|
John Pugsley has been
publishing The Stealth Investor newsletter for the past five
years, producing a recommendation record that is enviable by any standard. In
this exclusive interview with The Energy Report, John reveals his
current thinking on energy-related investments in light of the global
economic situation and the effects of the catastrophe in Japan.
Editor's Note: Shortly after this interview was recorded, Mr. Pugsley suffered a major heart attack. Our thoughts are
with him and his family as we share his insights. New subscriptions to The
Stealth Investor have been temporarily suspended.
The Energy Report: Good morning, John. We're glad to have this
opportunity to get your current thoughts on energy-related investment areas.
Currently, the biggest things on our readers' minds are the situation in
Japan, its resultant impact on the entire energy sector and where
opportunities might lie now. When you last spoke with The Energy Report in
April 2010, you told us about your record with The Stealth Investor . At
that point, your portfolio was up about 147% versus the S&P 500, which
was down 5%. Can you update our readers on how those percentages compare
today versus a year ago?
John Pugsley: March 10 was the 5th
anniversary of The Stealth Investor. The five-year period saw a lot of
turmoil, as we all know, from the 2008 collapse. And a five-year period is
long enough to compare our index to the others. Since our inception, the Dow
Industrials are up 10%, the S&P 500 is up 3% and the NASDAQ is up 23%.
One of the benchmarks I tend to use is Warren Buffett's Berkshire Hathaway,
and it's up 40%. The Stealth Investor, if you count every buy and sell
recommendation we made (and someone followed it to the letter), would be up
219%. So, we've done nearly 5x as well as Berkshire Hathaway. Over five
years, the very best U.S. stock fund did 14.79% annual growth; The Stealth
Investor did 16.7%. So, if we were ranked as a mutual fund, we would've
been the number-one stock fund in the United States by more than 20%.
TER: How have you been able to do that?
JP: We've found a very small niche that none of those players can get
into. We look for a certain type of stock that just
doesn't work for them, nor does it work for most newsletters. The majority of
newsletters need a lot of subscribers, and their buying can spike the price
of a recommended stock. So, if it's a very tiny stock, like those we tend to
look for, it just doesn't work for most newsletters either. Brokers don't
follow these stocks and investors don't hear about them. That gives us a very
substantial edge, which shows up in our performance.
TER: You said part of the reason you have this remarkable return is
that you're going into areas the larger players can't get into due to sheer
volume. Is that just one of the elements you choose (because you could've
gone toward any number of other small-cap stocks in other sectors)?
JP: Yes, I'm focused on natural resources because I believe the whole
economic system is in real trouble. For a number of years now, as the world's
central banks print money, the only things that will hold value are tangible
goods—the most stable of which are raw materials. So, our focus on
natural resources is aimed at offsetting the inevitable collapse of
currencies.
Several hundred years ago, the first experiments with paper money began as
IOUs for some type of natural resource. Over the years, the people who
developed the banking system and politics began to realize they could milk
the monetary system. Until 40 years ago, almost all currencies were backed in
one way or another. They were promises to pay a real good. In the most-recent
century, it's been gold and silver. When President Nixon broke the Bretton
Woods Agreement apart 40 years ago and decided the U.S. dollar was no longer
exchangeable for gold, it was the first time in 5,000 years that
money—in any country—was backed by absolutely nothing. This has
not fully unraveled yet—but it's beginning to, which is why I'm more
convinced that we are heading into a real monetary Armageddon.
TER: Your comments make a strong case for investing in gold and/or
silver as a monetary investment. Yet, The Stealth Investor is invested
in far more than just gold and silver. So, what's the rationale for those
other investments?
JP: Gold and silver are very interesting, but they are more of a
psychological monetary base than a real one. Gold has been considered money,
but there isn't much real use for it other than as a monetary metal; so, it's
driven by speculation more than utility. Silver is a little different because
it has a lot more utility now than it did 100 years ago and many new and
different uses. Gold, particularly, will be driven up and down by the
psychology of the marketplace, fear of inflation or concerns about the
general condition of paper money. Other commodities, such as copper, zinc,
steel and phosphates—all those things we use—are really priced
according to demand for their utility value and the supply that can be
brought out of the ground or raised in crops. There's far more stability in
looking into these other things and far less tendency for the prices to hit
extraordinary highs or lows.
We could see some of this back in 1980. In the last part of the 1970s, we
began to go into inflation. At the beginning of the '70s, gold was fixed at
$35/oz. Then it jumped up and nearly tripled to $100, bobbed up and down, and
then went through a speculative spike at around $800. In today's terms, that
would be roughly $3,000 or so. You wouldn't see such an enormous spike in any
of the other commodities, such as copper, oil or phosphates for fertilizer.
One of the dangers of both gold and silver is that a lot of speculation is
built into them versus other commodities. I think you get a much sounder
long-term picture when you look at a broad basket of raw materials and
commodities.
TER: For years, the uranium market had been in the doldrums, as some
thought nuclear power was just too dangerous or uncertain. Recently, it
started to come back with news of plans to build many new plants around the
world. What impact will the Japan situation have on that thinking? Will
people be up in arms again saying that nuclear power is too dangerous? Will
we have a setback in uranium?
