A big win thanks to Nvidia… the commodities supercycle second act is coming … the tailwinds behind oil and base metals … a chance to buy at bargain valuations … specific stocks to consider

 

A 101% jump in revenue compared to last year…

A 429% increase in earnings per share compared to last year…

And forward-looking Q3 guidance that’s 170% higher than last year…

That’s the quick takeaway of yesterday afternoon’s explosive earnings report from semiconductor company, Nvidia.

Given that Nvidia is the poster child for artificial intelligence (AI), this is a ringing endorsement for what’s to come for leading AI companies and their earnings.

But Eric Fry’s subscribers aren’t waiting on what’s to come – they’re cashing in.

From Eric in this morning’s Speculator profit alert:

As predicted, NVIDIA Corp. (NVDA) delivered a sensational second-quarter earnings report yesterday after the close of trading. The industry-leading semiconductor company did not merely beat Wall Street forecasts; it crushed them…

Thanks to this great news, NVIDIA shares have soared as much as 9% in pre-market trading today, which is also lighting a fire under the price of the VanEck Semiconductor ETF (SMH).

Therefore, I recommend taking advantage of this explosive price action and heightened volatility by selling half of your position in the [SMH call options Speculator subscriber are in] for a gain of roughly 50%.

Congrats to all the Speculator subscribers on this payday.

But AI isn’t the only game in town right now.

If Eric is right, we’re about to enter the second act of a commodity supercycle that began in 2020, which has already produced a quadruple-digit return, as I’ll detail in a moment. Make sure you have plenty of exposure to oil and base metals in your portfolio, as the gains could accelerate quickly.

Let’s back and up and fill in some details to make sure we’re all on the same page.

It was back in summer 2020 that Eric made the call that we’d begun a new commodity supercycle

Given his research, he positioned his subscribers in a handful of related commodity investments that exploded.

For example, come July of 2021, Eric’s Speculator subscribers closed their option trade on copper mining giant, Freeport-McMoRan (FCX), for a 1,400% return.

So, what exactly are these supercycles?

Here’s Eric:

Unlike stocks, which tend to move higher over time, commodity prices cycle through powerful multiyear booms, followed by spectacular multiyear busts.

These are called “supercycles.”

No two supercycles are identical. But they all share two distinct traits:

1. In their youth, they produce huge investment gains.

2. In their advanced years, they produce huge investment losses.

That’s why it’s so important to pay attention to them early on. They grow up so fast.

The easiest way to monitor a commodities supercycle is through the TR/CC CRB Commodity Index (CRB), which holds a basket of global commodities.

Below, we look at the CRB Index over the past 20 years, noting the exceptional timing of Eric’s “buy” recommendation, based on his identification of a new supercycle.

But as you can see, after hitting a local peak in 2022, commodities began falling

So, is that it? The supercycle is over?

No. Here’s Goldman Sachs 2023 Commodity Outlook with some helpful perspective:

Commodity supercycles never move in a straight line; rather, they are a sequence of price spikes, with each high and low higher than the previous spike.

Commodity prices, unlike financial markets, perform an economic function of balancing supply and demand, so once high prices have rebalanced the market in the short term, the high prices are no longer needed, and prices come crashing back down as we witnessed late [last] year.

But ending one spike doesn’t mean the end of the supercycle – long-run supply issues take years to resolve.

We like to say that commodities, while short-run unpredictable, are long-run predictable. The exact timing of these short-term price spikes are difficult to forecast, as it was in 2022.

Conversely, the long run state of the market is predictable as supply and technological trends are far more persistent, with all the conditions required for another spike present in 2023.

But should we be more cautious based on the risk of a recession?

After all, fears of such a slowdown have been behind the pullback in oil and base metal prices in recent quarters.

While no one has a crystal ball, Eric isn’t buying the idea that we’re destined for recession

Back in May, Eric recommended oil stocks to his Investment Report subscribers because he didn’t agree with the calls for a recession. Indeed, many of the economists who forecasted one have now backtracked.

Here’s more from Eric:

[In my May issue,] I rejected the widespread expectation that the U.S. economy would slip into a recession. I wrote…

“We might enter a statistical recession, but not one that will significantly hobble the U.S. economy or corporate profits…

[T]his non-recession is creating a buying opportunity in the stock market. The so-called “deep cyclical” sectors like metals miners and energy companies may be offering some of the best buying opportunities at the moment.”

That led Eric to recommend a basket of energy stocks, while holding steady with other commodity plays in the portfolio.

Back to Eric:

As a group, these stocks have performed well, but I expect them to add to their gains over the coming months.

What’s driving Eric’s bullishness on oil and base metals

Beginning with the tailwinds behind oil, it boils down to the imbalance between supply and demand.

Eric points toward new forecasts from the International Energy Administration (IEA) that predict global crude oil demand will hit record levels by the end of the year. Meanwhile, the IEA predicted zero supply growth – leading to a hefty two-million-BPD deficit by the end of the year.

OPEC believes that shortfall is coming far sooner. Earlier this month, it predicted that the two million BPD deficit would develop in the current quarter.

