This Speculative Trade Has Easy Triple-Digit Upside
Editor's note: Stocks have marched higher for eight years and counting.
But not all sectors have participated in the bull market.
In today's Masters Series – adapted from the February 9 and February 16 editions of our free DailyWealth e-letter – Steve Sjuggerud discusses one sector that has been left behind... and explains why it has tremendous upside from here...
This Speculative Trade Has Easy Triple-Digit Upside
By Dr. Steve Sjuggerud, True Wealth Systems
Futures prices for this commodity hit $17.75 on the last day of November... and $26.15 recently, a new high for this year.
That's a 47% move – in a little more than two months.
Even better, nobody is talking about it...
Nobody, that is, except me. This commodity was the cover story in the February issue of my True Wealth newsletter.
It peaked near $140 in 2007. And recently, it was around $26. So even after a 47% gain in just over two months, it's nowhere near its former glory. There's still plenty of upside...
So what commodity is this? It's uranium...
I wrote about uranium in DailyWealth back in October. In that essay, called "Exactly What I Want to See in A Trade, Part II," I quoted legendary commodities investor (and my good friend) Rick Rule on what's wrong with uranium – and what's right with it.
What's wrong is that it's an unprofitable business right now... There is too much supply and too little demand. As Rick said at our Stansberry Conference in Las Vegas last year:
You make the stuff at $65 a pound, and you sell it for $25 a pound. That means you lose $40 a pound, and you do that 190 million times a year.
As you dig into the fundamentals, it's hard to find cause for optimism. Some "lifelines" are out there, but they are long shots.
However, at the conference, Rick also made the long-term case for uranium succinctly to the crowd:
How many people here believe we're going to have electricity in six or seven years? [Most hands go up.] That means you believe that the price of uranium – the stuff you make electricity out of – goes up. No second choice.
In October, I wrote that uranium had what I wanted to see in a trade – but I was not a buyer yet...
Uranium is incredibly cheap and incredibly hated. There's a great long-term case for it, as Rick Rule explained. But in the short run, things can get worse before they get better.
In the meantime, I will watch for the uptrend – the price action – to confirm this idea before any data in the market will confirm it.
My friends, we have that uptrend now... in spades. Uranium recently jumped 47% since bottoming in November.
Besides that, it's cheap – relative to its highs from 10 years ago around $140.
And finally, it's hated... After 10 years of terrible performance, almost nobody is talking about uranium today.
Uranium finally has exactly what I want to see in a trade. It's cheap, hated, and in an uptrend.
And I'm not the only one who's starting to get bullish on uranium, either...
"When was the last time a sector or an industry went down six years in a row?" I asked my good friend Meb Faber at lunch in New York last November.
Meb is the guy to ask... He is one of the smartest, most respected minds on Wall Street. And he has crunched the numbers going back decades.
"Six down years? It NEVER happens," he said. "But coal stocks ended 2015 down five years in a row."
Based on this fact alone – that coal stocks went down five years in a row – Meb told his subscribers in late 2015 to buy coal stocks. He got it exactly right... Coal stocks finished 2016 up 98%.
Today, uranium is on Meb's radar. It finished 2016 down – for the sixth straight year. And as a result, we agree that it's a great speculation with triple-digit upside.
Let me explain...
Meb has made a career out of tracking down large investment returns.
He scours the globe, looking at investments differently than most analysts do. So when he started telling me about his research on buying after multiple down years, I was interested.
Here's another example: Meb said that gold stocks were down five years in a row ending in 2015. And like coal, gold stocks absolutely soared in the first half of 2016.
Keep in mind, Meb said to buy coal stocks and gold stocks at the end of 2015 NOT because of some fundamental change, or because of some great story unfolding. Meb didn't create the script for coal – or gold. He chose them simply because he knew what happens after five down years...
Meb has run the numbers going back to the 1920s on how sectors perform the year after multi-year declines. Here's what he found:
As the table shows, the average gain in the year after a consecutive number of down years is shocking.
The rarity of multiple down years is shocking, too...
For example, four consecutive down years in a sector has only occurred 1% of the time since the 1920s. And five down years has almost never occurred.
In other words, opportunities like this don't come along often.
That's why Meb was nearly giddy at lunch about his new idea for 2017...
Steve, uranium stocks have fallen every year since 2011. They've crashed around 90%.
If they close down for 2016, that will be six straight down years. You have to go back to the Depression to find an industry down for six straight years.
As I explained, uranium is cheap and hated. And now, it's finally starting an uptrend.
But the fact that it fell for six straight years is one more reason I'm excited about it.
You see, over the long run, reversion to the mean is an incredibly powerful force in financial history. When coal stocks reverted away from the mean for five years, they snapped back violently in 2016. And the same thing happened with gold stocks.
Today, the opportunity in uranium is nearly identical to the ones in coal and gold last year.
Uranium stocks have fallen for six straight years. And now, they've silently entered an uptrend.
I expect uranium stocks will be a big winner in 2017. And now is the time to get on board...
Editor's note: Steve just released a brand-new presentation in which he details the secret system that identifies investment opportunities with triple-digit upside in all corners of the stock market. Over the past five years, this system has beaten the market by nearly 50% on average. Get the details on this powerful system right here.