Beat the Street With America’s Top Trader
Throughout the next several months, I’ll be utilizing my Pinnacle System to identify numerous investment opportunities.
In fact, I’m closely monitoring dozens of prospective trades at this very moment… and I expect many of them to gain enough momentum to trigger a buy signal from my system in the coming weeks and months.
But until they do, I’ll simply keep a close eye on them, while continuing my analytical processes to identify additional prospects.
The good news is that you don’t have to wait much longer for the first few plays I’m most excited about.
The details of each trade recommendation are listed and explained below.
As you learned in my exclusive interview with Dave Baumann, these are a combination of stock and option plays. Some are stock purchases and some are long-dated call options.
Over the long-term, our trades in Fry’s Pinnacle Portfolio will be more or less balanced in terms of the number of stocks versus the number of options that we hold.
(Remember, I’ll be issuing one to two brand-new recommendations every month.)
But for the specific trades in this report, we have a unique goal. We’re aiming to achieve a return that’s 10 times the S&P 500’s return over the next 12 months.
In order to do that, we’ve got to be strategic. That’s why we’re utilizing a calculated blend of stock purchases and long-dated call options called “LEAPs.”
We’re using LEAPs because these types of options have expirations longer than one year. They’re an effective way for you to “own” underlying shares of stock for a period much longer than is allowed with regular options.
Plus, they offer another important advantage: a longer time frame for the underlying shares to move in the direction you want.
Because of these powerful benefits, an allocation of LEAPs is the best way to achieve the market-beating gains we’re looking for.
But, it’s important that you keep a few important caveats in mind:
Some of these trades will be more volatile and more speculative than others. They could move up and down quite a bit before we close them out…
So please make sure that you’re comfortable with this before executing any of these trades.
That said, these trades are the best opportunities that I know of, right now, to “hit a home run”… and beat the market 10-fold.
As I mentioned above, our approach over the next 12 months will be pretty balanced. I’ll recommend a more or less even number of stock trades and option trades so that you have the opportunity to focus on the investments that fit your risk tolerance.
Typically, I will recommend a stock trade and a corresponding option trade at the same time. So if you’re not interested in speculating, no problem… You can profit simply by executing my stock purchase recommendation(s).
Remember, stock trades will usually be tracked in our Investor’s Portfolio and options trades will be tracked in our Speculator’s Portfolio.
And as a rule of thumb, The Oxford Club recommends allocating no more than 4% of your portfolio to any position, including the ones below.
So please, be judicious about your position size.
Now let’s take a look at the trades I’m recommending right now!
Please Note: Given the speculative nature of these trades, it’s possible that prices will fluctuate outside the recommended price ranges I’ve published. If you find that one or more of the trades below have approached and/or surpassed my current buy limits, please don’t panic.
Use your discretion to take advantage of any actionable trades that appeal to you (and your risk appetite), and please wait for further instruction from me on the other plays. I will update you on our portfolio each week, and will provide new buying instructions as soon as the opportunity arises. Your patience will be rewarded.
No. 1: Vale
The “Second Electric Revolution” is underway. And this revolution is quickly becoming a world-altering phenomenon – the likes of which the planet has not seen since Thomas Edison demonstrated his new electric streetlights in 1879.
The marvels of electricity manifest themselves in nearly every facet of day-to-day life – from streetlights to street cars, radios to refrigerators, televisions to telephones. And while the number and complexity of electronic gadgets has expanded greatly since 1879, electric technologies never made any significant inroads into the realm of personal transportation – i.e., automobiles.
Fossil fuels rule that domain. Ironically, fossil fuels also rule the domain of electricity generation. As recently as 2007, coal-fired plants provided more than half of our nation’s power. And still today, coal, natural gas and gasoline combined provide 62% of our power.
In other words, a kind of accidental détente developed in which electricity powered our homes and offices, while fossil fuels powered our automobiles and electric grid.
But today, those boundaries are breaking down… quickly.
Electric vehicles are stealing market share from gas-fired vehicles, while utility-scale energy storage systems are enabling renewable power technologies to steal market share from thermoelectric power generation.
Both of these stories are very new and very big. That is why they deserve our investment focus.
The electrification of personal transport, combined with the growing deployment of energy storage systems, is a major trend that will be unfolding over many decades.
Today, we have a window to invest in this once-in-a-generation opportunity. That said, finding the best way to invest in this mega-trend is a mega-challenge.
Here are a few of the challenges to successful investments in the electrification trend:
- Many of the companies leading the electrification boom are Chinese, and their stocks trade only in Shanghai or Shenzhen.
