Global Resource Hedges
12/09/2005 12:00 am EST
"It is time to focus on investments that are poised to soar in these highly inflationary times," notes Martin Weiss, editor of Safe Money Report. Here, he looks at a trio of his favorite global "inflation hedges"—US Global Resources, Enerplus, and Australia's BHP Billiton.
"US Global Investors’ Global Resources Fund (PSPFX) gives you a solid vehicle for a diversified stake in several sectors of the energy market. The fund offers exposure to energy refiners and drillers, as well as oil services companies and a smattering of mining firms involved in gold, coal, and other metals markets. As of the latest reckoning (end of the third quarter), it has about 32% of its portfolio in oil and gas exploration and production companies. Integrated oil, service firms, refiners, and other energy firms account for another 31%. And the balance is in gold, copper, coal, and other natural resources. PSPFX was up 39% year-to date through November 30. Overall, the fund has a good track record for balancing performance with risk.
"Enerplus Resources Fund (ERF NYSE) is a high-yielding Canadian energy trust. Enerplus, one of the more conservative vehicles for taking advantage of rising energy, has just blasted off, also to new highs. But it's not too late to buy. It produces oil and natural gas, sells it, and pays out hefty monthly distributions based on the proceeds. And given that energy prices—and Enerplus’ share value—should turn higher, I think it’s again a bargain at today’s prices. More good news: The Canadian government, which was mulling over a plan to crack down on tax advantages that income trusts enjoy, has firmly abandoned that path. On top of the strong potential for more appreciation, it’s paying a very high dividend yield of 8.78%.
"In our speculative portfolio, I recommend BHP Billiton (BHP NYSE). Based in Melbourne, Australia, BHP is one of the largest resource companies on the planet. So buying its shares is tantamount to buying a commodities mutual fund with exposure to oil, aluminum, lead, zinc, copper, and more. In addition, o il, coal, and other energy products look like they’re consolidating for a fresh move higher. Buying each of these commodities, however, can be cumbersome and expensive. But you effectively stake a claim to each through purchase BHP. Overall, it’s one of the most diverse—and efficient—natural resource companies in the world.
"BHP has more than 36,000 employees and operations in over 100 countries. If natural resources continue to rally—and I expect they will—this stock should be in the catbird seat. Sales in the fiscal year that ended in June were $31.8 billion, up 27.5% in a year. For a small company, that percentage gain would not be so unusual. For a company the size of BHP, it’s very impressive. Net profit jumped 89% for the year, to $6.4 billion. A key reason: Net profit margins rose from 22% to 29%.
"Looking ahead, earnings per share in 2006 earnings should grow more than 40% next year. A key factor driving its success: BHP’s profits are linked to China’s explosive economic growth. That country is BHP’s largest single customer, accounting for about 13% of 2005 sales. The stock hit a high of more than $34 several weeks ago. It has pulled back some since then. But I expect a new leg up to begin—and soon. So if you have the speculative funds available, buy now."