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Wednesday, March 12, 2008
Monday, March 10, 2008
A Closer Look at the Gold Miners ETF – GDX
Last week we noted the following data point regarding the commodity futures market: Bianco Research estimates the total value of present open interest in domestic commodity futures is about $425 billion.
We commented how the $425 billion estimate wasn't even as big at the market cap of a single company; Exxon Mobil. That got us thinking. I asked the following: What is the market cap of the biggest publicly traded stocks in the gold mining sector - Barrick Gold, Goldcorp, and Newmont Mining? The answer: $42 billion, $29 billion, and $22 billion respectively. What might that tell us?
I took it one step further. Let's analyze our favorite gold and silver mining ETF – the Market Vectors Gold Miners ETF, symbol GDX. It is comprised of a diversified group of companies involved in the mining of gold and silver. It is a broad mix of small-, medium-, and large-cap names. It has global exposure, led by Canada, United States, and S. Africa.
The requirements to be eligible for the fund are a market cap exceeding $100 million, average daily trading volume of at least 50,000 shares, and listed on the NYSE or Amex, or quoted on the NASDAQ.
There are 34 companies represented in this ETF. The TOTAL MARKET CAP of all companies combined is $190 billion. The top 11 companies in this ETF make up $163 billion of the total, or 86% of the entire cap. The weight of these top 11 stocks as a percentage of the ETF is approximately 73%.
For comparison purposes, there are six individual companies alone in the S&P 500 with larger capitalizations than all of the stocks combined in the ETF. They are in descending order:
Exxon Mobil 441.9B
General Electric 317.2
Microsoft 260.3
AT&T 208.8
Proctor & Gamble 202.5
Wal-Mart 196.6
In getting my arms around the market cap of the mining sector, I came to the following conclusions. Any significant interest or institutional buying could propel these shares much higher, as there isn't a whole lot of stock around in the first place. For example, a Berkshire Hathaway with $47 billion in cash, or a Microsoft with $19 billion in cash (before a Yahoo acquisition), could take down big chunks of the ENTIRE sector combined!
What if the California Public Employees Retirement System (Calpers) decided to over-weight the mining sector? This is a fund with over $250 billion in assets, or if a Texas Teacher Retirement System Fund (TRS) – a $100+ Billion fund, wanted a bigger stake in gold or silver companies? The cap of all these stocks combined is tiny compared to the large pools of money that exist out there!! You could buy 23 of the 34 smallest stocks in the Gold Miners ETF (GDX) for a grand total of $27 billion at today's prices!
Think of it this way, IBM recently announced a $15 billion share buy back. They will issue debt at today's rock bottom rates available to A+ type companies, and buy back the shares using debt, a common practice. Perhaps they could issue more debt, and buy some gold shares? What about an Intel, holding $15 billion in cash alone, they could go on a shopping spree, maybe they might want to diversify away from semiconductors? And yes, Google could spend some of their $14 billion cash hoard on a few gold & silver companies; maybe a better investment than Sergey Brin buying and modifying a 747 jet aircraft for his personal use.
We commented how the $425 billion estimate wasn't even as big at the market cap of a single company; Exxon Mobil. That got us thinking. I asked the following: What is the market cap of the biggest publicly traded stocks in the gold mining sector - Barrick Gold, Goldcorp, and Newmont Mining? The answer: $42 billion, $29 billion, and $22 billion respectively. What might that tell us?
I took it one step further. Let's analyze our favorite gold and silver mining ETF – the Market Vectors Gold Miners ETF, symbol GDX. It is comprised of a diversified group of companies involved in the mining of gold and silver. It is a broad mix of small-, medium-, and large-cap names. It has global exposure, led by Canada, United States, and S. Africa.
The requirements to be eligible for the fund are a market cap exceeding $100 million, average daily trading volume of at least 50,000 shares, and listed on the NYSE or Amex, or quoted on the NASDAQ.
There are 34 companies represented in this ETF. The TOTAL MARKET CAP of all companies combined is $190 billion. The top 11 companies in this ETF make up $163 billion of the total, or 86% of the entire cap. The weight of these top 11 stocks as a percentage of the ETF is approximately 73%.
For comparison purposes, there are six individual companies alone in the S&P 500 with larger capitalizations than all of the stocks combined in the ETF. They are in descending order:
Exxon Mobil 441.9B
General Electric 317.2
Microsoft 260.3
AT&T 208.8
Proctor & Gamble 202.5
Wal-Mart 196.6
In getting my arms around the market cap of the mining sector, I came to the following conclusions. Any significant interest or institutional buying could propel these shares much higher, as there isn't a whole lot of stock around in the first place. For example, a Berkshire Hathaway with $47 billion in cash, or a Microsoft with $19 billion in cash (before a Yahoo acquisition), could take down big chunks of the ENTIRE sector combined!
