The Millionaire Maker Investment Advisory
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Small Caps On The Radar

5/26/2013

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MARKET CONDITIONS

PROFILED: Fuel Systems Solutions (Nasdaq: FSYS)
                           Brady Corp. (NYSE: BRC)
                           RPM International (NYSE: RPM)
                           Chart Industries (Nasdaq: GTLS)

Fuel Systems Solutions (Nasdaq: FSYS)
Makes the parts that allow medium-sized trucks and cars to run on natural gas – has had a rough couple of months. After trading below $13.50 in early March, shares rocketed near the $18 level before falling back below $14 last month.

The stock fell this morning after the company reported earnings below Wall Street expectations. Fuel Systems posted an earnings loss of $0.04-per-share in the first quarter. Analysts were expecting a $0.04-per-share profit.

The company is doing much better than the headline suggests. Fuel Systems has spent the past two years coping with tough conditions in Europe. At one point, FSYS shares were down 40%-plus over the previous 12 months.
A closer look at the company's report reveals it is starting to turn things around. Sales were actually up 1% versus the same quarter last year. To put this in perspective, sales were down more than 10% in each of the previous two quarters.

Fuel Systems is growing its sales in North America and Asia. More important, the company is just starting to recover from a tough 12-month period. I expect earnings to stabilize in the coming quarters, and shares should soar as a result. Buy shares on this pullback. FSYS is a buy up to $18.50.

Brady Corp. (NYSE: BRC)

It's an elite, small-cap, dividend-paying stock. Most investors have never heard of Brady. It makes things like signs, labels, and name-tags. Even though few people pay attention to the company's products, they're everywhere; in store windows, on boxes, even inside cars and electronics.

Brady is the kind of business that will never disappear. More important, the company gives shareholders a big piece of its profits. It has raised its dividend every year for 27 straight years.

But shares have trailed the market badly over the past couple years. While the S&P 500 soared more than 20%, shares of Brady fell about 10%. In other words, the market forgot what a great business Brady is. That's good news for investors. We get to buy one of the best businesses in the world for a super-cheap 12 times forward earnings.

It looks like the market is starting to realize its mistake. Within the last several weeks, shares of Brady are up 7%-plus. Keep in mind, the company's business didn't suddenly improve in the last few weeks. The market is simply coming around to the fact that Brady will keep churning out profits and raising its dividends years into the future. It also means the company fits the criteria we need in an investment to successfully compound returns over the long term.

Brady shares are now trading above our buy-up-to price. If you haven't bought the stock yet, wait for a pullback below $34.50 before you buy. Remember, Brady is the kind of stock that will generate huge returns over years... not weeks. Being disciplined about the price you pay is an important part of a successful strategy. Brady Corp. is a buy up to $34.50.

RPM International (NYSE: RPM) and natural-gas equipment stock Chart Industries (Nasdaq: GTLS), both small-cap dividend-payers, jumped to new 52-week highs last week. Both stocks are up 10%-plus over the past month.

RPM sells specialty coatings, sealants, and building materials under a variety of brand names, including Rust-Oleum. Like Brady Corp., the company is the kind of steady business that rewards us with the chance to compound our wealth over the long term. RPM pays a safe, high yield – and it has raised its dividend for 38 straight years.

Chart Industries provides products and systems for liquefied-natural-gas (LNG) storage and transmission. You can find its tanks at natural-gas-fueling stations. Two weeks ago, Chart posted positive first-quarter earnings. Sales grew 27% versus the same period last year. More important, earnings are on track to grow 30%-plus this year. These results indicate the company is benefiting from the expanding role of natural gas around the world.


Chart Industries is up nearly 50% since last January. RPM is up 14% in less than five months. Both stocks are trading above their buy-up-to prices. For now, RPM and GTLS are "holds."
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MARKET RECOMMENDATIONS

5/25/2013

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MARKET CONDITIONS

I am not as fond as holding equities as I am playing options.  However, if you are going to hold anything make sure it's value-added.  I suggest hedging some of the equities with some covered puts and calls.

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KKR Blowout Quarter

5/25/2013

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MARKET CONDITIONS

Private-equity firm Kohlberg Kravis Roberts (NYSE: KKR) reported strong first-quarter earnings last week. The company said it earned $0.88 per share, 7% higher than
the $0.82 Wall Street was expecting. Henry Kravis is one impressive individual.

Click Here to watch a mini-bio on Henry Kravis.

KKR increased its assets under management to $78 billion, up 18% from six months ago. The company has seen strong results from its existing portfolio over the past year. KKR is also raising more cash from pension funds and endowments.

