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Where to Find Safe Resource Income Right NowBy
Saturday, October 2, 2010
This week, investors closed out their best September since 1939...
The Dow Industrials climbed 7.7%... gold and silver soared to multi-decade highs... and commodities in general had their best September since 1956.
These extreme moves make it difficult to find extraordinary bargains in stocks and commodities... to invest with maximum safety.
Fortunately, there's still one asset out there that qualifies as "super cheap"...
When looking for value in resource stocks, it helps to compare various commodities to each other. For example, I like to see how the prices of coal and natural gas stack up. Since both commodities are used to fire electrical power plants, they can be valued against each other.
As this chart below shows, natural gas is cheap versus coal. When the ratio is greater than 0.8, we're in "cheap gas" territory. Today, the ratio is 0.9.
.gif) I also like to compare natural gas with gold. This allows us to view the value of natural gas in terms of "real money"... not the paper kind the governments can debase at will.
Natural gas became extremely cheap relative to gold back in September 2009. It then staged a huge rally. But in the past few months, rising gold prices plus weak natural gas prices have returned this ratio to "cheap gas" levels.
Typically, when a million cubic feet of gas is worth less than five ounces of gold, we're in "cheap gas" territory. Today, the ratio is 2.9 ounces per million cubic feet of gas.
.gif) If you're not finding terrific values in stocks and commodities after their huge September surge, I encourage you to check out natural gas. It's cheap relative to other energy sources, and it's cheap relative to gold. It's cheap relative to anything, really.
You can buy beaten down gas producers like Chesapeake Energy (CHK) or Ultra Petroluem (UPL) to profit on this idea. If natural gas simply gets a little "less cheap," you could make fast double-digit gains.
But my favorite way to play this situation can provide investors with a safe stream of passive income. I'm talking about natural gas trusts. Trusts aren't your typical energy company with thousands of employees. They're basically land packages with producing oil and gas wells on them... and they enjoy a special corporate structure that allows them to pass along the bulk of their revenues on to their shareholders.
Even with gas prices in the dumps, a lot of these stocks are set up so they can offer terrific yields. Many pay income in the 5%-10% range. Good investing,
Matt Badiali
Further Reading:
Natural gas is clean. It's abundant. And it's cheap... To take advantage of this top commodity, you could buy a natural gas fund, a producer, the royalty trusts Matt mentions... or check out Tom's favorite idea here: The Safest, High-Income Way to Buy Natural Gas.
Tell someone at a cocktail party that you have money in a prospective oil well or a new gold deposit, and they'll demand to hear the story. But mention that you own natural gas investments, and they'll suddenly need to go refill their drink. That's why there's such an incredible income opportunity there. For another asset in a similar situation, read this: Get 7% Dividends from the Most Profitable Stock in American History.
Market NotesCHART OF THE WEEK: AN INCREDIBLE ECONOMIC INDICATOR Are things really getting "less bad" in the global economy? Or are governments just massaging statistics to make us all feel better?
Our chart of the week goes a long way toward answering those questions. It displays the past two years of trading in copper.
Copper is one of our favorite "real world" indicators. Since the metal is a vital ingredient in everything around you – cars, houses, electronics, appliances, power lines, and plumbing – it rises and falls with the pace of economic activity. Copper enjoyed a tremendous post-crisis rebound last year as money returned to the stock and commodity markets. But early this summer, the metal struck an eight-month low on concerns the economy was faltering.
As you can see from our chart, however, this low didn't last long. Copper has staged an amazing rebound to climb from $2.80 to $3.70 per pound... and now sits at a two-year high.
Sure... the markets face all sorts of bearish factors (the two biggest being government debt and government debt). But before you get too bearish, mind what the market is saying. Right now, it's saying things are good enough to send copper to a multi-year high.
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Stat of the week
$85,198
Median income of residents of Washington D.C., the highest of any major city in America. The country's greatest growth industry is government. In The Daily Crux
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