe it is time for the reversion to mean trade on some ETFs such as the SRS?

How far can this (Bear Market) S&P 500 Stock Market Rally Go?

On March 10, 2009, the S&P 500 went up 6.37%. Some pundits are calling for a bottom, but many see this as merely a Bear Market Rally.

How far can this rally go?



First major candidate is S&P 500 level of 740 to 760. This was the previous low held late in 2008, and is also the level that held in the Bear Market Bottom of 2000-2002.

Another candidate is the breakout point off a symmetrical triangle pattern.

Previously, this blog demonstrated that the S&P 500 recently broke down from a symmetrical triangle.

According to stockcharts.com:

Prices sometimes return to the breakout point of apex on a reaction move before resuming in the direction of the breakout. This return can offer a second chance to participate with a better reward to risk ratio. Potential reward price targets found by measurement and parallel trend line extension are only meant to act as rough guidelines. Technical analysis is dynamic and ongoing assessment is required.

It is possible that the rally could continue to this breakout (breakdown) point of around 825 on the S&P 500.

The 50 day moving average is very close to the 825 breakdown point on the S&P 500.

Overextended from the 200 Day Moving Average

The S&P 500 is also very overextended underneath the 200 Day Moving Average. This suggests that the rally could have some room, or go sideways long enough for the 200 Day Moving Average to catch up.

Today's Stock Chart of the S&P 500

Bull Market in Guns and Ammunition in this Bad Bear Market?

Over the last few months, we've seen the next leg down in this terrible bear market. Since the US Election on November 2008 to March 5, 2009, we've seen the S&P 500 go down 28.6% and the Small Capitalization Russell 2000 index go down 34.4%.

But yet, two stocks, SWHC (Smith and Wesson Holdings) and RGR (Sturm Ruger), two Gun and Ammunition companies, have gained 45.8% and 39.8% respectively.



Despite the Current Bear Market, we have had a Bull Market in Guns and Ammunition.

Different Articles, such as from Minyanville, have attributed this boom to two main factors:

1. The new Democratic U.S. Administration is traditionally not friendly to gun rights and gun owners.
   
2. Worsening economy increases crime and mayhem encouraging people to buy firearms and ammunition.
   

Anecdotal evidence also shows the high demand. This Orlando Sentinel article has said that sales of ammunition have been flying off the shelves and there is a high demand for it.

The FBI has reported that background checks on potential firearms purchasers increased 41.6% from November 2007 to November 2008.

Even the earnings report from handgun maker Sturm Ruger (RGR) suggests this national trend. Demand is so high, Sturm Ruger reported over 175,000 of 776,000 units ordered were on back order. Over the last year, the order book grow almost 50% from $156 million to $223 million.

SWHC (Smith and Wesson) is a small capitalization stock ($179 million) with a PE (Price to Earnings) ratio of 13, and a 5 year estimated growth rate of 21.7% for a Price Earnings to Growth Ratio (PEG) of 0.60 (PEG > 2 is expensive, PEG < 1 is a good deal).

RGR (Sturm Ruger) is also a small capitalization stock ($191 million) with a forward PE ratio of 24.

Both stocks appear to have broken out recently out of bases




The trends remain strong, but how long will it last?

If the economy and stock market continue to worsen, higher unemployment would lead to higher crime rates, which can boost sales of guns and ammunition.

We could also currently be in a secular Bear Market that started in 2000 and will end sometime around 2016 or 2017.

Today's SWHC Stock Chart

Today's RGR Stock Chart

Today's CAB Stock Chart

Performance Comparison of SPY, IWM, SWHC, RGR, and CAB

Cabela (CAB), is a retailer of outdoor items such as hunting, fishing and camping equipment.