In short, over the past few years, mutual funds and hedge funds have drastically underperformed benchmarks like the S&P 500 index. This is leading to a huge change in investment policy at pension funds. Pension fund assets topped a record $30 trillion last year. Management teams that help allocate this cash are turning to private-equity companies to increase their returns. This has created a major tailwind behind KKR. The company has a history of blowing away its benchmark year after year. And if the first quarter is any indication, it's on track to do it again this year.

KKR recently announced it has adopted a new distribution policy where it will return more of its income to shareholders. It will return 40% of its realized investment income from its balance sheet. That's a big deal – and caught most of Wall Street by surprise. Based on the new distribution policy, KKR should pay at least a 6% yield for 2013 and 2014.

KKR is expected to increase its assets under management from $78 billion to over $100 billion over the next six to 12 months. This is an easy goal given the tens of trillions of retirement assets stuck in hedge funds and mutual funds that have been under-performing the market over the past five years.

If I'm right, KKR has at least another 50% upside from here. Meanwhile, you can sit back and collect the 6% yield, which is three times higher than what the average S&P 500 company pays.

Based on the fundamentals, KKR is cheap, trading at eight times forward earnings. But the stock is up 59% (including dividends) since July 2012. Shares are now above the recommended buy-up-to price of $17.  KKR is a hold.


Henry Kravis Interview

KKR Focuses on South East Asia
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JAPAN'S CURRENCY TAKES A PLUNGE

5/23/2013

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MARKET CONDITIONS


On Tuesday, we looked at the surprising volatility of your bank account.   We saw how the U.S. dollar index is experiencing big, double-digit percentage moves in a matter of months... not years.  Our Japanese readers might have read our commentary and said, "Tell me about it!" 

Japan is a vital "cog" in the global economic engine.  It's also saddled with huge debts and sluggish growth. In an effort to pay those debts and stimulate its economy, newly elected Japanese leaders are devaluing their currency (the yen) like crazy.  

Below is a two-year chart displaying the handiwork of the new leaders. Late last year, the Japanese yen index sat at 127. Since Japan has cranked up its printing press, the value of the yen has plunged 23% against the dollar. One might think the "world of money" might be slow and boring... but in today's age of volatility, it's quite the opposite.
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Why The Stock Market Boom Will Last Until 2015

5/21/2013

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MARKET CONDITIONS

I personally don't share the opinion that this artificial "Bull Market" will last to 2015. I think the Fed's objectives will have been met by mid-year 2014. That doesn't mean we shouldn't enjoy the ride while it lasts. Tech is going to go through the ceiling this summer and may not peter off until the end of the first quarter 2014. My Intel and Microsoft Calls are showing 300% + returns so far.

By Dr. Steve Sjuggerud

The stock market boom so far has been incredible... And it isn't ending anytime soon.
The Dow Jones stock index is up 22% since November. It's hitting new all-time highs. And most people are worried that a bust is just around the corner. But those people don't get why the market is going up.

This stock market boom is not about an improving economy, improving home sales, or improving corporate revenues. It is about stimulus from the Federal Reserve. So the question becomes, when will the Fed's stimulus end? Here's what you need to know. The "Bernanke Asset Bubble" is shorthand for my long-term thesis that asset prices – namely U.S. stocks and U.S. housing prices – can and will soar to unimaginable heights, thanks to the Fed's commitment to keeping interest rates low.

You see, low interest rates force investors out of bonds and into stocks and real estate. And the Fed isn't going to let interest rates rise anytime soon. The Federal Reserve has a "dual mandate" – it's trying to accomplish two things. It wants to 1) keep prices stable and 2) keep people employed. The Fed has laid out its specific targets... It wants to see the unemployment rate below 6.5%. And it wants inflation to get up to 2%. It will keep stimulating the economy until its objectives are met.

Today, the unemployment rate is 7.7%. A survey of 75 economists forecast that the unemployment rate will fall gradually to 6.9% in the fourth quarter of 2014. This works out to unemployment going down by roughly 0.1% a quarter. And today, the inflation rate (as measured with the Fed's favorite inflation measure, the "core PCE") is 1.1% – well below the Fed's target of 2%.

Bloomberg's survey of Wall Street economists says that the inflation rate will still fall short of the Fed's target... with estimates of 1.5% for the fourth quarter of 2013 and 1.85% for the fourth quarter of 2014. Unless something drastic happens, unemployment is not going to fall fast enough and inflation is not going to rise fast enough to cause the Fed to stop stimulating the economy anytime soon. The simple conclusion here is that the Fed will continue "juicing" the U.S. stock market at least through the end of 2014.

