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A 30% Upside Opportunity in the 'Masters of the Universe'

By Brett Eversole
Thursday, December 15, 2016

Gold and silver are down since the election... But another group of metals has soared.
 
So-called "industrial metals" – aluminum, copper, nickel, and zinc – have been on an absolute tear.
 
Donald Trump's plan to pump $1 trillion into infrastructure spending means more demand for these industrial metals. As a result, the prices of these metals are soaring.
 
As you would expect, the share prices of the companies that mine these metals are surging as well. And history says they could soar as much as 30% over the next year.
 
Let me explain…
 
Despite a few rough years, 2016 has been good to industrial metals. The group as a whole is up 28%, with most of those returns coming in recent weeks. But we could see much higher prices from here.
 
You see, the Bloomberg Industrial Metals Subindex soared 7.5% in just five days last month.
 
That kind of move doesn't happen often. Similar five-day gains have happened less than 2% of the time since 2007.
 
Historically, these metals tend to keep rising after this kind of short-term spike. Gains of 21.6% were typical a year after these spikes.
 
That's enough to get my attention. But we have a better opportunity to profit from this idea right now: Buying the companies that produce these metals.
 
To test this, I looked at the underlying index of the iShares MSCI Global Metals & Mining Producers Fund (PICK). PICK holds the world's largest mining companies – like BHP Billiton (BHP) and Rio Tinto (RIO).
 
These are the "Masters of the Universe" when it comes to global mining. They're incredibly volatile, but buying them at the right time can mean incredible profits.
 
It turns out that the right time to buy them is after industrial-metal prices spike. The table below shows how PICK's underlying index has performed when industrial metals soar like we saw recently. Take a look...
 
 
3-Month
6-Month
12-Month
After Extreme
10.6%
21.4%
30.3%
All Periods
-0.4%
-0.8%
-1.6%

As you can see, this group of stocks hasn't had a good decade. They've actually lost 1.6% a year on average since 2007. But buying after spikes like we saw in November led to fantastic gains.
 
History points to 10.6% gains in three months... 21.4% gains in six months... and 30.3% gains a year after this occurs.
 
Those returns are better than what we can expect from the metals themselves. And a 30% return in one year is a fantastic opportunity.
 
My colleague Steve Sjuggerud currently recommends PICK in his True Wealth newsletter. And this is another reason why it's a trade you should consider putting to work in your portfolio today.
 
Good investing,
 
Brett Eversole




Further Reading:

Last month, Brett introduced readers to the idea of buying copper, noting that it was trading at a rare extreme... an extreme that historically leads to huge gains. Read more here: Copper Has 40%-Plus Upside... Starting Now.
 
DailyWealth classic: "Whenever Masters of the Universe are trading for 'stupid cheap' prices, you have to seriously consider buying them," Steve wrote in 2013. Get the full story here.

Market Notes


FOLLOW THE LEADERS

Today's chart showcases the recent strength in industrial stocks...
 
United Technologies (UTX) is a giant in the airline and building industries. The $90 billion company makes everything from Carrier heating and cooling systems to Otis elevators and Pratt and Whitney airplane engines. Several other segments make products for the aerospace, food-processing, and mining sectors.
 
Last week, one of the company's board members made a $540,000 bet on the company, purchasing 5,000 shares. Insider transactions offer great insight into how management thinks a company's shares are valued. Insiders sell their holdings for a variety of reasons. Whether they have a big tax bill to pay or want to buy another mansion, insiders only buy for one reason: They think shares are cheap.
 
As you can see, UTX shares are in a steady uptrend and just hit a new one-year high. But if the recent activity from management is any indication, the stock is likely to continue higher...
 

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