The Best Commodities to Play
The Best Commodities to Play: Discover the Mother Lode of Commodity Stocks Right in Your Own Backyard
A Taipan Publishing Group Strategy Report
by Irwin Greenstein, Senior Research Analyst, Taipan Publishing Group
Only one stock exchange in the world gives you a safe shot at cashing in on the longest commodities supercycle in history.
Many of the listings on this exchange can be traded here in the U.S. through your regular broker, reducing, or even eliminating, the surcharges associated with international markets.
Best of all, this stock exchange is free of the political turmoil, corruption and volatility that plagues so many stock exchanges rich with highflying commodity ventures.Cashing In on the Best Commodities to Play during the Commodity Boom
This mother lode of commodity superstars is, in fact, the Toronto Stock Exchange (TSX) and the related TSX Venture Exchange. If you overlooked or intentionally ignored these exchanges you could be losing out on a commodity boom that seems to mint new millionaires on a daily basis.
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Between the Toronto Stock Exchange and the TSX Venture Exchange, you can easily find the best commodity plays to fit your portfolio and investment style.
The Toronto Stock Exchange is host to more established business with senior management teams. It has access to larger and more international institutional investors and greater analyst coverage. The Toronto Stock Exchange is really geared for more conservative investors who still thirst for the thrill of playing the commodities boom.
By comparison, TSX Venture Exchange is aimed at giving younger, volatile companies visibility in the public market. It’s here that you’ll find your junior miners, start-up exploration companies and gung-ho wildcatters all going all-out to stake claims in places such as Albania, Peru and Russia.Two Ways to Play the Best Commodities
The idea of giving you both a conservative and risky way to play the commodity supercycle is a proven method of dividing listings according to market cap, disclosure requirements and market segment.
Here in the U.S., we have different exchanges that range from the large-cap S&P to the minuscule and riskier pink sheets -- with everything in between. But perhaps a better comparison to the two-tier exchange structure in Toronto is the London Stock Exchange.
The London Stock Exchange has its Main Market for established companies across all sectors. Investors in pursuit of a higher-risk, higher-return kind of equity can turn to the Alternative Investments Market (AIM).
The AIM is the London Stock Exchange's international market for smaller, growing companies. On the AIM you will find a wide range of businesses ranging from young, venture capital-backed start-ups to well-established, mature organizations looking to expand.
Since its launch in 1995, over 2,500 companies have joined the AIM, both through IPOs and further capital raisings. This capital has helped AIM-quoted companies of all kinds to fund their development and pursue their ambitions. Many companies have made the transition to the exchange's Main Market following their success and positive experience on the AIM.Get in on the Ground Floor to play the Best Commodities
That means you stand the chance to get on the major commodity stocks of tomorrow while they’re still a steal on the TSX Venture Exchange.
If you have even inkling for getting into commodity investments, the convergence of two powerful market forces makes a compelling argument for you to investigate both these indexes immediately.
For starters, the dollar’s extended two-year decline against the euro and the Chinese yuan shows no signs of easing. Each day the Fed prints more greenbacks deteriorates your buying power the true value of your investments. With a recession looming, many investors are fleeing to emerging economies or into commodities such as gold, silver and grains as a means to protect their retirement nest egg.
These Americans with a penchant for emerging markets can also pursue commodity plays similar to China, Brazil and Southeast Asia directly across our northern border in Toronto.The Best Commodities to Play: The Commodity Supercycle
The other factor to consider when it comes to the Toronto exchange is the so-called commodity supercycle.
This long-term boom in commodities left the starting gate at the end of 2001, when China’s Communist regime embarked on an aggressive plan of controlled capitalism. Before long, China became the world’s biggest consumer of copper, steel and iron ore in the world, then rose to become the second-biggest market for oil.
As China’s rural poor flocked to the country’s new mega-cities, they in turn drove up the prices of agricultural commodities such as wheat, rice and corn.
In late January 2008, the Toronto stock market racked up a triple-digit gain in response to the latest reading on the Chinese economy. Commodity stocks supported the Toronto Stock Exchange on news that China's economy grew 11.4% in 2007, its fastest expansion in 14 years.
It’s hard to believe, but China and the Toronto exchanges are linked at the hip -- not a bad thing at all when you consider the dynamics of the commodity supercycle.The Best Commodities to Play: Secular Bull Markets in Commodities
Legendary hedge-fund trader Jim Rogers has calculated that the 20th century experienced three secular commodity bull markets: 1906-1923, 1933-1955, and 1968-1982.
The term “secular” comes from the Latin word seculum, meaning a generation, or an age. It’s used to describe a long-term cyclical trend that could run for decades. The secular commodity bull market in progress right now also goes by the name of the commodity supercycle, giving greater heft to the fact that it’s both global and aggressive.