It will not get in the way of this boom. Don't over-think it. The message is simple: Own U.S. stocks. This is a 100% Fed-driven stock market. And the Fed stimulus will continue for a while.  Low interest rates and low inflation will help "propel stocks to levels higher than anyone can imagine. I believe the stock market could rise 95% in the next three years. But if you position yourself correctly, you could make much more than that.
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How the Rich Make a Fortune During a Currency Crisis

5/20/2013

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MARKET CONDITIONS


PROFILED: Freeport-McMoRan (NYSE: FCX)
                           Cameco (NYSE: CCJ)



By Matt Badiali

A few years ago, I learned about a very clever strategy... one that allows you to protect the value of your current savings during a currency crisis like the one we are experiencing today...

It's a strategy that enables you to benefit from a unique set of assets that will do spectacularly well as the U.S. government continues printing and borrowing money. Now, this has nothing to do with gold or silver or any other type of precious metals investment. Also, you don't have to open up a foreign bank account, or speculate in foreign currencies. In fact, this strategy is extremely safe, and the investments are very easy to buy and sell from any regular broker.

What's more, some of the world's best investors and money managers have taken advantage of similar strategies to grow their own fortunes. They include Ken Fisher, Chris Davis, Ron Baron, and Monish Pabrai, to name a few. Perhaps you've never heard of these guys, but they are some of the richest and most powerful men in the financial sector.

Monish Pabrai, for example, is typically referred to as the "next Warren Buffett." He manages more than $500 million. After starting his fund in 1999, he earned 600%-plus gains for his investors (after fees and expenses) in just his first eight years in the business. Ron Barron is one of the 300 richest men in America according to Forbes. Chris Davis' business manages more than $93 billion.

In this report, I'm going to show you how to make a simple investment – right alongside some of these investors – that will help to protect and grow your savings during a currency crisis. Before I explain our strategy... I want to be clear about one thing...

The U.S. Is Facing an Imminent Currency Crisis.
This crisis will manifest itself as a period of blistering inflation and have a long-lasting impact on our standard of living. How did this happen?

President Richard Nixon set this con in motion in 1971, when he severed the U.S. dollar's last tie to gold. Ever since Nixon officially took America off the gold standard, the dollar has lost its anchor. Prior to 1971, dollars represented a claim on some portion of the Treasury's gold. That capped how many new dollars the government could circulate. Freed of that limit, politicians can now create new dollars whenever they want.

Let me be clear upfront... We can't escape the fact that macroeconomic trends like inflation and international monetary policies will cause huge swings in the price of resources like gold... I'm a geologist by trade. Analyzing geologic data, staying connected to industry insiders, and vetting management teams are my specialties.

However, no one speaks more clearly and eloquently about the threat of inflation and the value of gold than Stansberry & Associates founder Porter Stansberry. He describes the advent of the "paper dollar" – backed not by gold, but simply the "full faith and credit of the United States government" – as the most powerful factor in our economy...

The power to use this debt and to control the creation of new money is the most powerful factor in our economy. The government can now create unlimited amounts of credit to control the U.S. economy...

Without the tie to gold, the amount of economic mischief our government could engineer became practically limitless. No social goal was too absurd... no war too expensive... and no government insurance scheme too patently self-serving not to finance.

Today, when the government needs more money, it cranks up the printing presses and creates more. And every time the feds print a new dollar, the value of the dollars already in your bank account declines just a little bit. You can think of your wealth as a fraction of all the dollars in the world... like a piece of a giant pie. This creation of new dollars means your slice of pie becomes smaller.

And the problem of inflation has only just begun... America faces an enormous debt problem... Again, let me quote my publisher, Porter Stansberry (from the March 2011 issue of his Investment Advisory newsletter)...

Today, total debt in the United States stands at $56 trillion – 3.8 times GDP.

That's $180,000 in debt for every man, woman, and child in the United States. That's nearly $700,000 in debt per family in the United States. The interest on these debts is more than $3.5 trillion per year. To give you some idea how much money we're spending on interest alone... just consider the total budget of the U.S. federal government is also $3.5 trillion. Again, $3.5 trillion just covers the interest!

These debts are completely unaffordable. How many families in America do you know that can afford to finance and repay $700,000 in debt? Not many... certainly not the "average" family.

The U.S. government simply has no other way out. It has taken on too much debt... and made too many open-ended promises to too many people.

If it openly defaults... it risks collapsing the economy. The only way it can pay for these promises – and its incredible debts – is to print more and more dollars... debasing an already devalued currency.

The key to protecting yourself from this currency crisis is to keep your wealth in real, tangible assets that hold their value... the things that are going to require more and more dollars to purchase. That means gold and silver bullion...

It also means keeping a good portion of your wealth in shares of world-class resource deposits. I'm talking about giant gold deposits... billion-barrel crude oil deposits... large tracks of agricultural land... and vast stores of natural gas. These deposits often go by the nickname "trophies."

