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With all the hype surrounding A.I. and mega-cap tech stocks, it's no surprise investors are wondering where to park money that doesn't seem overbought, but still has upside, and delivers income to get paid while they hold the stock.
It's a great question, and my answer is in hard assets such as commodities. Of all the choices, my favorite is copper and copper-related companies.
The reason is because copper has a long window of opportunity as countries around the planet try to reach the goal of limiting global warming to 2°C. To achieve that goal, the world is heavily dependent on rapidly rolling out widespread electrification.
That means huge demand for copper.
Electrification is projected to increase annual copper demand to 36.6 million metric tons by 2031, according to McKinsey, up from the 25.3 million tons of demand in 2021, according to the International Copper Study group.
To meet demand for the energy transition, copper miners will have to increase ore processed by more than 44% by 2031.
That demand translates into higher revenue, increased profits, and higher cash flow that can be paid out in the form of dividends to shareholders.
With that said, I'm watching Southern Copper Corporation (SCCO), the Phoenix, Arizona-based copper mining company.
The company has the highest copper reserves of any listed company, with 44.8 mmt of copper reserves and 71.9 mmt of copper resources, with operations in Peru, Mexico, Argentina, Ecuador, and Chile.
In comparison to other copper producers, SCCO's reserves of 44.8 mmt, are 22.73% more than Freeport-McMoran's 36.5 mmt, 58.3% higher than BHP's 28.3 mmt, 86.66% higher than Glencore and Anglo American's 24 mmt, and 142.16% more than Rio Tinto's 18.5 mmt.
With that kind of reserve dominance, SCCO is the most obvious pure play on the copper super-cycle. And, with those reserves, SCCO is in the process of significantly increasing production from 985,000 MT CU in 2022 to 1,516,000 MT CU by 2031. That represents an 84% increase in production which, coupled with future higher prices of copper, should create an increase in free cash flow which the company can then pay out to investors in the form of dividends.
Speaking of which, at the current price the company's forward dividend of $4.00 per share amounts to a very healthy 5.82% yield.
At this point, shares of SCCO are down 13.24% from the recent April 18, 2023 highs, but they're starting to climb higher again - and that's why I'm watching SCCO very carefully, right now.
I like establishing a position in SCCO if shares can hold above $75.00 (just above the current 50-day moving average).
Gold is also having a moment in the sun right now and has been a beneficiary of the potential risk surrounding the debt ceiling and higher inflation. From 2000-2011, gold experienced a 680% boom, and what's coming next is way more exciting and potentially even more lucrative.
But the way to play this new bull run is not to buy gold outright. There's a smarter …
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.