What if the California Public Employees Retirement System (Calpers) decided to over-weight the mining sector? This is a fund with over $250 billion in assets, or if a Texas Teacher Retirement System Fund (TRS) – a $100+ Billion fund, wanted a bigger stake in gold or silver companies? The cap of all these stocks combined is tiny compared to the large pools of money that exist out there!! You could buy 23 of the 34 smallest stocks in the Gold Miners ETF (GDX) for a grand total of $27 billion at today's prices!
Think of it this way, IBM recently announced a $15 billion share buy back. They will issue debt at today's rock bottom rates available to A+ type companies, and buy back the shares using debt, a common practice. Perhaps they could issue more debt, and buy some gold shares? What about an Intel, holding $15 billion in cash alone, they could go on a shopping spree, maybe they might want to diversify away from semiconductors? And yes, Google could spend some of their $14 billion cash hoard on a few gold & silver companies; maybe a better investment than Sergey Brin buying and modifying a 747 jet aircraft for his personal use.
The small market cap in the gold and silver sector is one to drool over, isn't it?
Wednesday, March 5, 2008
A One Stop Shop for Silver & Gold
Looking for an alternative to GLD or SLV? Then look no further than the PowerShares DB Precious Metals Fund (DBP). DBP is a simple way to play both gold and silver at the same time. The shares move according to the “The Deutsche Bank Liquid Commodity Index – Optimum Yield Precious Metals” index. This index is composed of futures contracts on gold and silver, with the index weights presently at 78.53% gold and 21.47% silver. If you desire a one stop holding, this is the one for you. Note, average daily volume is around 40,000 shares and the annual expenses of this ETF are approximately 0.79%.
Monday, March 3, 2008
Pumping the Commodities!
CBSMarketwatch picked up some Schloegel comments regarding the hottest sectors on the move right now. Click here to read the article. The real question is; are the commodity type names going parabolic and setting up for a monster correction? That is the question of the day, week, and month. Good luck and happy trading!
Friday, February 29, 2008
Multiple Threats
Ben Bernanke testified twice on Capitol Hill this week. "We are facing a situation where we have simultaneously a slowdown in the economy, stresses in financial markets and inflation pressure coming from commodity prices abroad," he said. "Each of these things represents a challenge."
A challenge indeed. One day in the future, Gentle Ben will be considered a hero, or a goat. He does not have an easy job.
Well, I suppose we here at AllStarInvestor.com don't have an easy job either. We are judged on a daily, if not minute by minute basis. How come? The stock market is nearly a 24-7 occupation.
The scoreboard changes moment by moment. It's a unique system, where you know exactly where you stand, good or bad, each waking moment of the day. There is no where to hide. That is why we love this business! We are held accountable. Every action and reaction is scrutinized.
We strive to make a difference each day. Think about it: The capital markets offer the wonderful ability to make a big impact on the lives of others. Of course, you have to wonder how the folks at mortgage related firms, banks, and other financial institutions view their role in the recession we have and how accountable they feel to their constituents.
Ben Bernanke shoulders a heavy burden and will have a say in how our economy does over the next 5 to 10 years. High inflation, slow growth, the U.S. dollar declining, a credit crisis, financial institutions going bankrupt....it's a mess out there, and Bernanke must guide the super tanker that is the U.S of A through the turmoil. We wish him luck. In the meantime, we'll attempt to point our portfolios in the right direction.
The three securities we featured the other day are solid long term ideas. You don't have to sweat the day to day noise of the stock market, and you can seek to achieve the equity return over time. Sometimes that is the best course of action. Why get caught up in the 24x7 zigging and zagging of the global capital markets?
Good Luck.
Wednesday, February 27, 2008
A Triple Play
The good folks at Forbes.com today asked us for some ideas for long term investing. We are always happy to oblige. This exercise allows us to step back and to take a view of the "big picture." As growth minded individuals, we took the opportunity to package a three security portfolio that would give us a terrific odds at a successful outcome on a global basis. Our consideration moved us to recommend a growth fund, a value fund, and an international fund. We wanted exposure to broad asset classes, low correlation, go anywhere type managers, experienced operators, and low fees. We are extremely pleased with the outcome. I've included the text of exactly what was forwarded to Forbes today. I hope you enjoy.
MXXIX – Marsico 21st Century Fund: MXXIX is an aggressive growth no-load mutual fund. It’s a go anywhere type fund, and typically holds between 35 and 50 securities. It has a top quartile ranking from Lipper in 1, 3, and 5 year time periods, with a 21.3% annual rate of return for the five years ended January 31, 2008. This compares favorably to the S&P 500 annual return of 12.0% in the same time period.