It's a strategy used by generations of rich investors... as well as some of the most successful Wall Street money managers... to protect wealth from the slow, invisible threat of inflation.
You see, when paper currencies lose value, as the U.S. dollar has done since 2001, the value of "trophy" resource deposits tends to skyrocket. These vital resources – including copper, crude oil, natural gas, gold, silver, and farmland – will rise in value by hundreds of percent over the coming years.

I realize many investors believe it's extremely difficult – if not impossible – to make money in natural resource stocks.  I can't say I blame them... The resource sector is one of the most volatile areas of the market. During the 2008 credit crisis, many of the world's best resource stocks fell more than 80%. The "not so best" resource stocks fell by 90%... even 99%.

There's also the fact that many resource stocks simply aren't worth the time it takes to investigate them. Out of the thousands of mining stocks out there, maybe 50 are worth knowing about. Plus, "knowing" these stocks well enough to trade them successfully requires extensive knowledge and industry contacts. Most people don't have the time for any of this. With such extreme volatility and work staring at you in the face, it's easy to "write off" the natural resource sector.

But what most people don't know is that buying trophies is an easy, safe method to making money in natural resource stocks. It's a clever strategy that allows you to protect the value of your current savings – and even see gains triple-digit gains – as the U.S. government digs itself deeper into a currency crisis.
Right now, you can make a simple investment in two stocks that are sitting on world-class trophy deposits. Investing in these companies today could set you up for hundreds of percent gains over the next few years.

Let's take a look at the first trophy stock...

Trophy No. 1:
Buying Two of the World's Best Trophy Assets
As legendary investor Warren Buffett said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

The next trophy stock we're buying is a wonderful company at a better-than-fair price – $30 billion copper, gold, and molybdenum producer Freeport-McMoRan (NYSE: FCX). Freeport was the world's second-largest copper producer in 2011, at 3.66 billion pounds of copper. It owns two of the world's best trophy assets: Grasberg and Tenke Fungurume.

Grasberg is a giant copper and gold deposit in Indonesia. It is the world's largest gold mine and third-largest copper mine. Tenke Fungurume is one of the world's largest copper and cobalt deposits. It covers nearly 580 square miles in the Democratic Republic of Congo.

Freeport also owns a large portfolio of copper mines in North and South America – three in Chile and one in Peru. And it owns another nine operations in the U.S. – two in Colorado, two in New Mexico, and five in Arizona. Freeport is also the world's largest molybdenum producer.

In 2012, it made about 32% of its operating income from its mines in North America, 20% from Grasberg, 36% from its mines in South America, and 9% from Tenke Fungurume. It generated 2% of operating income from molybdenum sales.

These mines are good businesses... Freeport had a 52% profit margin in 2011. It was 42% in 2012, due to lower metal prices and an 18% production decline at Grasberg. But that is still good for a mining company. And if the price of copper rises in 2013 – as I suspect it will – we could see big profit margins like this again.

The average copper price was about 5% lower in 2012 than it was in 2011. And that pushed Freeport's share price down along with the rest of the sector. But a recent acquisition sent its shares falling even farther.

On December 5, FCX announced the acquisition of oil and natural gas explorers McMoRan Exploration (MMR) and Plains Exploration (PXP) for a total of $9 billion. Both companies work as partners on an "ultradeep gas" discovery in the shallow Gulf of Mexico. The market reacted poorly to the news. And as you can see in the chart below, shares fell 21% over the next two days.
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That's because many investors believed – incorrectly, in my opinion – that the acquisition was actually a bailout. Forbes described it as a "rescue" of McMoRan. (We'll get to that more in a minute.)

That – and the general downtrend in mining stocks over the last year – has created a fantastic opportunity for folks like us... who understand both Freeport's copper business and its acquisition. And I think we have a fantastic entry price right now.

As you can see in the table below, 2012 was a tough year for Freeport. The company's earnings dropped substantially from the levels of 2010 and 2011. That's a big part of why the company's shares fell so far from their 2011 peak of $58 to the recent close of $32.

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Reviving copper prices will help Freeport's bottom line. (In 2012, the company made 79% of its revenue from copper sales and 21% from gold, molybdenum, and sulfur sales.) And Freeport says its recent acquisition could boost its revenues 24%, no matter what investors think.

Why the Market Is Wrong about Freeport?
Many investors think Freeport's acquisitions of McMoRan Exploration and Plains Exploration was a bailout.

In December, Freeport bought Plains for $6.9 billion in cash and stock and McMoRan for $3.4 billion in cash and stock. Once you factor in the debt Freeport also took on as part of the acquisitions, its total cost comes to $14 billion. In total, it paid about 6.6 times 2012 earnings estimates for Plains Exploration and about 21 times 2012 earnings estimates for McMoRan.