- Many market leaders in the battery and electrification industries are subsidiaries of much larger companies, so there is no way to invest in them directly.
- Many market “leaders” are losing money. Tesla is one high-profile example, but it is hardly alone. Innovation is both expensive and risky.
- The electrification boom is a battleground of competing technologies and continuous innovation. Today’s market leader could be tomorrow’s Betamax. I refer to this dynamic as “first-mover disadvantage.”
For these reasons, I focus primarily on the companies that are providing essential resources to the electrification boom. Most of the companies that fall into this category are mining companies like Vale (NYSE: VALE).
Next-generation electrification technologies require large quantities of metals like lithium, cobalt, copper, nickel and vanadium. The average EV, for example, uses almost half as much copper as the average American house does.
That’s why, generally speaking, I believe “low-tech” mining companies like Vale provide a better play on the electrification boom than “cutting-edge” companies like Tesla do.
Vale is a Brazil-based company that is the world’s largest producer of both iron ore and nickel. It also operates a vast array of additional mining, logistics and energy operations.
For now, suffice it to say that Vale is…
- A short-term play on a continuing recovery in the price of iron ore
- A short-term play on a continuing recovery in the price of nickel
- A short-term play on rising global economic growth
- A long-term play on the adoption of EVs.
The nickel portion of this story is particularly interesting… and is one of the most compelling reasons to buy the stock.
Even though Vale is the world’s largest nickel miner, it was losing money on those operations until very recently. Thanks to a sharply rising nickel prices, Vale is beginning to ring the register on this metal.
The profit potential is large. And yet the stock is not really receiving any credit for this embedded potential. The stock is selling for less than 10 times this year’s estimated earnings. And given the rising trend of most commodity prices, any earnings surprises from Vale will likely be to the upside.
Vale has become a very compelling “Buy” at the current quote.
Action to Take:
Speculator’s Portfolio: Buy the Vale (NYSE: VALE) January 2020 $15 call options.
No. 2: Largo Resources
The electric vehicle is not the only transformational technology that’s bursting onto the scene; so is energy storage.
This story is just as big as the EV one and just as ripe with investment potential.
Bloomberg New Energy Finance predicts the global energy storage market will “double six times” from now to 2030 – from a starting point of less than 5 gigawatt-hours to 305 gigawatt-hours. An estimated $103 billion will be invested in energy storage over that time period.
Parabolic growth trajectories of this scale are as rare as Republican movie stars. To boost energy storage from where it is today to 305 gigawatts by 2030 would require an annualized growth rate of 40% – or roughly 10 times the growth rate of nominal global GDP. That’s big.
So what’s the best way to play this mega-trend?
The jury is still out, but I’ll render a partial verdict anyway: vanadium – named for Vanadis, the Norse goddess of beauty, love and fertility.
This element – No. 23 on the periodic table – is the key to an innovative battery that is fast-becoming the preferred technology for utility-scale energy storage.
Currently, the dominant form of energy storage is lithium-ion technology, but vanadium-flow batteries possess some valuable advantages. They last longer and can be charged and discharged repeatedly without any significant drop in performance. They are also easy to recycle and good for projects where space isn’t an issue.
A handful of vanadium-redox installations are already operating around the world. But China is in the process of deploying this technology in a big way. It is constructing an 800 megawatt-hour vanadium-flow battery that will be the largest chemical-flow battery in the world.
Importantly, from the perspective of a vanadium investor, building this battery will require a whopping 7,500 metric tons (metric tons, referred to as tonnes, are larger than a U.S. ton) of vanadium – equal to roughly 5% of the annual worldwide supply.
So it isn’t hard to imagine that additional demand from the energy storage sector could push the vanadium price significantly higher.
For additional perspective, consider that global vanadium production is roughly the same size (in tonnage) as global cobalt production. Annual production of vanadium pentoxide is 136,000 tonnes at $33,000 per tonne ($4.5 billion). By comparison, cobalt annual production is 110,000 tonnes at $93,500 per tonne ($10.3 billion).
Both markets are quite small. So if the vanadium price were to advance to the cobalt price level, it would nearly triple.
To play the investment potential of this metal, I am recommending Largo Resources (OTC: LGORF) – the only publicly traded pure play on vanadium production. The Toronto-based company focuses on the production of vanadium flake and vanadium powder from its Maracás Menchen Mine in Bahia State, Brazil. The mine has been operating since 2014.
A few key details about this mine:
- It is the only operating vanadium mine in the Americas.
- It holds the highest-grade vanadium deposit yet discovered.
- It is one of the lowest-cost producers of the mineral in the world.
