Long Term Trends: Part 3: Minerals, Metals, and Mining

With the Multi-Year Globalization Trend in place, minerals and metals are in high demand. Growing economies especially in the emerging markets need minerals and metals such as copper, driving up demand.

Gold is often used as a hedge against inflation.

Specialty metals are also in demand. For example, new generations of airplanes need lighter materials that specialty companies can provide.

Companies include:

1. Freeport McMoran (FCX), Gold and Copper Company
   
2. Rio Tinto (RTP), Copper, Aluminum, Gold and other materials and minerals.
   
3. US Steel Corp (X), Steel Company
   
4. Michel Steel (MTL), Russian Metal and Steel Company
   
5. Posco (PKX), Korean Steel Products
   
6. Norilsk (NILSY.PK), Russian Nickel Company
   
7. iShares Gold ETF (GLD)
   
8. iShares Silver ETF (SLV)
   
9. Precision Castparts (PCP), Specialty Metals
   
10. Allegheny Technologies (ATI), Specialty Metals
    
11. Peabody Energy (BTU), Coal Company
    
12. Joy Global (JOYG), Mining Equipment Company
    
13. Bucyrus (BUCY), Mining Equipment Company
    
14. Layne Christensen (LAYN), Mining Equipment Company
    

Netflix (NFLX) Wants to Dominate the Digital Living Room with Roku Partnership

We all know Netflix (NFLX) as the company that provides DVDs by postal mail. Some time ago, they added a feature where you can logon to their Netflix.com site, and watch selected movies through the internet browser without affecting the normal DVD by mail schedule.

However, watching a full two hour movie in front of one's Computer will not be a good experience. People have invested much money in their couches, high definition TVs and home entertainment sound systems. The next step is delivering content, such as DVD content from the home computer and internet to the comfort of the Digital Living room.

Apple (AAPL) attempted to market a similar solution using AppleTV but this product has not taken off.

Tivo (TIVO) is offering another option. Aside from providing Digital Video Recorder Functionality (DVR), Tivo is also working together with Amazon Unbox program where users of Tivo can download movies purchased or rented from Amazon.com (AMZN).

Netflix's Solution to the Digital Living Room

Now, Netflix is part of the competition for the Digital Living Room, Netflix is also now taking this route with its partnership with Roku. For $99, Roku is providing a special set top box where special on-demand movies from Netflix can be streamed directly to your living room television.

This service will not affect the normal DVD by postal mail service of Netflix.

Will this product work? I have recently ordered a Roku box and will try it out.

More details on the Roku Netflix Player here.

The battle for the Digital Living Room continues, and let us keep track of the trends in this area.

Cow Power (Methane) Can Help Save Our Environment and Save our Future

Do not underestimate the Power of the Cow in terms of saving the environment and providing us with energy.

Cows (and a few other animals) can provide us with power and energy through their manure (the average dairy cow creates about 100 pounds of manure a day). Manure naturally releases methane gas into the atmosphere.

Companies, such as Utility Company PG&E (PCG), can take this manure and flush it into a tank or a tented lagoon, where the manure can decompose and the methane gas bubbles off, before being captured under the cover. The gas is then pumped from the digester, then purified and compressed into gas pipelines. After purification, the methane gas is the same as traditional natural gas, except that it's renewable and cleaner.

Cow Power Can Save the Environment Too

If we allowed the methane gas just to reach our atmosphere, this would be harmful to the environment. It is said that methane gas is 20 times more damaging to the environment than carbon dioxide.

PG&E

A lot of the information above comes from PG&E (PCG), the Utility Company. It has a forward PE of 12.73, a yield of around 3.60%, and a five year estimated growth rate of 7.73%. Incorporating the dividend yield in the PEG ratio, PG&E has a PE to Growth Ratio of around 1.12, which is a reasonable value.

They also provide a website:
www.wecandothis.com

and click on the Cow Power link.

High Gas Prices Effect on Society; Commentary through Cartoons

We are all feeling the effects of High Gas Prices.

Many cartoonists are commenting about the effect of High Gas Prices on us.

Enjoy the commentary.

The Efficiency of Ethanol; Is it Worth Producing?

We've all heard the comments that it takes almost as much energy to produce Ethanol as Ethanol provides. How true is this?

An article in the October 2007 National Geographic Magazine provides a lot of interesting information.

We will group ethanol into four categories:

1. Corn Ethanol:
   "Nearly all the ethanol in the U.S. is brewed from yellow feed corn. Proliferating ethanol distilleries are already competing for corn with meat producers, driving up prices. Most ethanol is sold as a gasoline additive or, in the Midwest, as E85 (85 percent ethanol, 15 percent gasoline)."
   