That seems like a fat premium to pay for such a deal. You can think of it as the number of years that the earnings would take to repay the acquisition costs. Obviously, 21 years (for McMoRan) is too long. But Freeport – and specifically its Chairman, James R. Moffett – is known for big mergers... and if McMoRan's exploration wells succeed, profits will soar.

"Jim Bob," as he's known, has a history of huge acquisitions. In 1981, he spearheaded one of the largest corporate mergers ever (at the time)... between his McMoRan Oil & Gas and Freeport Minerals Company. The merger created Freeport-McMoRan, which has grown into one of the world's largest natural resource companies. Then in 2007, he again led the company into a merger with Phelps Dodge. At $27 billion, it was the largest mining company takeover in history.

In addition to his role at Freeport, Jim Bob is a founder and co-chairman of McMoRan Exploration. He and two partners founded the company in 1967. He currently owns 3% of McMoRan's shares and is an intimate player in its business. That's why many investors viewed this deal as a bailout. Jim Bob and several other board members made a lot of money in the deal. Since Freeport paid a high price for the company its chairman founded, this looks like a serious conflict.

As I said before... McMoRan and Plains are exploring a major new series of "ultradeep natural gas" fields in the Gulf of Mexico. The targets are the same giant sand bodies found in the deep offshore fields. These fields are prolific oil and gas producers in deep water, and McMoRan's geologists believe they extend up close to land, as well.

Exploring for gas in wells nearly five miles underground is difficult, costly, and risky. But the area McMoRan is targeting is large, it has four operating wells – and if it makes a discovery, it will be a huge success... According to preliminary economic calculations, the finding and development cost for the ultra-deep gas is about $1.50 per thousand cubic feet (MCF). So McMoRan only needs a natural gas price of $2.20 per MCF to make 15% profit. (Right now, natural gas is around $4 per MCF.)

There's big potential here... But it was clear from the company's filings that McMoRan was going to be strapped for cash as it first took on these deep wells. Since natural gas exploration is far from Freeport's expertise, some investors felt the deal was simply Jim Bob's way of saving his original company. But I'm not so sure.

Jim Bob has been in the business for many decades, and he has intimate knowledge of the assets he buys. It's more likely (in my opinion) that he knows something about this area and the companies Freeport bought.

Plus... the single largest expense for a miner is energy costs. A miner is at the mercy of energy prices. If costs rise, it loses money. But if that miner also owns oil and gas production, it will make money as prices rise... offsetting rising costs at the mine. So you can look at Freeport's acquisition as a hedge against a rising energy cost for its mining business.

I'm not alone in this support. Billionaire Leon Cooperman, founder of Omega Fund, made a lot of money in 2012 buying undervalued stocks. In a recent interview on CNBC, he voiced his support for Jim Bob, and said that he is buying Freeport.

There certainly is risk in this investment. The copper price could fall, some unseen bump in the road could derail the U.S. economic recovery, or McMoRan could go 0-for-4 on its wells. But we're mitigating that risk by buying shares cheaply and putting in a hard stop. We're going to put in a hard stop at $28 per share. If shares fall below $28, that would be the lowest price since 2009. Such a fall is unlikely.

If we are correct... if copper prices continue to rise, and if crafty old Jim Bob knows what he's doing... we could easily make 80% or more in the next 18 months.

Action to take: Buy Freeport-McMoRan (NYSE: FCX) up to $39 per share. Sell those shares if they fall below $28.

Trophy No. 2:
The Only Uranium Miner Worth Owning

When it comes to investing in energy, the most important number you need to know is: 5.3.
That's the number of Chinese people who live on the electricity you or I consume in a year. In other words, China consumes just 20% of our electrical supply. India uses even less per capita. Nearly 30 Indians live on the electricity of a single American.

This is a startling gap... And it's going to close over the coming decades. China and India are the world's largest populations. And they are growing wealthier and wealthier. Energy consumption is a direct result of increased wealth. True Western wealth is a climate-controlled home with cold beer, a big TV, and fast Internet. All that requires energy.

The people in India and China want that kind of Western wealth. More important, they have the money to buy it. You can see the shift happening already... China's energy consumption grew by an average 7% per year from 2003 to 2010. That rate should continue through 2020.

This is a new phenomenon for us. In the past, we in the West only competed among ourselves for resources. Now, we're going to compete with 2.5 billion people eager to enjoy a cold beer in their air-conditioned living rooms.

That's going to drive the real price of energy resources higher... China and India are going to make our lives a lot more expensive. Now imagine combining the real price of energy with homegrown inflation. We're talking about a major spike in price. That's why the first resource hoard we want to secure is a critical fuel for generating electricity – uranium...

Uranium's Role in the Future
Despite the factors that clearly show uranium is now in line for a long move higher... the post-Fukushima revulsion directed at nuclear power hurt the uranium market.

