How to Profit From Graphene

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The most frequent question we've been getting here at Private Briefing in recent weeks might surprise you.

It isn't about the outlook for stocks.

It has nothing to do with the so-called "Fiscal Cliff" or federal budgetary "sequestration."

And it isn't about gold, oil or the other commodities we're typically queried about.

It's about "graphene."

Dozens of folks have called or written to ask us for insights on graphene-related investments. If you were among them, give yourself a gold star … it's a terrific question.

It shows that you know how to zero in on great growth opportunities – and that you've been following the topics we write about.

You also have a good sense of timing.

Michael A. Robinson – editor of the Radical Technology Profits advisory service and our resident tech expert – likes to say that we've entered the "Golden Age of Materials Science," a reality that will open up all sorts of profit opportunities for savvy investors.

And one of those opportunities is graphene – a topic we've been writing about here at Money Map Press since 2011.

If the term is new to you, graphene is a radical new material made from a single carbon atom that is expected to have a big impact on our lives. It's not only the thinnest material discovered so far, it's also the strongest.

How strong? Well, The New York Times recently observed that "a sheet of [graphene] stretched over a cup of coffee could support the weight of a truck bearing down on a pencil."

So you can see why folks are so excited about graphene's profit potential.

As its name implies, graphene is related to the graphite used in pencils. But its feather-light weight and steel-like strength are expected to give it tremendous adaptability: Uses in biotech, wireless communications, computers, aerospace and nanotechnology are already being scouted, Michael has written.

Lest you think that we're succumbing to the hype, consider this. It usually takes decades for breakthroughs to be honored with a Nobel Prize. (Just to give you an example you might be aware of … If you ever saw the flick "A Beautiful Mind," then you know that Prof. John Nash won the 1994 Nobel Prize for Economics for a "Game Theory" hypothesis that he'd developed during his second year at Princeton – 45 years earlier).

But even though graphene was discovered less than a decade ago, the two Russian scientists who are credited with its discovery and development were awarded the Nobel Prize for Physics - in 2010.

So graphene's potential significance has been widely recognized – including, I'm please to say once again, by you folks.

So how do you invest in something that's still so new, that scientists are just beginning to really understand and develop it, and that's obviously just starting to be filtered into the economic system?

Well, one way is to invest in graphite.

Graphene, you see, occurs naturally in graphite.

I'm vastly oversimplifying this, I know, but if you want to if you want to visualize graphene, one writer quite effectively suggested that we think of it as kind of "an atomic-scale chicken wire that's made up of carbon atoms and their bonds." And the "flake" (crystalline) form of graphite consists of many of these graphene sheets stacked up on each other.

Because of the burgeoning interest in graphene, resident-natural-resources expert Peter Krauth has been keeping a watchful eye on Western graphite producers.

Even without the increases sparked by graphene, the emergence of economies in Asia have brought about a global escalation in demand for graphite … which is kind of a "miracle material" itself.

A soft mineral that's grayish-black in color, graphite has a super-high melting point, is a great electrical conductor and is a highly effective lubricant. This amazing versatility – coupled with the emergence of new-market economies around the world – has caused demand to accelerate by a healthy 5% a year. And Peter, the editor of our natural-resources-focused Real Asset Returns advisory service, says that new uses of graphite will cause demand to accelerate even more.

"Here's the thing, Bill: A high-quality graphite, known as 'large-flake,' is vital in such new-use applications as solar power, fuel cells, electric vehicles and advanced batteries," Peter told me. "Lithium-ion batteries actually use 20 to 30 times more graphite by weight than lithium. So we'll see graphite-demand growth jump to 11% or more a year."

And while China controls nearly three-quarters of the world's graphite supply, the Asian heavyweight isn't a player in that fast-growing, large-flake segment – meaning it has to import a majority of what it needs. The upshot: Select Western graphite producers will reap the benefits of the higher demand and constricted supplies. And those are the companies that we can profit from, Peter said.

Two stocks, in particular, he says are shaping up as "must-own" graphite plays.

The first is GrafTech International Ltd. (NYSE: GTI), a Parma, Ohio, firm with 125 years of experience with carbon- and graphite-related technologies. It's involved in such high-growth businesses as energy storage, semiconductors, fuel cells, lubricants, electronics and aviation.

Best of all: GrafTech is a leading global holder of graphene patents.

GrafTech shares have been downgraded (from "Buy" to "Market Perform" or "Underperform" – but not to "Sell") by a number of analysts during the last month or so. And the target price has been cut from $16 or more to roughly $12 – which is still 25% above where the stock has been trading of late.

But Peter says the downgrades may have been overdone and very much likes the company's long-term potential.

"I actually like GrafTech, despite weakness of late," Peter said. "The stock is trading at a very low P/E of 9. And given that a bottom appears to have formed, the chart looks bullish. Add in the fact that the company has a stake in how steel production goes, and I'm expecting this will be a good year for them."

One caveat: The company is scheduled to report earnings on Feb. 26. With a stock that's facing a bit of near-term uncertainty, our experts are often hesitant to recommend a full-position purchase in advance of an earnings report. And the stock isn't likely to do much until then, either.

But if it's graphene that truly interests you, you're looking at this as a big payoff over a longer stretch.

Obviously, you can buy the stock now, and set a standard 25% "trailing stop."

Or you can consider an alternative that would turn the uncertainty work to your advantage. Instead of buying your full position now, look at a strategy that allows you to "average into" GrafTech's shares. If the price declines, it will let you build a position even as you lower your average purchase price.

