Why plunging Freeport hasn't shaken me out

Two weeks ago, I talked about the coming shortage of copper and 2 companies which you might consider to buy to ride the uptrend. Indeed the copper's price is going up and one company, VALE, is also going up along with. However, the other stock, Freeport-McMoRan's (NYSE: FCX), has surprised the market by announcing to acquire McMoRan Exploration and Plains Exploration with a $9 Billion price tag. FCX is the world largest producer of copper. It owns a 90% stake in the gigantic Grasberg mining complex in Indonesia. Grasberg is the world's largest copper and gold mine. However, apparently FCX also wants to re-enter the energy sector. The markets did not like what FCX was doing and punished FCX by knocking about 20% off FCX's share price on the day FCX announced the acquisition.

I have got some positions with FCX for a while. With a 20% hair cut, one may consider that I have probably been shaken out of the FCX position. Nope! While my paper gain has indeed come down quite a bit, I'm still significantly in the money with a 46% paper profit. That's the beauty of using the so-called naked put option technique to long a stock. I don't need to be exactly right about the stock price. What I'm doing with this position (as shown below) is that I will be making money as long as FCX does not drop below $23. At the moment, FCX is trading hands at about $31. I still think FCX is a great company with very valuable assets. It may not be performing well in the near term, but I'm quite confident about its long term values. If it further declines significantly below $30, I will consider to add more of it to my portfolio.

FCX Jan 18 '14 $28 Put

3.05

-0.07

-2.24%

$105.00

-15

$5.75

$4,030.49

+46.62%

Bioprinting human tissues

You may have heard the 3D printing technology, which can print everything from wrenches to aircraft parts. Have you heard bioprinting, which uses cells to "print" human tissues?

Organovo Holdings (ONVO) is just such a company, which develops three-dimensional (3D) bioprinting technology for creating functional human tissues on demand for research and medical applications. The company’s 3D NovoGen bioprinting technology works across various tissue and cell types, and allows for the placement of cells in desired pattern. It offers NovoGen MMX Bioprinter, a commercial hardware and software bioprinter platform to create tissues for bioprinting research and development. For example, Organovo can grow heart tissue and makes it to beat like a real heart. Eventually I think human organs can be "printed" for transplantation purposes. You can imagine what kind of the market it can be if doctors can print organs whenever there is a demand for transplant.

ONVO is kind of stock with a huge potential but it will certainly be very volatile! It may jump several times within a few weeks but may burst equally fast. See the chart below. It seems at the bottom at the moment. If you have the gut for its volatility, this may be the time to consider to get in.

Shortage of copper supply is coming

While the Chinese markets are struggling, believe or not the Chinese economy is showing signs of recovering. Per Bloomberg report, copper supply shortages will extend into the first half of next year as an accelerating Chinese economy more than doubles the pace of growth in global consumption even as mines extract a record amount of metal. Given 41% of the world's copper is consumed by China, it will mean more demand should be expected. The problem is that demand will outpace supply by 316,000 metric tons in the first six months, more than all copper in London Metal Exchange warehouses, before a surplus emerges in the second half. Production has lagged behind consumption since 2010, according to the International Copper Study Group. The metal may average $8,300 a ton in the second quarter, 5.1 percent more than now and the most in a year, according to the median of 21 analyst and trader estimates compiled by Bloomberg. More stimulus has been announced or planned in the US, Europe & Japan will further deepen the supply shortage.

So how to ride this uptrend?  You may consider Freeport-McMoRan Copper & Gold Inc. (FCX), the biggest copper producer. It is expected a 44 percent gain in net income next year. It is also estimated that its share price may jump by 30% next year. You may also consider Vale S.A. (VALE), which is the largest producer of basic metals in Brazil and a significant portion of its metals is copper. Its price action appears to be bottoming. The shortage of supply of copper may fire VALE's stock price.    

 

If you like gambling, buy this gaming giant

I was a bit bullish about the Chinese stock markets and thought it would have bottomed a few weeks ago. Too early a call. As I said, if the Shanghai Composite Index could not hold the 2000 level, then more decline was ahead. The Shanghai index is around 1980, a clear bearish sign for the Chinese markets. But this may not be bad if you are looking for bargain stocks related to China. Wynn Resorts (WYNN) is one of them.  

