Good Stuff from Rick Rule - received March 24

[dan_s]

Rick's comments below support my belief that finding grossly undervalued oil & gas companies is one of the best ways to beat the market in the long run. I believe that we are just at the beginning of a big Paradigm Shift away from the false belief that renewables can replace oil & gas. IMO they won't simply because they can't.
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If there's one sector where contrarian investing should be the rule, it's the mining sector.

That's a lesson that Rick Rule, founder and president of Rule Investment Media, learned after being involved in natural resource investing for over 50 years.

"As an investor in resources, if you aren't a contrarian, you're going to be a victim. It's as simple as that," said Rule in an exclusive interview with Benzinga's Chief Content Officer Brad Olesen at the 2024 edition of the PDAC Convention in Toronto.

Rule highlighted the importance of going against market trends in a sector that's known for its volatility and fluctuating cycles.

"These businesses are capital intensive and cyclical, meaning that the cure for low prices is always low prices, and the cure for high prices is always high prices," said Rule. < My current belief is that the "Right Price" for WTI oil is within the $80 to $90 range, but the global oil market is tight and likely to become VERY TIGHT within a few months. Look closely at the 2nd slide from my March 23 podcast. Demand for oil-based fuels exceeds supply TODAY. We are one unexpected supply problem away from WTI going over $100/bbl.

Yet swimming against the current can be a real challenge for faint-hearted investors, as "easy money ends up being hard, psychologically."

This means that to be a true contrarian, one needs to invest in commodities that are so deeply out of favor that their selling price tends to be priced below the industry average cost of production.

"You have to have the guts to invest in industries in liquidation," said Rule.

The reason to do that is that some industries will continue to function even when their players are not meeting their sustaining capital requirements, to eventually climb back to sustainable levels.
EXAMPLE:
In 2020, when the price of oil went below $20, it still cost the industry $60 to produce a barrel. The result was obvious: either the price of oil had to climb back to $60 "or your car wouldn't start," said Rule. < From 1/1/2021 to 12/31/2023 (3 years) our current Sweet 16 Growth Portfolio gained 219% compared to the S&P 500 Index that gained 27% during the same period. The Sweet 16 closed on March 22 at just 3.95 X my 2024 operating cash flow forecasts. Companies of this quality should trade at 6X to 8X CFPS multiples.

Oil And Gas Thrive Despite Market Rejection
Following his long-standing contrarian stance, Rule believes that the easiest market for investors to make money within natural resources today is oil and gas.

"The market hates them, but they're great big businesses," he said.

While many political leaders share the view that conventional hydrocarbon fuels will go away by 2030, that — in Rule's view — is "totally insane." < I agree 1,000%.

"Our species has invested $5 trillion in alternative energies over forty years. We've reduced the market share of hydrocarbons from a high of 82% all the way down to 81%," he said sarcastically.

The half-life of oil and gas reserves is probably 2060, says Rule, which leaves "a lot of life left in that business."

The largest ETFs for the oil and gas sector areUnited States Oil Fund LP(USO) , United States Natural Gas Fund LP and Invesco DB Oil Fund(DBO) .

Is The Uranium Boom Over?
From late March 2023 to mid-January of this year, Uranium experienced a boom, with its price climbing more than 100% in less than a year. Yet in recent months, the mineral began to drop.

"I would say in this market, the easy money's been made," said Rule.

The right moment to get aboard the Uranium wave was late 2022, but at the time, most investors were not willing to take the risk.

However, Rule believes that the Uranium market has one key characteristic that makes it stand out from other markets within the natural resource space.

"Unlike any other mineral commodity business I know, there's a very, very big contract market," he said.

As more of the investment volume goes from the securities to contracts, producers will have price certainty for a very long time, and that's something Rule believes doesn't happen with any other commodity.

Certainty in topline revenue will make it so that in five years, the capital cost of setting up a mining production for uranium will be lower, and the equity multiples, higher.

Cameco Corp (CCJ) should be first in line in the eyes of investors looking to get into the Uranium market, who are now willing to do the legwork to choose one of the more speculative names.

Last month, Cameco’s President and CEO, Tim Gitzelsaid that 28 countries around the world have declared support for tripling nuclear power capacity to reach the goal of achieving zero emissions by 2050.

Global X Uranium ETF (URA) and Sprott Uranium Miners ETF(URNM) are the two largest ETFs following the Uranium market.