The tailwinds behind this “inevitable” sector … how to play it … what’s behind recent price weakness … huge demand is coming
When it comes to building wealth in stocks, few concepts will help you more than something we at InvestorPlace call “inevitables.”
Frankly, it’s a “Top 10” most important concept for stock investors, for two reasons…
One, it’s incredibly simple.
Two, it’s incredibly lucrative.
“Inevitables” is a concept popularized by legendary investor, Warren Buffett. It’s his term for businesses with huge competitive advantages that dominate their industries.
From Buffett’s 1996 Berkshire Hathaway investor letter:
Companies such as Coca-Cola and Gillette might well be labeled “The Inevitables.”
Forecasters may differ a bit in their predictions of exactly how much soft drink or shaving-equipment business these companies will be doing in ten or twenty years…
In the end, however, no sensible observer – not even these companies’ most vigorous competitors, assuming they are assessing the matter honestly – questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime.
“The Inevitables” are a tiny group of entrenched market leaders that will dominate their sectors for decades to come. They are so beloved, with such well-defended positions, that their continued dominance and success in is virtually inevitable.
These are no-brainer investments. You allocate your money, go live your life for a decade or so, then eventually, check your balance to find extraordinary growth.
Now, though “inevitables” refers to specific stocks as we’ve been using the term so far, we can expand it.
Under the right circumstances, the term applies to certain technologies, assets, trends, or cultural shifts that are so impactful, that massive growth is inevitable.
Today, investors are being offered an opportunity to “buy the dip” in one such inevitable asset that’s going to provide a huge payoff this decade.
This investment was booming for months – until this past spring. The last few months have seen prices pull back.
But as our macro specialist, Eric Fry, notes below, demand isn’t going anywhere. In fact, it’s going to be ramping substantially over the next few years, while supply declines.
Translation – prices are headed up, and Mr. Market is giving us a discounted price today.
We’re talking about the boom in copper.
Today, let’s make sure you’re aware of what’s happening, and why. Even better, we’ll give you a new copper play that Eric believes will reward investors this decade as this inevitable trend plays out.
***Heavy demand and low supply mean great returns for copper investors
For any newer Digest readers, Eric is our global macro specialist and the editor behind The Speculator. As a macro investor, he evaluates markets and asset classes from a big-picture perspective to identify attractive opportunities.
Once a macro trend is in his crosshairs, he digs down to find the right, specific investment to play the opportunity.
It’s been a powerful strategy…
In his decades in the business, Eric has dug up more 1,000%+ gaining investments than anyone we know of in the newsletter industry.
The most recent one came roughly one month ago. Eric led his Speculator subscribers to a 1,400%+ winner in – appropriately – copper mining giant, Freeport-McMoRan (FCX).
Though that specific trade is in the books, Eric isn’t looking for copper’s monster run to end anytime soon.
Here’s his topline take, from his recent issue of his free e-letter, Smart Money:
Today’s topic is copper demand… It is going way up.
A related topic is copper supply… It is failing to keep up with demand.
Today’s conclusion: Buy the dip in copper prices.
Let’s dive into the details here…
For any newer Digest readers, copper is a must-have metal when it comes to green technologies. And as you’re aware, our world is experiencing a massive push toward all things “green” today.
From electric vehicles, to solar energy, to batteries, to basic non-green plumbing and wiring, copper is found in, well, just about everything.
Here’s Eric with additional details:
According to research firm Fitch Solutions, annual global copper use will soar from 24 million tonnes to nearly 32 million tonnes over the coming decade, thanks mostly to surging demand from renewable energy technologies.
It’s true; most green technologies are “copper hogs.”
The average solar power project, for example, requires about five times as much copper per megawatt of capacity as a conventional fossil fuel plant. Offshore wind farms demand about 10 times as much.
By 2030, copper demand from green technologies will more than triple to five million tonnes per year.
For perspective, five tonnes of yearly copper demand would be greater than the combined yearly output from the world’s three largest copper mines!
That’s a great start.
But as any Econ 101 student will tell you, demand is just one-half of the influence on price.
***What are forecasts telling us about supply?
Most industry experts doubt the global copper supply can keep pace with demand.