JP: Well, I don't doubt that what's happened in Japan will light a
fire under the green movement. I just read a headline that there's a movement
in France to completely abolish nuclear as a power source. The public and, therefore,
the politicians will be catering to this. There's going to be a backlash
against nuclear power here but, despite the catastrophe in Japan, it won't be
the end of nuclear power.
There is such a growing thirst for power of all kinds that we won't be able
to avoid using it. There aren't many places in the world that would
experience such a catastrophe as the one in Japan. Its nuclear power plants
are all along the coastline, where both earthquakes and tsunamis are
possible. France, England and most of the other global areas that require
nuclear power won't have tsunamis. China would be a good example. Global
demand for power is going to grow toward that in America. So, these countries
would have to use a lot more fossil fuel or go to nuclear power.
We can use wind power and develop solar power, but these things are
miniscule. Yes, geothermal is a power source, but it's restricted to the
places it can be found. Wind power is restricted to places where windmills
have sufficient wind to propel them and solar power depends upon the sun,
which goes down at night. So, really, the only two power sources we can rely
on at this point are fossil fuel and nuclear. I just don't believe we'll be
able to abandon nuclear—the demand for it will be too great. Engineering
progress will be such that we will solve these problems. So, I have a great
belief in the long-term need for and use of nuclear power.
TER: You briefly touched on geothermal, and now people are starting to
realize that it can be harnessed to produce hydroelectric power in numerous
areas around the world. Do you have some thoughts on how our readers can
profit in that arena?
JP: I think geothermal is an excellent area for investors. The market
hasn't looked favorably upon geothermal in the last couple of years. One of
the reasons is that it takes a lot of time and an immense amount of capital
to develop a geothermal resource. There are four juniors companies in the
field right now. One would be Nevada Geothermal
Power Inc. (TSX.V:NGP).
The others would be U.S. Geothermal
Inc. (TSX:GTH; NYSE:HTM), Magma Energy Corp.
(TSX:MXY) that Ross Beaty started
and Ram Power Corp.
(TSX:RPG). All of them are very cheap because geothermal
hasn't gotten investors excited.
Of the four, I think Ram is the cheapest. It got hit when the founder of the
company, Hezy Ram, quit. That was based on some
problems the company had in developing its resource in Nicaragua. This
spooked the market and Ram stock sold way off—down to about $1.20. I
think it's a tremendous buy. We bought it at a lot higher price. I think
$3.50 was the price at which I recommended buying it—and no more than
that. All of a sudden the whole thing began to collapse. It dropped way down,
but I'm about to put out a buy order for Ram again because I think the
fundamentals are there and the company's going to do just fine. Ram just
received a $50 million, two-year-term loan credit facility. It's a great buy
at the price it's at right now, based on what I know
is happening down there and the people that are involved.
We had another company in our portfolio, Western Uranium Corporation (TSX.V:WUC),
but it isn't principally a uranium company anymore. Western Uranium's more of
a merchant bank, so it fell from grace and dropped down. When we bought it,
it was selling at half its cash costs. Actually, it now owns enough shares
(in cash) of Western Lithium USA
Corp. (TSX:WLC; OTCQX:WLCDF)
that it's selling at a discount to the combination of the two. Basically, all
of its liquid assets total more than its market cap. That doesn't even take
into account all of the other assets the company has or the prospects for
growth. I think Western Lithium is a buy right now, as well. So, I would go
after the two stocks that I happen to have in the Stealth portfolio
currently; and we'll probably go in and add more to them. I think both
Western Uranium and Western Lithium are great buys.
TER: Do you have any further thoughts on junior uranium stocks in
general given the current situation in Japan?
JP: Oh, I think it's going to create a great buying opportunity for
uranium stocks—but I would just watch them for a while. We've been
involved in Rockgate Capital Corp. (TSX:RGT),
which has been a tremendous winner for us—up three or four times in a
very short period of time. The company's got a tremendous property in Africa,
but it dropped 25% in one day due to this uranium scare. So, my feeling is
that I'm just going to wait and watch to see what happens with uranium stock
prices. My guess is they're going to tumble awhile longer as this gets sorted
out. How that will play out in the next month or so is unknown. We may see
uranium stocks melt down, and that could be a great buying opportunity for
the long term. Incidentally, I might add that I don't believe in short-term
trading at all. When we look at a company, we expect to go in for one to four
years before these things begin to develop and reach their true potential.
So, when I look at uranium and we get in at the bottom, we don't expect it to
turn around instantaneously. It's going to be a long-term investment.
TER: Is it possible that the Japan situation will scuttle planned
nuclear facilities or those under construction? And, if so, what impact will
it have on uranium demand?
JP: Japan has a real power problem now, as the county is having brownouts
due to plant shutdowns. So, it can't afford to shut the rest of the nuclear
plants down. It has to keep them running in order to supply the country's
power needs, and it just doesn't have any other power. That's a highly
electrified nation. I don't think that would be cut back, so I believe the
demand for uranium will still be there.