As ultra-successful resource investor Rick Rule, founder of Sprott Global Resource Investments, pointed out in a recent interview... When the Japanese shut down their nuclear power plants, they took 20 million pounds of demand off the market. And the decision added 15 million pounds of supply, as the country's power companies sold off their surplus fuel to generate revenue that wasn't coming from electricity.

So that short-term drop in demand and spike in surplus supplies dumped on the market killed uranium prices over the past year. That's why we have the opportunity we do today.

The chart below is of Cameco (NYSE: CCJ), the world's largest uranium miner. As you can see, its share price fell 60% from its February 2011 high to its November 2012 low. After a brief rally at the start of 2012, Cameco's shares fell another 38% from February to November. Every publicly traded uranium producer sports a nearly identical stock chart.
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This is a fantastic opportunity in the uranium sector... here's why.

Investors have not always hated uranium... In 2006, it was all the rage. After spending most of the 1990s trading for less than $15 per pound, it finally began to rise. From January 2005, when uranium traded for $20.50 per pound, the resource shot up to about $135 a pound in mid-2007... a more than 550% run-up.

In the early 2000s, before the uranium's big swing higher, Rick was talking up the nuclear fuel's potential. He told anyone who would listen to him that uranium was far too cheap. Miners were losing money, and that the situation had to change. And it did.
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Then came the 2008 financial crisis, which destroyed assets of all kinds... Uranium had just started to recover when the Fukushima catastrophe struck. Significantly, throughout all the bad times for uranium over the past four years, the resource's price hasn't fallen below $40... That seems to be the bottom the market won't let it fall below for any significant time.

Now, Rick is back talking about uranium again. And his story is the same as it was in the early 2000s. The cost of mining is much higher, than it was a decade ago. Uranium prices are not keeping up. Miners are losing money again.

According to Rick, the "term price" of uranium, which is the price paid for long-term sources of supply contracts, is $65-$70 per pound. The spot price is nearly $40 per pound. He and his analysts came up with a production cost of $85 per pound for miners. In other words, miners are losing nearly $50 per pound selling at the spot price today.

Things have to change. To see if I could find the same value Rick quoted... I took a closer look at the largest uranium producers. The table below is a list of all the significant uranium miners in the world.

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As you can see, four main producers dominate the sector: Areva, Kazatomprom National Atomic, Cameco, and Uranium One/Rosatom. Two of them are state-run companies, Rosatom (Russia) and Kazatomprom (Kazakhstan). After that is a field of small contributors.

While all these companies publish mining costs, I wanted a more inclusive figure... So instead, I used the "cost of revenue," which includes all the business' costs, instead of just the mining costs.  Areva produced 23 million pounds of uranium and spent almost $163 per pound doing so. And it was by far the most expensive. Paladin Resources mined 5.7 million pounds of uranium at a cost of almost $90 per pound. Cameco produced more than 22 million pounds of uranium last year at a cost of almost $73 per pound. Uranium One was the most efficient producer. It mined over 10 million pounds of uranium in 2011 at a cost of $58 per pound.

The volume-weighted average cost of uranium for this group – which represents 43% of the uranium mined in 2011 – came to nearly $106 per pound. Even though my number is larger than Rick's, it tells the same story... producers cannot sell to the spot market without losing money. At $40 per pound, they are losing $66 on every pound they sell. That is a great way to go bankrupt. The spot price simply has to rise... eventually.

That is why we're going to take a hard look at the universe of uranium companies. This month, we'll focus on those companies that are either in production, or close to production. They are the ones that will benefit most from a rise in the spot price.

The opportunity in uranium is so promising right now that we are going to put a slate of them in the model portfolio. These companies are so beaten-down that we won't risk more than 12.5% on any of them... and our potential gains are as much as 300% if they simply recover to their pre-Fukushima prices.

The Trophy Uranium Company
The trophy investment in uranium mining is Cameco (NYSE: CCJ) – an $8 billion miner that accounts for 14% of the world's uranium production.

This giant miner has a great balance sheet, excellent assets, and owns shares of junior miners in the sector. Its mines account for 16% of the world's mine production of uranium. It owns 465 million pounds of uranium reserves. It controls some of the world's best uranium mines. This is the ExxonMobil of uranium.
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As you can see, Cameco is trading at 13 times its estimated earnings for 2013. That's more than 40% below its value from 2010. That's cheap. The company will produce 23.2 million pounds of uranium in 2013. And remember, its assets are among the industry's most valuable.

When we bought Cameco back in October 2011, it appeared that the industry was recovering from Fukushima. Unfortunately, the European debt crisis arose... Panicked investors dumped all assets that seemed risky and sent all resource stocks (including uranium) into a tailspin. We held the stock until June 2012, when we stopped out for a 21% loss.