While Wynn is an American giant gaming company, it derives nearly 75% of its revenue from Macau (the Las Vegas of China). Well, it is facing a lot of headwinds lately due to concerns over an economic slowdown in China. Its share price has been slammed & declined over 15% in the past few weeks. Well, not everyone is so bearish about Wynn. JPMorgan, the investment bank, has just issued an analysis report, which sounds quite bullish on Wynn. Here is the excerpt from JP's report published in Barron's:

At current levels for each stock, what is implied in Wynn 's (ticker: WYNN) market cap, once backing out its interest in Wynn Macau, is a negative value (though, admittedly, it's a modest negative value). Wynn's stake in Wynn Macau is $10.957 billion, while its (Wynn's) market cap is $10.923 billion, giving no value for its Macau royalty stream and Las Vegas Strip earnings before interest, taxes, depreciation and amortization (Ebitda), and certainly not a ton of value for its Cotai project [in Macau].

In other words, the intrinsic value of Wynn has been largely underestimated. If people start to realize that, then Wynn's share price will go up accordingly. Per JP, Wynn should have a price of $133 instead of $112 (the current share price).

Get ready for a year end rally

Following the market sharp plunge on Nov 7, I advised to get out of short positions. I guess this was a good call as the market has jumped quite significantly back in the past two weeks or so. The market is a bit overbought at the moment in a very short term and I won't be surprised to see it drop 10-20 points (S&P) in the next few days. But then the year end rally should finally kick in. I expect the market may go up 5-10% towards the year-end and the bullishness may well go into the first quarter of 2013. So if you also believe this trend, take the market decline in the next day or two as the buying opportunity. If you are aggressive enough, you may even play with this upward trend by buying some leverage ETFs, e.g. SSO or TNA. Of course, for any speculative plays as such, please also mindful of the risk involved.

Be the landlord of the US government

　

I don't know you but I'd like to have others pay me, as much as possible and also with as little risk as possible. To be a landlord is definitely one option many people can consider in the rental business but I personally don't like the headache to manage tenants. It would be a dream to have someone manage this for me and pay me well without much risk to be worried about. I think I have found one.
Government Properties Income Trust (GOV) is a REIT (Real Estate Income Trust). To be qualified as a REIT, the company must pay 90% of its earning to the shareholders so that it can avoid paying the corporate tax. The shareholders will have to pay their income tax for the dividend they received. So this actually avoids the double taxation, which is generally the case for all other companies. That's why REITs usually pay a much higher dividend yield. GOV is currently paying 7.5% dividend for your money invested. You cannot get anything even close for your money in the bank. There are tons of REITs out there. What makes GOV outstanding among them is the nature of its core business: 94% of its annualized rental income is paid by the U.S. Government, 10 state governments and the United Nations. In other words, if you buy GOV, you are virtually the landlord of the US government. GOV has dozens of federal or local governments renting its properties. The top 5 renters are:US Customs & Immigration Service (10%), Internal Revenue Service (9%), Federal Bureau of Investigation (5%), Department of Justice (5%), and Department of Agriculture (4%). Will you be worried that the US governments such as IRS will lack of money to pay your rents? Not a chance. That's why I think this is a super safe deal to become the landlord of the US government. I have definitely added GOV into my retirement portfolio for long-term investment!

 

Catch the shopping fever now

What is the best shopping season in the US? I guess it is a no-brainer question: the 4th quarter of a year. The Black Friday after the Thanksgiving Day, followed by the Cyber Monday that is the online shopping day after the Black Friday, and then followed by the X'mas seasonal shopping craziness, becomes the most euphorigenic period for the retailer business. People don't care if they have job, have money, or have debt, they just want to spend. They have credit cards anyway, right? Of course, this is not the topic I'm interested in. As an investor, what I want to know is which company may be best positioned to catch this seasonal shopping frenzy. I think I have found one for your consideration.

For sure you can consider Google or Yahoo since they are the overlords in the online advertising business. But I don't think this kind of seasonality will have too much impact on their stock price given their scale. I'm more interested in a much smaller company, for which a good season could mean a lot for its earnings. I think ValueClick (VCLK) is such a stock. By name, I guess you can easily understand that VCLK is an online advertiser. I'm not interested in its long term performance as it is a tough business in competing with Google or Yahoo. However, if you simply buy the stock for this special season, you may be rewarded handsomely. Look at its chart from 2001 up to now. Do you notice that VCLK tends to go up around the year end and drop in the first quarter? I think we can play with this seasonality game by buying VCLK now (before Thanksgiving) and hold it through the 1Q and then sell it in early Apr 2013 before its earning report. There is a good chance that we may see something like 20-30% appreciation of the stock price. If you know how to play with call options, the risk can be much lower with a much greater profit margin.