TER: When you commented that Rockgate went
down 25% in one day, you said: "I'm waiting and watching." What are
you looking for, and when do you see it being a buy or a sell decision?
JP: It would be a buy decision, no question. Rockgate
has a wonderful deposit. We certainly won't sell unless it looks like the
uranium stocks are going to take a much greater dip. As a matter of fact,
last week I was about to suggest that we pull a little cash off the table
because Rockgate had done so well. But March 11
blew that out of the water; so, right now, I think I'll just wait to see
where the dust settles with the big reactors in Japan and decide when to add
to the position.
TER: Would you be adding only to your RGT position, or would you add
to other uranium positions and/or take new positions?
JP: Well, Rockgate is our major uranium
position right now. Western Uranium, as I said, is no longer principally in
uranium. But I'll certainly be looking for other alternatives out there and
surveying uranium stocks in the market—the small ones that might have
some potential. Right now, however, Rockgate is it.
We did have a position in Kalahari Minerals plc (LSE:KAH; NSX:KAH),
which has a part of that big Exeter Resource
Corp. (TSX:XRC; NYSE.A:XRA; Fkft:EXB)
position in Africa, and has done extremely well for us.
TER: Can you give us some final thoughts on where you think investors
should concentrate their sights in the energy sector, given the economic,
geopolitical and geophysical forces at work in today's markets?
JP: Well, it's an interesting world out there energy wise. Cuts in
Libyan exports by some 800,000 barrels per day (bpd) have pushed the oil
price up 10% or 15%. This is a very interesting event because it shows just
how tight oil supplies are around the world. Rick Rule, founder and chairman
of Global Resource Investments, frequently has pointed out that most oil
production is not under the control of the big oil companies like Exxon Mobil Corp.
(NYSE:XOM), Royal Dutch Shell Plc (NYSE:RDS.A; NYSE:RDS.B) and
BP Plc. (NYSE:BP;
LSE:BP).
The major oil-producing countries like Venezuela are actually controlled by
their governments. In many cases, these governments are pushing the profits
from those oil exports into social programs rather than putting them back
into doing what they should—investing in the infrastructure of growing
oil supply. So, we're going to see a gradual reduction. Rick has suggested
several times that we're going to see the major oil-producing countries like
Venezuela and Mexico suddenly becoming importers, which would have another
big effect on the market. To me, this means there's a lot of opportunity to
profit in the oil and gas, natural gas and uranium sectors, as well as some
of the other energy sectors like geothermal.
TER: John, you gave a wonderful overview for oil and its tight supply
in the market. Are you following any oil juniors that you might recommend?
JP: We have a few, and nearly all are Canadian companies. We're into Canadian Phoenix
Resources Corp. (TSX.V:CXP),
which is one of the companies I've followed for a while. We started buying it
at $0.50, and it's up to around $1.38 right now. Canadian Phoenix is one of
the companies that I like very much.
We've also got Novus Energy Inc.
(TSX.V:NVS), which is a
little bit bigger. We bought NVS at $1.05, and it's around $1.23
now—above the price we'd be willing to pay for it. Basically, we're
looking at geothermal in the portfolio right now, in terms of oil companies.
I think all these commodities will benefit from the nuclear event in Japan
and resultant nuclear backlash.
TER: John, we really appreciate your time you've taken to bring us up
to date on your thinking and know our readers will find it very useful in
these hectic investing times. Thanks, again.
JP: Thank you.
John Pugsley entered the investment business in
the late 1960s and began sharing some of what he learned through his first
book, Common Sense Economics.
The book sold more than 150,000 hardcover copies. The second book he
penned—The Alpha Strategy: The Ultimate Plan of Financial
Self-Defense for the Small Investor, spent nine weeks on the New York
Times bestseller list and is considered a standard reference for stocking
up on food and household goods as a hedge against inflation. He started
Common Sense Viewpoint, an investment-economic newsletter covering political,
economic and investment topics, in 1975 and published it for 10 years. At its
peak, it had more than 30,000 subscribers. He then wrote and published
John Pugsley's Journal for another decade. A
popular speaker and talk show guest, prolific author and successful investor,
John is currently pouring his experience and energy into Stealth
Investor, a weekly stock advisory that
alerts subscribers to potential investments beneath the radar of the big
funds and brokerage houses. (Please note that new subscriptions to Stealth
Investor have been temporarily suspended.)
Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have
been published. To see a list of recent interviews with industry analysts and
commentators, visit our Expert Insights page.
DISCLOSURE:
1) Zig Lambo and Karen
Roche of The Energy Report conducted this interview. They personally
and/or their families own shares of the following companies mentioned in this
interview: None.
2) The following companies mentioned in the interview are sponsors of The
Energy Report or The Gold Report: Exeter, Nevada Geothermal, Ram
Power, Western Lithium USA Corp. and Royal Dutch Shell.
3) John Pugsley: From time to time, Streetwise
Reports LLC and its directors, officers, employees or members of their
families, as well as persons interviewed for articles on the site, may have a
long or short position in securities mentioned and may make purchases and/or
sales of those securities in the open market or otherwise.
The Energy
Report
|
|