2. Cane Ethanol:
   "Brazil rivals the U.S. in ethanol production because sugarcane yields 600 to 800 gallons an acre, twice as much as corn. The stalk is 20 percent sugar - fermented to make the alcohol - and the waste cane can be burned to power the distillery, lowering fossil-fuel use."
   
3. Biodiesel:
   "Chemically altering plant oils to make biodiesel takes less energy than distilling corn into ethanol; the fuel's main drawbacks are low yield and high cost. Germany is the world's leading producer, relying on canola oil; U.S. biodiesel comes from soybeans."
   
4. Cellulosic ethanol:
   "Perennial prairie grasses like switchgrass, grown on land unfit for other crops, could replace up to 13 percent of the world's oil consumption - if an efficient way to turn cellulosic plant matter into ethanol can be developed."
   

Energy Balance

The Energy balance involves a number that compares the fossil-fuel energy used to make the fuel (input) compared with the energy in the fuel (output).

Now, we can compare the four types of ethanol.

1. Corn Ethanol: Input=1, Output=1.3
   
2. Sugar Cane Ethanol: Input=1, Output=8
   
3. Biodiesel: Input=1, Output=2.5
   
4. Cellulosic Ethanol: Input=1, Output=2 to 36 (depending on production method)
   

How efficient is Ethanol?

So with regards to Corn Ethanol, it is true that it takes almost as much fossil fuel (1 unit) to produce the energy in Corn Ethanol (1.3 units).

However, other types of ethanol, such as Sugar Cane Ethanol shows more promise.

And in a recent post, we highlighted the growth in Brazil as an agricultural powerhouse.

Energy Content

Comparing Gasoline to ethanol, Ethanol produces 67% of the energy content as Gasoline.

Comparing Diesel to Biodiesel, Biodiesel produces 86% of the energy content as Diesel.

Greenhouse Gas Emissions

1. Corn Ethanol: 22% less
   
2. Cane Ethanol: 56% less
   
3. Biodiesel: 68% less
   
4. Cellulosic Ethanol: 91% less
   

Production Quantities

1. Corn Ethanol in U.S.: 4.86 billion gallons (2006)
   
2. Cane Ethanol in Brazil: 3.96 billion gallons (2005)
   
3. Biodiesel in Germany: 0.5 billion gallons (2005)
   
4. Cellulosic Ethanol: Still in development
   

Production Cost

1. Corn Ethanol (U.S.): $1.09 (Oct 2007)
   
2. Cane Ethanol (Brazil): $0.87 (Oct 2007)
   

Sources of Cellulosic Ethanol

1. Agricultural residues (leftover material from crops, such as the stalks, leaves, and husks of corn plants).
   
2. Forestry wastes like wood chips and sawdust from lumber mills, tree bark.
   
3. Paper Pulp
   
4. Fast-growing prairie grasses, such as switchgrass, which require less energy (tractors, fertilizers, etc.) and can grow on marginal land.
   

Role in Food Inflation

Ethanol does play a role in food inflation. Cellulosic Ethanol seems like an interesting alternative that will affect food inflation less since we will not be using crops that we use as food.

We expect further research to be done in this area.

Long Term Trends: Part 2: Agriculture

In Part 1 of our Long Term Trends Series, we highlighted Energy, Oil, Oil services, Oil Sands, Natural Gas, Oil Pipelines, Refineries, Oil Shipping, Coal, Coal Services, Nuclear, Environment Cleanup and Alternative Energy.

In Part 2, we highlight Agriculture.

In a previous post, we highlighted reasons why there is a food crisis and food inflation, and why these are long term trends.

This is a long term trend that we can profit from.

Select companies include:

1. Monsanto (MON), the biotech of seeds. Do you want drought resistant seeds and higher yielding seeds?
   
2. Deere (DE), farm equipment company.
   
3. Potash (POT), the fertilizer company.
   
4. Archer Daniel Midland (ADM), handles Oilseeds Processing, Corn Processing and Agricultural Services.
   
5. Bunge (BG), handles Agribusiness, Fertilizer and Food Products.
   

Growth of Agriculture in Brazil

Brazil has invested heavily in their sugar cane based ethanol infrastructure. Recently, CNBC had a segment on one of their documentary shows (Business Nation?) highlighting an Iowa farmer going to Brazil and doing well there. Land is cheaper, weather is great year round, and lots of opportunities abound.

This highlights the agriculture growth story, and also shows the potential for growth in areas all around the world such as Brazil.

Agriculture appears to be a good long term trend we profit from.

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.