To pursue this approach, calculate the size of the position that you'd ultimately like to have, and slice that up into three or four equal-sized, incremental purchases.

If you decide to go with four, set up something like this. Buy the first block now. Buy the second block in three months, or if the stock falls 10%, whichever comes first. Do the same for the third and fourth purchases.

(Establish time and price-decline parameters that fit in with your personal risk and comfort-level parameters. And be consistent with how you establish them and then with how you execute them.)

A second, more-speculative, graphite play is Ottawa-based junior producer Northern Graphite Corp. (PINK: NGPHF or CVE: NGC.V).

"I think the stock could do well from here, but it's worth noting that it's more than doubled from December already," Peter said. "In terms of projects in development, it's probably the most advanced Western pure-graphite-play company around."

Northern Graphite's main asset is the Bissett Creek graphite project located 65 miles east of North Bay, Ontario, and nine miles from the Trans-Canada Highway (Route Transcanadienne).

As the company describes it, Bissett Creek is a large-flake, high-purity, scalable deposit that is situated near major roads, a natural-gas pipeline and other needed infrastructure, meaning it will have competitive operating costs. The latest plans call for the company to complete the environmental and mining-permitting process during the current quarter, to begin mine construction sometime this year, and be in production by late 2014 – as long as financing is available.

With the shares trading at roughly $1.22 (Canadian) each, it goes without saying that this is a highly speculative play. That means the shares are likely to be highly volatile, and could be subject to big downdrafts. Be sure you can stomach the ride.

If you decide to invest, don't chase the stock – and pay no more than $1.28 Canadian (if it runs up past that point, give it a chance to recede). Observe standard position-sizing cautions (and limit your purchase to a maximum of 1% of your investment holdings). If you follow those parameters, you can go as high as 50% on the "trailing stop."

There are obviously some other graphene-related profit plays out there. But these two represent a good start. If there's interest, let us know. As you can see from today's Private Briefing, we value your input – and use it to guide what we deliver to you.

Drop me a line at PrivateBriefing@MoneyMorning.com and let me know. I'm always glad to hear from you folks.

[Editor's Note: Shares of security-software firm CommTouch Inc. (Nasdaq: CTCH) - recommended by Chief Investment Strategist Keith Fitz-Gerald in our brand-new report "The Seven Investments You Have to Make in 2013" - were up another 4.59 % in mid-afternoon trading yesterday and are now up 22% since we recommended them to you back on Feb. 4. If you bought the stock on our recommendation, I sure would like to hear about it from you. Just drop me an e-mail. And we'll see you tomorrow.]

  1. Jack Reddick | February 16, 2013

    Your letter most of the time I just thumb through it. Today I read it in full. I really appreciate the information you gave, you risks you place on an investment. In addition a person does not need a dozen picks a day yes they have to be right with that many picks will I be right who knows. I have cancelled a couple others, to make room for me to take the time to read in full your notes.
    Thank you and yes I do know who is putting the pressure on you for my e-mail privacy not much left any more.

    Best to you in your further endevours.
    Jack Reddick

  2. Karl B. Hensel | February 17, 2013

    If you wish to know who will have the financial resources as well as the name recognition and the business experience to profit from this new miracle material one only needs to find the largest patent holders. Sansung being #1 and followed by Sandisk #2. These companies are not new to patenting, developing and bringing to market new products. The smaller companies mentioned in the article may play a supportive role however my money is on the largest companies. Harvard and other universities are rushing to bring down production costs and developing easier less stringent methods of production. If you keep on eye on them as well you can follow their trail to see who will be the leaders. One must never discount the military complex as they have high stakes in a material that is 200 times stronger and a great deal lighter than steel. I would say IBM who also have a patent or two.

  3. severa44169 | February 26, 2013

    Hello Bill:

    I wasn't aware that the special report sent me was aged. Your report quoted GTI @ $12. +/-, but it closed @ $7.92 today after what must've been a bad qtrly report. You'd know that better than I Bill.

    The other graphene pick sort of shocked me. For a commodity in such demand, NGC.V is barely breathing. (I had a 19yr.+ Wall St. career that ended too soon, mostly in commodities as a CTA, CPO, etc. I hope I can hang with you if we get deeper into this graphene commodity, but try me anyway, I'm not a quitter, nor am I middle aged anymore. :)

    Looking fwd. to much better days, but I have this eerie feeling that the Fed will either remove the punch bowl before too long, or reduce the bowl's contents considerably.

    Joe (aka/SageNot!)

  4. Cathy | March 7, 2013

    Such nice informative reasons and compliments must be hard to swallow Bill, I will respect your picks and wisdom and hope that the Sequester lets the sun keep coming up. Does this feel like walking into a tent at the circus or the circus circus casino in Vegas? I would take all complaints to the bank everyday but there interest rate is to high. Time will tell on graphite/graphine and down the road when the techs comp.'s are screaming for more raw product who will be in the drivers seat then. If customers want something to happen overnight they should get that morning after pill. I have patience but if I worked on wall street for the amount of time as some say why would I not due my own due diligence if I made all that wall street retiring walk way cash. Just keep doing your opinions and hope that they are around if the I told you so happens. Concerned gambler oh I mean investor I will take three cards on the draw. I like complainers Bill at least you know where they stand but in your business you have to make both sides happy, they can always play short or puts or go golfing with there wall street retirement membership, oh it is still winter up north I forgot. Maybe graphite will help make a virtual golf inside the house throw your club game. Keep up the good work Bill.

  5. 000058800752 | April 20, 2013

    Wanted to know if anyone has had any recommendations on AGIN (American Graphite)

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