Following Roger’s logic, you’ll see that 15 years is about the average duration of those commodity supercycles. Marking the beginning of the current commodity supercycle at 2001, we’re looking at another eight possible years for you to cash in.
Between the Toronto Stock Exchange and the TSX Venture Exchange you’re looking at approximately 60% of the world’s public mining companies. So if you want a relatively safe entry point into the ensuing eight-year commodity supercycle, Toronto is great place to start.
More oil and gas companies are listed on Toronto Stock Exchange and TSX Venture Exchange than any other exchange in the world.
Combined, Toronto Stock Exchange and TSX Venture Exchange have over 1,350 mining issuers, from grassroots explorers to world-class producers, valued at over $372.3 billion as of December 31, 2007.
Not all of the companies listed are Canadian. The Toronto exchanges attract a significant number of companies from abroad that prefer these exchanges for the credibility that comes with a regulated North American presence.
Even though the commodity supercycle could run strong for another eight years, it’s important to remember that commodities, by their very nature, are volatile investments. They are perhaps the most geo-political type of stock market play (both as stocks and options).
Our research shows that the TSX Venture Index, which is dominated by highly volatile resource and exploration companies, is rarely held down for long. The ride may be bumpy, but the potential payoff could be worth your trouble.
A place to start could be the 2007 TSX Venture 50:
Mining |
Oil & Gas |
ECU Silver Mining, Inc. |
Falcon Oil & Gas Ltd. |
Excellon Resources, Inc. |
Pacific Stratus Energy Ltd. |
Strateco Resourcesm, Inc. |
Bronco Energy Ltd. |
Aurelian Resources, Inc. |
Culane Energy Corp. |
Dia Bras Exploration, Inc. |
Brazalta Resources Corp. |
UrAsia Energy Ltd. |
Dejour Enterprises Ltd. |
Pacifica Resources Ltd. |
Canoro Resources Ltd. |
Hathor Exploration Limited |
Rolling Thunder Exploration Ltd. |
Goldmarca Limited |
Orca Exploration Group, Inc. |
Brilliant Mining Corp. |
RSX Energy, Inc. |
Still, you have to bear in mind that August 2007 saw the TSX Venture Market absolutely collapse. On the worst day in August, the index plummeted 10%. Sure, it was all due to only one of the leading institutional resource investing, Pinetree Capital, getting caught overextended on uranium stocks. But it illustrates that there’s still some volatility to factor in.
The Best Commodities to Play: Extremely Strong Results
In the end, it all turned out to be a passing storm. It didn’t take long for the TSX Venture Index climbed back more than 36% after that.
Taking a higher-level view, the Toronto Stock Exchange has been on an absolute tear since January 2007…
| January 2008 | December 2007 | January 2007 | |
| Value | $171,668,502,092 | $119,630,984,682 | $128,940,938,096 |
| Volume | $9,090,781,237 | $6,902,365,043 | $7,768,523,683 |
| Transactions | 15,179,841 | 9,591,706 | 8,474,612 |
Fast-forward to February 11, 2008, and the Toronto Stock Exchange's main index rose again as energy firms followed a strong bounce in the prices of crude oil and natural gas.This performance clearly shows that the Canadian markets are a magnet for investments from around the world -- and once again confirm the strength of the commodity supercycle.
While the commodity supercycle certainly fueled the momentum of the Toronto exchanges, it’s important to remember that companies on Toronto Stock Exchange and TSX Venture Exchange also enjoy the advantage of Canada’s strong dollar and healthy economy, which are forecast to grow at almost double that of the U.S. in 2008.
Getting into these high-growth exchanges is easier than you may think.The Best Commodities to Play: The Cashing in on the Commodities Boom From the U.S
The good news is you don’t necessarily need to find a Canadian stockbroker.
Currently, U.S. investors can get into many of the Toronto Stock Exchange and TSX Venture Exchange listings via Nasdaq and the pink sheets. The stock symbols may not be the same as in Toronto, but it’s easy as pie for your broker to find that information for you.
Perhaps one of the safest ways to play these markets is through the S&P/TSX Composite Index and the S&P/TSX Venture Composite Index. Each one of these indexes is a basket of stocks that can hedge the risk of betting on an individual company.
If you believe that we have eight insane years left to the current commodity supercyle, then you don’t have a minute to lose.
Both the Toronto Stock Exchange and TSX Venture Exchange have trading hours of 9:30 a.m. to 4:00 p.m. EST, Monday to Friday. Give your broker a call today.
When this opportunity hits the news, it could be too late to reap the earliest and biggest gains that come with a first-move advantage. Our analysts here at Taipan Daily have reported from Russia, Thailand, Albania, Peru, and many other investment hot spots overlooked by Wall Street. They can show you how to turn “crisis” situations like these into lasting wealth. Get in on these opportunities now. Sign up for your FREE Taipan Daily e-letter and receive the bonus Chart of the Day alerts. |
Originally published February 22, 2008.
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