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Monday links: currently profitable
Quote of the day
Fred Wilson, ?Profits are critical to the health of a business, but that doesn?t mean a healthy business has to currently profitable.? (A VC also Om)
Chart of the day
Corn is way oversold. (The Short Side of Long)
Markets
In the long run valuation matters. (Mebane Faber)
Big Wheels Keep On Turning (IYT)
This week?s focus is on transports and shipping. But before we get to the fuel-burning details, we?ve got good news to share. Let?s review two successful trades that turned out their profits very quickly.
Trade Recap
The first trade under review is our August 26th initiative, in which we purchased CALLs and sold PUTs on CBOE Holdings (NASDAQ:CBOE) in a letter called Options Strategy for a Takeover Play.
After speculating that CBOE Holdings looked ready for a takeover bid, we bought our March 55 CALLs for $1.20. We paid for them by selling March 40 PUTs for $1.00, so our up-front cost was only $0.20 for the trade. And as of last Friday?s close, CBOE shares sat barely half a percent off their all time highs, so our CALLs have profited very handsomely.
Here?s the way it charts ?
Less Risk, More Profit From Precious Metals
Striking it rich in the precious metal business is a goal far older than the United States.
In the 19th century, many Americans' ancestors traveled west across the country with dreams of building new lives. Some ventured west to find freedom and land, others moved west in search of fortune. It was the lure of riches -- in the form of precious metals -- that attracted these fortune-seekers to the faraway land of California.
Known as the California Gold Rush, over 300,000 fortune hunters traveled from all over the world to find wealth in the form of gold nuggets. Known as forty-niners in reference to the gold rush of 1849, many of the early gold seekers struck it rich while gold was easy to find and retrieve.
As the numbers of fortune seekers increased, however, it became more difficult to discover new sources of gold. Soon, the equation shifted, with most of the new miners losing money on their venture. The easy pickings were gone forever, and only the merchants selling mining supplies and the dream continued to create wealth.
Today, it is still possible -- though far more difficult -- to build great wealth in the precious metal business. Investors no longer have to face the hardships of the original forty-niners to profit from skilled mining companies. However, high risk still remains when investing in miners of precious metals. While this risk is no longer to life and limb, as it was for the forty-niners, heavy monetary risk remains for investors in this sector. In addition, the miners themselves face several layers of risk.
I recently learned from my father-in-law, a skilled and knowledgeable precious metal investor, of a clever way that certain mining companies use to greatly mitigate their risk factors while retaining the upside of striking it rich. These companies benefit from multiple mining operations, which spreads out these firms' risks, and actually lock in the purchase price of the mines' production, regardless of market price. Sound too good to be true? At first, I thought so, too, but a little research confirmed this remarkable strategy.
These companies are called streaming companies. At its essence, a streaming company is a firm that provides capital to mining companies in exchange for an agreement to purchase all or some of their precious metal production at a low pre-negotiated price. This arrangement eliminates market price risk and spreads the streaming company's risk out across many companies, mines, regions and projects.
In addition, streaming companies obtain leverage from the ability to purchase precious metal at a significant discount to market price. The streaming company also does not have to carry the significant costs of exploration, extraction, and production. It's all upside without the common risks associated with direct mining companies.
Two streaming companies are Silver Wheaton (NYSE: SLW) and Sandstorm Gold (NYSE: SAND). As their names suggest, Silver Wheaton focuses on silver miners, while Sandstorm targets gold miners. Let's take a closer look.
Sandstorm Gold is a Vancouver-based company that secures streaming agreements in exchange for funding from advanced-stage development projects and producing mines. The company has 16 projects under agreement, including a variety of gold, copper and zinc mining excursions. Sandstorm CEO Nolan Watson says his company has $100 million to deploy for future projects but is waiting for the bottom in the mining sector to execute the deals.
Technically, SAND bounced from the $4 area before finding resistance at the 50-day simple moving average in the $5.60 zone.
Why the Bulls Aren?t Doing Coke
My kids will probably never become big Coca-Cola drinkers. First, we're not going to keep big 2-liter bottles of that kind of thing in the house and second, there are now so many alternatives to soda that what made Coke special to so many previous generations will probably be utterly lost on them.
During my routine run-through of large cap performance charts, I came across the old blue chip stalwart and was quite surprised. I couldn't believe how poorly it's been acting given the rising tide that's been lifting nearly everything else. And don't tell me that the "defensive" widows-n-orphan stocks are supposed to act badly in a risk-on tape - you'd be hard-pressed to find another high profile consumer staples stock that's been dribbling its way lower over the last few months as Coke has.
In the below chart, you're looking at two years of the SPY (S&P 500 ETF) and XLP (consumer staples sector SPDR) in blue and green respectively, with the glaring negative divergence in shares of KO below them (in yellow):