- It has an off-take agreement in place to sell all of its production to Glencore.
After enduring a few challenging years, the company is now thriving. Revenues and earnings are rising. Debt levels are falling. And now, thanks to a sharply rising vanadium price, the company is well positioned to produce spectacular earnings growth.
If the vanadium price holds around the $15 level or moves higher, Largo’s earnings could soar.
The vanadium story is just getting underway… and it could be a very long and profitable one.
Action to Take:
Investor’s Portfolio: Buy Largo Resources (OTC: LGORF) at current prices. Use a “limit order,” rather than a “market order,” as trading volumes in this stock are sometimes small. Use a 35% trailing stop on this position.
No. 3: U.S. Silica Holdings
The U.S. oil and gas sector is on the rebound. That’s great news for frack sand producers like U.S. Silica Holdings(NYSE: SLCA).
The company is a leading producer of sand proppants, which is the kind of sand oil companies use to “frack” their oil and gas wells. This 100-year-old company also produces an array of industrial minerals that serve a diverse mix of end markets like glass for smartphones/tablets, building products, foundry, filtration, chemicals, fillers and extensions.
The company derives about two-thirds of its revenues from the oil and gas sector. And it is this sector that is key to the turnaround that is underway at the company.
Here’s a little background…
Sand is critical to the shale industry. It is the secret sauce that makes fracking a viable extraction technique. This sand is called a “proppant” because it props open the fractured rock in a shale formation, thereby enabling oil and gas to flow to the well bore.
In simple terms, the fracking process begins with horizontal drilling across layers of shale formations that contain trapped oil and gas. The next step is to force proppant (using water and other fluids) into the well holes at high pressure so that it fractures openings in the surrounding shale.
Next, the pressure is released and the fractures attempt to close. But they can’t close because the proppant in the fluids keeps them open, creating an “escape path” for the oil and gas.
The process tends to work very efficiently and economically. But even so, the steep drop in oil prices during the last three years caused a steep drop in drilling activity and, therefore, demand for frack sand. Accordingly, the share prices of all the major frack sand companies tumbled to multiyear lows.
But these stocks are now showing signs of life… and for good reason. A recovery is underway. And the good news about this recovery is that it does not require rising oil and gas prices… although that would be helpful.
For U.S. Silica specifically, I believe three major factors will combine to power a new wave of revenue and earnings growth.
1. The large number of “drilled but uncompleted” oil and gas wells (DUCs) represents a huge source of pent-up demand for proppant.
These are wells that have not yet been fracked.
Drilling a hole into the ground is just the first part of what creates a producing oil or gas well. The second part of the process is called “completing the well.” That’s when the fracking process comes into play and, therefore, when demand for sand proppant comes into play.
Typically an oil exploration and production (E&P) company completes a well shortly after drilling it. But because oil and gas prices slumped during the last three years, many E&P companies postponed completions.
As a result of these postponed completion efforts, the number of DUCs skyrocketed. But now, finally, many E&P companies are resuming their completions.
The increase in oil prices from the $44 level to more than $70 has given them the confidence – and the economics – they need to complete their wells. Adding to their confidence is the fact that OPEC agreed to maintain its production cuts through the end of the year.
So it makes sense for E&P companies to focus first on completions rather than on new drilling. Completions are the low-hanging fruit.
Nationwide, E&P companies have amassed a whopping 7,342 DUCs. Importantly, more than one-third of the nation’s DUCs are in the Permian Basin in Texas, where Silica has a dominant presence. And 95% of all Permian rigs are within 60 miles of a U.S. Silica transload location.
2. Rising “proppant intensity” is another reason to expect the sun to shine on U.S. Silica.
For several years running, fracking companies have been using ever-rising quantities of proppant per well.
The reason is simple economics. Using more proppant per foot in a well enables that well to deliver higher flow rates, and thus a higher return on investment.
The rising proppant intensity in shale wells is also a function of the fact that E&P companies are drilling much longer horizontal wells than they used to. Five years ago, the average length of “laterals” from the wellhead was about 5,000 feet. Today, that number is closer to 8,000 feet.
As a result of the trend toward longer laterals and higher-intensity well completions, the average volume of sand per well has become so prodigious that it boggles the mind.
As recently as 2013, it took about 20 rail cars of sand to do one frack job. Today, that number has increased to as many as 100 rail cars. For additional perspective, that means each frack job has gone from consuming 4 million pounds of sand to consuming 20 million pounds of sand.
3. U.S. Silica has the right stuff in the right place.
Sand seems like the ultimate low-tech product. After all, it’s just sand. But in the fracking business, sand isn’t just sand.