Meanwhile, U.S. crude inventories have crashed to a 40-year low.

Back to Eric:

These bullish trends in the oil market are not making headlines yet, but they are giving a boost to oil and gas stocks.

Since publishing our May issue of the Investment Report, the nine oil & gas stocks in our portfolio have jumped an average of 16%, compared to the S&P 500’s gain of 9.1% over the same timeframe.

I expect these energy stocks to continue performing well throughout the balance of 2023. But I also expect the energy sector’s strength to fan out into other corners of the commodity markets…

On that note, what is Eric seeing as the tailwinds behind base metals?

Demand.

Whether it’s electric vehicles… your smartphone… clean energy solutions… new home construction… you name it… our economy requires enormous amounts of base metals such as copper, nickel, lithium, and aluminum.

Here’s Eric to put some numbers on this demand:

Green energy technologies like EVs, solar panels, and wind turbines are all “metal hogs.” The average battery-electric vehicle, for example, contains about 180 pounds of copper – that’s about half as much as the average American home.

The average solar power project requires about five times as much copper per megawatt of capacity as a conventional fossil fuel plant. Offshore wind farms demand about 10 times as much.

These green energy products are supercharging demand for many individual metals.

For example, the analysts at Roskill expect total copper demand to double over the next 15 years. The research group forecasts total copper consumption to exceed 43 million tonnes by 2035 – or nearly double the current annual global output of copper.

Similarly, mining industry insider, Robert Friedland, believes the copper market is heading for a supply-crunch “train wreck” that could cause the metal’s price to soar 10-fold from current levels.

Eric points toward a Bloomberg New Energy Finance (BNEF) report predicting the combined demand for all EV battery metals will more-then-triple by 2028.

But in the meantime, these metals prices have been snoozing for months

For example, below, we look at the price of copper over the last five years.

While it’s recovered some from its knife-edge drop last year, it’s still middling about, not reflecting the growing tidal wave of demand.

But Eric urges readers to consider why base metals prices might be down for reasons other than genuine supply/demand forces:

First, the Russian invasion of Ukraine created an “artificial” spike in commodity prices that has been gradually unwinding during the last few months.

Second, for more than a year, the Federal Reserve’s aggressive rate-hike campaign has been dumping cold water on the glowing embers of economic growth.

Third, the nonstop chatter about a “certain” U.S. recession has spooked many companies into slowing their investment plans and/or de-stocking inventories of key inputs, including inputs like copper and nickel.

With these issues are now largely behind us, what does that mean for commodities?

Back to Eric:

So far, the commodity supercycle I identified in September 2020 is performing as well as expected.

Since its start in April 2020, the CRB Index has delivered a gain of more than 165% – or more than double the S&P 500’s 72% gain over the same timeframe.

But I’m expecting the CRB to double, at least, before the current supercycle has run its course. And since resource stocks tend to magnify the gains that commodities produce, they could deliver high triple-digit gains.

Not all commodities will move higher in unison, of course. Some will advance earlier, and some will produce much bigger gains than others.

But one thing is clear: A paradigm shift in commodity demand has burst onto the scene… which means that our current supercycle could be one of the most super of all time.

By the way, regular Digest readers know I’ve been nervous about today’s broad market valuation. Well, here’s Eric speaking to the valuation of major resource stocks:

The price-to-EBITDA valuation of the MSCI World Metals & Mining Index, relative to the S&P 500, is close to its lowest level of the last decade.

The historically low valuation of major resource stocks makes them an even more compelling “buy” at the moment.

We’re running long, but let’s put a few prospective trades on your radar

On the oil front, Eric has highlighted TotalEnergies SE (TTE) in the past:

[TTE] is a fashion-forward, energy-transition company. The company’s management understands both what has been and what will be – and they intend to maximize profit from both. 

Specifically, management is pursuing a long-term strategy to reinvest the robust cash flows from Total’s legacy oil and gas operations into renewable energy projects and technologies.  

There’s also Valero (VLO). Eric’s Investment Report subscribers are currently in that position, up 31%.

Or you could opt for a shotgun approach, such as the SPDR Energy Select Sector ETF, XLE. It includes big names including Exxon, Chevron, ConocoPhillips, and Occidental.

For metals, there’s Global X Copper Miners ETF, COPX. Eric has recommended COPX in the past. His official trades have profited to the tune of 100% and 85% respectively (he sold in tranches).

You can also circle back to Eric’s 14X winner Freeport-McMoRan (FCX). While he closed the trade in his Speculator service, it’s still in Eric’s Investment Report portfolio today, sitting on a 205% gain.

For an ETF option, there’s the iShares MSCI Global Select Metals & Mining Producers ETF (PICK). It holds a basket of top miners.

Bottom line: There’s more juice in this commodities supercycle. If you missed the first half, the second one is on the way.

Here’s Eric to take us out:

Because of the potential for surging long-term demand that greatly exceeds supply growth, I believe the recent weakness in resource-focused stocks is presenting a great buying opportunity.

Have a good evening,

Jeff Remsburg