We're going to buy Cameco again today. But this time we're going to protect our investment with a hard stop. You see, Cameco has never fallen to less than $16 per share since March 2009. If we're wrong about the direction of uranium stocks and Cameco hits that level again... we'll sell. That's about $4.80 per share less (or 23%) than its current price. That's all the capital we're going to risk here.

If we're right and uranium rallies, we could easily see shares of Cameco trading for more than $40 again... That would be a gain of 100%. So we'll risk 23% to potentially make 100% (or more).

Action to take: Buy Cameco (NYSE: CCJ) up to $20 per share. If shares fall below $16, we will sell. Don't overpay for shares. If they rise above the price of our recommendation, be patient. They should eventually come back down into buy range.

Trophies: Where to Put Your Paper Dollars While There's Still Time
In summary, we're buying some of the world's biggest and best collections of resources. These companies are all globally recognized blue-chip resource stocks.

Additionally, this set of "low-risk/high-potential reward" trophy trades is much more about finding tangible assets that hold their value. Remember, in today's world of giant government malinvestment and currency crises, you should keep a good portion of your wealth in the things that are going to require more and more dollars to purchase.

Again, we're risking a little to make a lot, which is the hallmark of successful trading.
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There's Big Money In This Fed-Inspired Uptrend

5/20/2013

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MARKET CONDITIONS

PROFILE:  SPDR Financial Sector Fund  (NYSE: XLF)
The stage is set for a global financial reset.  The central bankers in the U.S. and Europe plan to use inflation to wipe away their bad debts. That is their only hope.  It will end in crisis, but in the meantime, it's setting up a "nearly risk-free way to make huge gains in bank stocks.  Banks today are nearly as strong as they've ever been.

By Brian Hunt

As we expected, financial-stock investors are enjoying one of the biggest trends in the entire market.

In the June 18, 2012 Growth Stock Wire, analyst Larsen Kusick noted how banking stocks were cheap, hated by most investors, and putting in a tradable bottom.  

The fundamental case for owning bank stocks is simple: In its bid to pump up the economy, the Fed is keeping borrowing rates very low. This allows banks to pay just a little to borrow money... and then lend it out at higher rates.   In late 2011, the euro debt crisis led investors to dump their bank stocks.

The big financial-stock fund (NYSE: XLF) fell from $15.50 per share to nearly $11 in just a few months (a 28% loss).   But the Fed's pro-bank policies helped XLF recover. By the spring of 2012, it had made its way back to the $15-per-share area.   As you can see from the chart below, things keep getting better for bank stocks. XLF has "broken out" of a sideways trading range in the $15 area. Shares now change hands for more than $18.    
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Even after the sector's run higher, many bank stocks are cheap. For example, industry giant Bank of America is trading for less than book value.   But on a very short-term basis, XLF is a little "overstretched" to the upside. So if you're not long yet, it's best to wait on a 3%-5% pullback before buying.  

Overall, though, the "big trend" here is clear.   One of our favorite common-sense methods for finding tradable big trends is one introduced by legendary trader Ed Seykota: Post a chart on the wall, go to the other side of the room, and if you can make out the trend from there, you've got a potentially good "trend trade."   With bank stocks, you've got such a trend. And the fundamentals point to this trend running higher and higher.
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Don't Bet On Higher Interest Rates

5/19/2013

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MARKET CONDITIONS

Bill Gross is the world's greatest bond investor. But I'm not betting on his latest market call… And you shouldn't either.

Gross is to the bond market what Warren Buffett is to the stock market. Just like Buffett, Gross has managed to trounce his peers for decades even as his assets under management have grown to an incredible size. Gross' firm PIMCO now manages over $2 trillion in assets, making it the world's largest bond investor.

If you had invested $10,000 in Gross' bond fund at inception in 1987, you would have nearly $80,000 today. Remember, these incredible gains were in "boring" bonds – not in stocks.

But Gross says the fun in bonds is now over. On Friday, he wrote on Twitter that the "30-yr bull market in bonds likely ended 4/29/2013."

When the Bond King speaks, I listen. It's hard to argue with his track record. But in this case, I will argue
that personally, I'm not betting against bonds… at least not yet. Here's why…

We're in a unique moment in history – we're seeing a "mini bubble" in central bank powers.
In short, investors believe central bankers – like Ben Bernanke from the U.S. Federal Reserve – have incredible powers to manipulate markets… Investors believe that central bankers can make bond prices go up or down at will.

As long as investors continue to believe that, it becomes true – a self-fulfilling prophecy. The thing is, it's not true… Investors as a whole can move dramatically more money than any government or central bank can. And someday, they will realize that. They'll shift their thinking and that is when interest rates will finally soar.