The grade and proximity of the sand are very important.
The premium fine grades command a premium price. The local grades in the Permian do not. But they are local, whereas the premium grades come from the upper Midwest. That means transportation costs can be a very important factor.
Wisconsin Northern White sand is the industry standard. But transporting that sand from the upper Midwest to the Permian Basin costs more than the sand itself costs. As a result, many oil producers are eager to find local sand that they can substitute for the premium grades from the Midwest.
U.S. Silica is feeding that appetite by acquiring or building sand-mining facilities in the Permian Basin. The strategy appears to be paying dividends already. The company’s active mines are running at close to full capacity.
Looking out to next year, U.S. Silica is on track to double its earnings. According to the average estimates of the nine analysts who track the company, earnings per share could total more than $2.85 in 2018, compared with 2017’s earnings, which were $1.51.
So if 2018 earnings materialize as predicted, the stock is selling for just 11 times earnings. That’s a very cheap valuation alongside the S&P 500’s current valuation of 25 times earnings.
Action to Take:
Investor’s Portfolio: Buy U.S. Silica Holdings (NYSE: SLCA) at current prices. Place a 35% trailing stop on the position.
No. 4: Syrah Resources
Syrah Resources (OTC: SYAAF) is an Australian company that operates the world’s highest-grade graphite mine. Its Balama Mine in Mozambique is home to about 50% of the world’s known graphite reserves. Nearby South Africa holds about 25% of the world’s reserves.
As one of the world’s largest graphite miners, Syrah is in a great position to benefit from both the energy storage boom and the EV boom.
Even though graphite has not attracted as much attention as other “battery metals” like lithium, cobalt and nickel have, it is just as essential for current EV battery technologies – perhaps even more essential.
Here’s why…
All four of the leading EV battery technologies use slightly different combinations of metals to create their cathodes. But the anode material in all four is 100% graphite. That makes graphite “agnostic” about which battery chemistry becomes the most popular or prevalent.
Syrah’s Balama operation, which came into production a few months ago, contains a vast graphite resource with a projected mine life of more than 50 years, according to Mining Global. Balama possesses such enormous potential that Mining Global believes it could provide 40% of the world’s natural graphite within three years.
As a major graphite producer, Syrah is a direct play on the EV boom.
The reasoning is elegantly simple. EVs use a LOT of graphite. A Tesla EV contains about 200 pounds of graphite, which is roughly eight times the amount of lithium or cobalt used in the same car. Therefore, as the EV boom gains momentum, the demand for graphite will soar.
Meanwhile, the leading energy storage technologies also require graphite. And this source of demand is just beginning to take off.
So when you add together these two rapidly growing sources of graphite demand – EVs and energy storage – you get an astonishingly large growth projection.
According to Syrah’s forecasts, the combined global demand for graphite from the EV and energy storage sectors will total at least 650,000 tonnes by 2025. That’s the “base case.” The “high case” calls for demand to total more than 1.3 million tonnes by 2025.
Demand growth of this magnitude would require a near-doubling of global graphite production. And importantly, as I mentioned above, this demand projection is not particularly vulnerable to future battery chemistry changes.
Syrah aims to play a big role in supplying this future graphite demand. The company is on track to produce 160,000 to 180,000 tonnes of graphite this year, and then 350,000 tonnes over the next two years.
As the company ramps up production, earnings should ramp up as well. According to the consensus of analysts who follow the stock, Syrah should break even this year then earn about $0.14 per share in 2019 and $0.28 in 2020.
Assuming Syrah achieves earnings of this level, the stock is currently selling for just 12 times 2019’s earnings and only six times 2020’s earnings.
Obviously, many factors could change between now and 2020, but Syrah’s earnings potential is significant.
Action to Take:
Speculator’s Portfolio: Buy Syrah Resources (OTC: SYAAF) at current prices. Place a 35% trailing stop on the position.
No. 5: SunPower
SunPower (NYSE: SPWR) designs, manufactures and markets the industry’s highest-efficiency solar systems. It’s the only major solar company that addresses all three major end segments:
- Power plant
- Commercial rooftop
- Residential.
The company is a classic “turnaround story” that is still in the early phases of a major turnaround. The stock is still somewhat speculative at this stage, but it has become a very compelling speculation.
For starters, the company has taken some very significant steps to sharpen its strategic focus and strengthen its balance sheet.
The company has always billed itself as a “technology company.” And that is certainly true. It holds hundreds of patents, and its solar panels are the most efficient in the business.
