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Why Bad News for Resource Stocks Is Good News for YouBy
Thursday, January 29, 2015
Warren Buffett has often said: "Bad news is the friend of the long-term investor."
Bad news leads to lower stock prices. Without low stock prices, it's basically impossible to use the stock market to make a fortune.
You must buy low and sell high. But the only way you can buy low is to buy stocks when they're cheap enough. That usually requires some bad news to come out about the company you're looking at or the industry it's in.
When the rest of the world is selling stocks in a panic, great investors are calmly scooping up bargains amid the chaos.
Great investors were buying in 2009, after the market had fallen almost 60% from its October 2007 peak. Great investors were buying in late 2011, when the market was down 20% from its May highs.
Today, great investors are buying natural resources stocks... and looking for other resource-related opportunities in anticipation of a great buying opportunity.
Let me explain...
Bad news is all around, especially among commodity-related businesses.
Take iron ore, for example. Iron ore prices are hitting fresh five-and-a-half-year lows, around $63 per tonne. At that price, roughly a third of global iron ore producers are losing money.
 High-cost producers are feeling the pain. Cliffs Natural Resources shut down both of its Canadian iron ore mines (with costs above $70 per tonne). One of them, the Bloom Lake mine in Quebec, just announced it's seeking protection under the Canadian Companies Creditors Arrangement Act (like bankruptcy in the U.S.), just one day after Cliffs eliminated its dividend payment. Steel producer U.S. Steel sought the same protection in September. Copper prices are hitting new five-and-a-half-year lows, too – under $2.50 per pound...
 With such a drastic move, it's little surprise the biggest U.S. copper miner, Freeport-McMoRan, recently said it's cutting its 2015 capital budget again, this time from $7.5 billion to $6 billion, having already cut it from $9.5 billion. So, why is all this bad news so wonderful?
Because bad news makes great stocks cheap. Great investors can take advantage of these "bad news" opportunities because they know what stocks they'd like to own before the market falls.
For example, we recently recommended a fantastic royalty stock in my Extreme Value newsletter...
I can't tell you the name out of fairness to my subscribers. But this royalty stock hasn't been this cheap in nearly six years. And it's a royalty on one of the best-run mines in the world, which has another 50 years' worth of metal in the ground today. So, it'll be paying out cash to shareholders for a long, long time.
It's insanely rare to get a royalty this good at a price this cheap. But we were ready for it. We knew this stock was out there, and we just waited until it got cheap enough. Now Extreme Value readers who buy it should enjoy a 9%-10% yield for years to come...
Wouldn't it be great if you knew which stocks to buy every time the stock market went down a lot? Other people would be panicking. But you'd be buying with confidence, knowing you're getting shares of a financially solid company with a great business, that will survive downturns, keep growing, and that will take off when the market comes back (which it always does).
That's exactly what you should be training yourself to do today.
I can't know exactly when iron ore, copper, or other natural resource stocks will start rising again, but I suspect that it will be sometime this year. Right now, many solid resource businesses are trading at their lowest prices since the financial crisis, more than five years ago.
Investors who can look past the bad news today and single out great resource businesses selling at great prices have an incredible opportunity to make a lot of money over the next few years.
These investors, like my Extreme Value readers, will be better-prepared when stocks turn down (as they always do eventually), and some of the richest when they turn back up (which they always do eventually).
Good investing,
Dan Ferris
Further Reading:
Learn more about this year's opportunity in resource stocks – and how to safely invest in this volatile sector – right here:
Your Biggest Chance for Capital Gains in 2015
If his mom called, he knew whatever stock she was interested in was a bad investment idea... How to Make a Fortune in Resource Stocks... Starting Today
Today, resource stocks are some of the best bargains in the world... But the average investor tends to be scared when stocks are at their most attractive valuations. He sells at the moment when he should buy... Market NotesAS EXPECTED, THIS 'WORLD DOMINATOR' IS SOARING Apple just reported the most profitable quarter of any company EVER... and it shouldn't come as much of a surprise to DailyWealth readers.
Last May, Dan Ferris told readers why Apple was worth twice as much as its share price at the time. As he wrote, Apple is the 'World Dominator' of consumer electronics. It's the No. 1 maker of mobile-computing devices in the world. It reinvented recorded music, phones, and computers with iTunes and the iPod, iPhone, and iPad. Now, it makes the highest-quality, most-loved products in each of its two major categories (smartphones and tablets).
Dan cited record iPhone sales, growing penetration in China and a newfound penchant for rewarding shareholders as reasons shares were vastly undervalued.
As you can see below, Dan's advice has worked out well. On Tuesday, Apple reported quarterly earnings of more than $18 billion – driven largely by a 70% increase of sales in China. Shares were up more than 5% yesterday on the news... and have gained 40% since Dan's essay last May.
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