But I think that day could be a long way away. Central banks can fool people for a very long time, keeping interest rates very low for a very long time and causing crazy booms in stocks and real estate.

Japan is an interesting example of what I mean.

In Japan, interest rates on government bonds are below 1% and stock prices are soaring. Yet relative to the size of its economy, Japan has much more government debt than the U.S. does.

The Japanese government and Japan's central bank have successfully fooled the people of Japan. The bond market has not crashed and the stock market has soared. Bill Gross may be right. The 30-year bull market in bonds may have ended on April 29. He should know – he knows bonds better than anyone on the planet. But I'm not putting any chips on the idea of a bond-market bust. Just to be clear, I'm not betting in favor of bonds either.

Warren Buffett's company Berkshire Hathaway sold $1 billion worth of new bonds last week at its lowest yields ever. Buffett is 'short' the bond market.

Buffett is no dummy about money. He borrowed money for 30 years, at a record-low rate for Berkshire. He's borrowing for the long run because he knows that rates this low likely won't last for 30 years. "Anybody who's borrowing money now should borrow out for a long period of time," Buffett said on Bloomberg News.

By borrowing for 30 years, you are locking in a low rate. If inflation shows its head any time in the next 30 years, you could come out way ahead. Interest rates are so low today, Buffett actually said he feels sorry for bond investors now.

During Saturday's Berkshire Hathaway annual meeting in Omaha, Nebraska, Buffett said he felt sorry for people holding on to fixed-dollar investments. He said holding cash and Treasurys has been 'brutal.'

Buffett and I agree that one of the very best inflation hedges is blue-chip stocks.  The Dow Jones index is full of good values in classic names right now. The exchange-traded fund for the Dow (DIA) is trading at a forward price-to-earnings ratio of 13.6. That is cheap!

Instead of bonds, my chips are on the idea that central banks will be able to fool investors for years and keep interest rates low. In that situation, the right trade is to be in stocks and real estate.


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It's Official: The Bear Market is Dead!

5/19/2013

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The S&P 500 is the broadest measure of the U.S. stock market, representing about 75% of the United States' entire market capitalization. In other words, if you want to judge the performance of the U.S. stock market, you look at the S&P 500, not the Dow or the Nasdaq. The bear market is history.
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This Sector Is Cheap... and Heading Much Higher

5/19/2013

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By Frank Curzio, editor, Small Stock Specialist
Friday, May 17, 2013

One of my favorite sectors is just starting to make gains... I expect much more to come...

These companies make the "chips" that go into computers, smartphones, video-game consoles, and other electronic devices. They were one of the few great "bargains" left in the stock market. And they had a big-picture tailwind working in their favor. This sector is still cheap and has huge upside potential. Let me explain...

Chip stocks have spent the past two years drastically underperforming the S&P 500. Most of the weakness was due to a massive drop in personal computer (PC) sales. Despite the growth in sales of tablets – like Apple's iPad and Microsoft's Surface – the PC slowdown left most chip companies stuck with inflated inventory levels.

Also, investors were terrified things would get worse for the global economy. If the economy is slow and folks aren't buying electronics, semiconductor makers suffer. So the market dumped chip stocks. The big semiconductor fund (NYSE: XSD) fell 25% in five months. The sell off left the sector full of cheap, low-risk, high-reward opportunities. And now, the market is starting to turn around. As you can see in the chart below, chip stocks are finally breaking out.

Since March, the sector is up 12%. And this move higher is just beginning...

Chip companies have been cutting inventory levels over the past 12 months. According to investment firm Goldman Sachs, inventory is down 17% for the sector. This means supplies are shrinking and chip companies can ramp up production.

Plus, according to consulting firm Infonetics Research, global telecom companies like AT&T, Verizon, and China Mobile will spend more than $300 billion this year to upgrade equipment and improve wireless infrastructure. In fact, telecom spending is expected to surpass $1 trillion over the next three years. Telecom companies are some of chip stocks' biggest customers.

A few companies that will benefit from this tailwind are Altera, Xilinx, and LSI. These chip stocks are cheap based on conservative earnings estimates. They have strong balance sheets and just bounced off their recent lows. But my favorite play on the sector is Cypress Semiconductor (NASDAQ: CY).

Cypress is a leader in touchscreen-chip technology. The company is well-positioned to benefit from telecom's massive spending spree. It has contracts with 80% of the companies in the telecom industry, including AT&T, Verizon, and T-Mobile. It also supplies international telecom companies, including China Mobile.

The stock is dirt-cheap, trading at 13 times forward earnings. Plus, Cypress pays a 4% yield. This dividend is safe thanks to the company's ability to generate huge cash flow. Chip stocks like Cypress still have a big picture tailwind working in their favor. If you haven't already, I recommend taking a position today.
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