YACKX – Yacktman Fund: Lead managers, Don and Stephen Yacktman, are classic value-type investors. They like to wait for the market to come to them and typically don’t chase stocks. This fund is an ideal candidate for the value component of your portfolio. The benefit with YACKX is bear market and downside protection. For example, this fund was up 11.4% in 2002 when the S&P 500 was down –22.1% that year. In the past six months through Jan 31, 2008, this fund was in the top 5% of all funds in its category. That’s the type of performance you want in difficult environments!
DIM – WisdomTree International MidCap Dividend Fund: DIM is one of a smorgasbord of offerings from the fairly new WisdomTree family of ETFs. There are two key benefits of DIM. Number 1: Its unique focus on international dividend paying stocks, ideally positioned between large and small stocks. Number 2: DIM is screened by a fundamental overlay that focuses on earnings and dividends. It’s not a pure market cap schematic. This fund has a low expense ratio of 0.58%, and has a cumulative return of 27.9% since inception (06/16/06), versus the MSCI EAFE benchmark of 21.6% in the same time period thru Jan 31, 2008.
YACKX – Yacktman Fund: Lead managers, Don and Stephen Yacktman, are classic value-type investors. They like to wait for the market to come to them and typically don’t chase stocks. This fund is an ideal candidate for the value component of your portfolio. The benefit with YACKX is bear market and downside protection. For example, this fund was up 11.4% in 2002 when the S&P 500 was down –22.1% that year. In the past six months through Jan 31, 2008, this fund was in the top 5% of all funds in its category. That’s the type of performance you want in difficult environments!
DIM – WisdomTree International MidCap Dividend Fund: DIM is one of a smorgasbord of offerings from the fairly new WisdomTree family of ETFs. There are two key benefits of DIM. Number 1: Its unique focus on international dividend paying stocks, ideally positioned between large and small stocks. Number 2: DIM is screened by a fundamental overlay that focuses on earnings and dividends. It’s not a pure market cap schematic. This fund has a low expense ratio of 0.58%, and has a cumulative return of 27.9% since inception (06/16/06), versus the MSCI EAFE benchmark of 21.6% in the same time period thru Jan 31, 2008.
Monday, February 25, 2008
A Narrow Range
Stocks have been moving sideways in a narrow range over the past three weeks. The January 22 lows have held for now.
From the "for what it's worth" category: TrimTabs estimates that individual investors have pulled $60 billion from stock funds this year. If you define this group as dumb money, then I'd wager you are a bull.
Next we have insider buying and selling data. The daily dollar-based ratio of insider sales to buys has been in the bullish zone all year. Apparently insider selling is down 90% from a year ago. If you consider insiders having the pulse of the economy and of their own shares, you'd again be considered a bull.
Helicopter Ben Bernanke delivers two Capitol Hill speeches this week. Wednesday he delivers a semi-annual testimony before the House Financial Services Committee. Thursday he continues in front of the Senate Banking panel. Based on what I read in the Fed minutes released last week, the Federal Reserve is increasingly alarmed as to the weakness in the economy and the on-going credit crunch. Despite persistent and high readings on inflation, it sounds like the Fed plans to continue its easing policy, esp in light of the bearish commentary contained in the minutes. Therefore, Wall Street will be closely monitoring Bernanke's remarks later this week.
Tomorrow's economic news will be January PPI and February Consumer Confidence, followed Thursday with the initial GDP reading for Q4, 2007. Stay tuned....
From the "for what it's worth" category: TrimTabs estimates that individual investors have pulled $60 billion from stock funds this year. If you define this group as dumb money, then I'd wager you are a bull.
Next we have insider buying and selling data. The daily dollar-based ratio of insider sales to buys has been in the bullish zone all year. Apparently insider selling is down 90% from a year ago. If you consider insiders having the pulse of the economy and of their own shares, you'd again be considered a bull.
Helicopter Ben Bernanke delivers two Capitol Hill speeches this week. Wednesday he delivers a semi-annual testimony before the House Financial Services Committee. Thursday he continues in front of the Senate Banking panel. Based on what I read in the Fed minutes released last week, the Federal Reserve is increasingly alarmed as to the weakness in the economy and the on-going credit crunch. Despite persistent and high readings on inflation, it sounds like the Fed plans to continue its easing policy, esp in light of the bearish commentary contained in the minutes. Therefore, Wall Street will be closely monitoring Bernanke's remarks later this week.
Tomorrow's economic news will be January PPI and February Consumer Confidence, followed Thursday with the initial GDP reading for Q4, 2007. Stay tuned....
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