But for many years, the company pursued a strategy that pulled it down into the weeds of the power-generation business. It would design, build and operate solar installations for its customers and then sell the power under a long-term power purchase agreement.
On the residential side of SunPower’s business, it pursued a similar strategy. It would usually finance its customers via long-term leases. All of these high-touch activities absorbed a lot of the company’s labor and capital. And, worst of all, these activities often weren’t profitable.
So the company decided to put a halt to its financial strain by selling off its power generation assets and most of its residential leases. These transactions should close within the next month or two. And they will greatly improve the company’s balance sheet and liquidity.
Coincident with these financial maneuvers, SunPower has stated very clearly that it is exiting the business of financing large-scale projects and also exiting the business of retaining residential leases to maturity.
Instead, the company has become more of a traditional supplier to the industry – both at the component level and in terms of integrated solar power solutions. This structure has the benefit of being relatively straightforward while also being much less capital-intensive.
Importantly, this structure also promises to be more profitable than the old one was.
Another important investment consideration is that SunPower possesses an intimate relationship with the large French oil company Total (NYSE: TOT). And just like the “school shoes” my mom used to buy for me every fall, this relationship has “lots of room to grow.”
Total owns 57% of SunPower and holds five of the nine seats on SunPower’s board of directors.
“It’s quite a strong partnership,” SunPower Vice President, Investor Relations, Bob Okunski said. “We do have a number of agreements with them on the financial side of the house, but they’re also very helpful on R&D [research and development]. We leverage their engineers and their R&D. We have a number of joint R&D teams.
“We also have joint go-to-market strategies in a number of global markets,” Okunski explained. “They’re in about 180 global markets. We go to market with them on a joint basis in a lot of those major ones.”
One of those “global markets” is France itself. SunPower has a major presence in the country, and it is winning significant business there. Not only is SunPower constructing commercial power plants for Total directly, but it is also winning business from various parties in Europe, including the French government itself.
The company won more business (510 megawatts) from the French government last year than any other solar panel producer did. And there’s more where that come from! France has very ambitious plans for increasing its solar power capacity.
Earlier this year, the French nuclear utility EDF (OTC: ECIFY) announced it would be spending $30 billion over the next two decades to build 30 gigawatts of new solar capacity. For perspective, this ambitious project would increase the country’s installed solar power capacity by more than 300%.
Even before the company’s recent announcement, solar capacity in France had been increasing at a rapid clip, albeit from a very low base.
But the growth of solar power in France is still in its early stages.
Despite the recent additions to solar power capacity in France, this energy source supplied only 1.9% of the country’s electricity demand over the 12 months through June 2017. By comparison, solar power supplies 2.5% of Britain’s electricity demand, 6.2% of Germany’s and 7.8% of Italy’s.
But SunPower’s relationship with Total is not just about dotting the French landscape with solar panels; it is also about dotting the global landscape with solar panels. In November, Total agreed to install SunPower solar systems at 5,000 of its service stations worldwide over the next five years.
At some point, Total may find it easier to simply buy out the 43% of SunPower it doesn’t already own. But for now, Total seems content to nurture SunPower’s strengths as an independent entity.
Clearly, SunPower is a company in transition. But it appears to be transitioning quickly to a much more profitable future. Assuming SunPower’s strategic makeover proceeds as well as hoped, I would expect to see significant signs of improvement over the next several quarters, leading to a significant rise in the share price.
Action to Take:
Investor’s Portfolio: Buy SunPower (NYSE: SPWR) at current prices. Place a 35% trailing stop on the position.
There you have it. Five recommendations with the potential to soar 1,000% or more.
With these companies and others I’ll recommend in the coming weeks and months, you’ll have the potential to grow your portfolio many times faster than the broad market.
I’m talking about gains of anywhere from 500%… 1,000%… even 10,000%!
The fact is that when you find a true stock outlier at the right stage of its life cycle… you have a chance at the next Amazon, Google or Microsoft.
With the five recommendations in this report, you can get started immediately. I’ll also be making dozens of additional stock and option recommendations in upcoming issues of Fry’s Pinnacle Portfolio.
I’ll be sending bulletins to you weekly. If it’s a new company entering the sweet spot of its life cycle, I’ll walk you through how, and at what price, to buy it.
I’ll provide follow-ups to keep you up to date as these companies move through the cycle. Then, when it’s time to sell, I’ll let you know that too.
Keep in mind, if you can unearth just one of these giant winners, you could add hundreds of thousands of dollars to your net worth… and maybe even millions.
Thank you for subscribing. I look forward to helping you grow your portfolio many times over.
Good Investing,
Eric