Fitch, which Eric referenced above, expects the copper supply deficit to widen over the next three years until reaching a shortfall of nearly half a million tonnes in 2024.
Back to Eric:
A deficit of that size should put a solid floor under the copper price.
But copper companies can’t simply flip a switch to boost production when copper prices are high; they are hobbled by declining ore grades, rising production costs, and lengthier development timelines…
Because of the considerable impediments to launching new, large-scale copper production, annual supplies of the metal will likely struggle to keep pace with demand growth.
So, we have a coming decade of massive demand with limited supply. That’s a perfect recipe for price gains.
How can investors play it?
***Putting copper to work in your portfolio
There’s obviously Freeport-McMoRan, which led to Eric’s 1,400%+ return last month.
In past Digests, we’ve also highlighted the Global X Copper Miners ETF (COPX). Eric has recommended COPX as well – his official trades have profited to the tune of 100% and 85% respectively (he sold in tranches).
Today, let’s put a new name on your radar – Ivanhoe Mines (OTC: IVPAF).
From Eric:
Thanks to many years of extraordinary effort and investment, (Ivanhoe) is on track to ramp up its copper production into the teeth of a global supply deficit.
Ivanhoe owes its “good luck” to decades of hard work and foresight.
Eric details one of Ivanhoe’s production projects, which has the potential to become the world’s largest copper mine. But he soon transitions back to the macro case for copper by referencing Ivanhoe’s CEO, Robert Friedland.
Back to Eric:
Over the last few years, Ivanhoe’s Friedland has repeatedly predicted a multi-decade boom in copper demand that would be driven by renewable energy technologies.
During an investment conference in Vancouver I attended four years ago, I heard Friedland state matter-of-factly, “Based on world ecological and environmental problems, every single solution drives you to copper.”
He then boldly predicted, “By 2021, you’re going to need a telescope to see the copper price!”
He was right… and his company is perfectly positioned to ride a multi-year copper boom.
It’s been riding it well so far.
Below, we see Ivanhoe up 100% over the last year, compared to 31% for the S&P 500.
***So, what’s behind the recent pullback in copper’s price?
In short, China.
Copper’s price hit a recent high in May. That topped a monster run beginning back in March of 2020.
But the gains were so big, so fast, that it was leading to price speculation and hoarding in China. China consumes more than half of the world’s annual copper output, so Beijing didn’t like this price run-up.
The result? China did what it does best – clamp down.
From CNBC, back in May:
Chinese authorities issued a “zero tolerance” warning to commodity speculators on Monday, sending the prices of some assets tumbling.
Fresh guidelines were posted by China’s National Development and Reform Commission in a notice on its website. That followed a meeting between the body and industry leaders and associations for commodities such as copper, aluminum, iron, steel and nonferrous metals.
China has been trying for weeks to cool the fervor around certain commodity prices, which have been soaring since the start of the year.
Copper has fallen about 10% since its high in May.
But there’s only so much China can do.
***The demand is simply too great for prices to remain suppressed for long
The push toward “green” is too much. Demand will only ramp up from here. And that makes copper an inevitable sector this decade.
To read more of Eric’s research on copper as a Speculator subscriber, click here.
I’ll give him the last word:
The boom times at both Freeport and Ivanhoe are likely to continue for most of the coming decade, as the world grapples with uncertain copper supplies…
“Increasing technical complexity and approval delays could lead to a dearth of shovel-ready [copper] projects in 2025-30,” Bloomberg Intelligence predicts.
Therefore, according to research firm CRU Group, the copper industry needs to invest more than $100 billion to have any chance of preventing major supply deficits during the upcoming decade.
If the industry fails to make this investment, the world may face a significant shortfall of the “active ingredient” in most renewable energy technologies.
“The average person just doesn’t understand the scale of the implication for raw materials,” Friedland winds. “If you’re not just green washing, and you really mean it, then it is the revenge of the miners.”
Translation: The clean energy revolution could rain down riches on companies like Ivanhoe and Freeport-McMoRan.
Bottom line: Buy the dip.
Have a good evening,
Jeff Remsburg
