Investors Alley

The pandemic certainly turned the semiconductor industry on its head.

Despite record production of semiconductors, shortages everywhere led to months-long waiting lists for many consumer products. To meet consumer demand, semiconductor makers ramped up supply even more.

But then inflation arrived and decided to stay awhile. Central banks responded by raising rates, and economies slowed. The appetite for items like consumer electronics waned, leaving inventories stuffed full of chips.

The ramifications were felt all along the semiconductor supply chain.

For example, when Apple (AAPL) reduced orders of memory chips last year, supplier Micron Technology (MU) saw its sales collapse. To preserve cash flow, Micron chose to cut capital spending by 40% in 2023.

That, of course, means it will need less equipment from its supplier Lam Research (LRCX). Lam now expects the wafer front-end market—which relates to the first process in chip fabrication—to shrink around 30% in 2023, to $70 billion. As a natural consequence, Lam’s share price is down by a third since the start of 2022. That makes it an interesting stock to buy now. Let me explain.

Lam Research: Profitable and Cheap

Lam Research sells the equipment used to make semiconductor wafers. This includes the deposition machines that deposit layers of metal, the etch machines that selectively remove some of those layers, and the cleaning machines that take away unwanted particles between stages. Aside from Micron, Lam’s customers include these other semiconductor titans: Samsung, SK Hynix, Intel (INTC), and Taiwan Semiconductor (TSM).

Historically, Lam has focused mostly on the memory market. Last year, 50% of its sales came from either NAND or DRAM memory chip manufacturers. Memory chips exposure to demand in consumer electronics makes demand for them highly cyclical.

Less than a fifth of LAM’s sales came from logic chips, where, thanks to cloud computing exposure, demand is more consistent and expected to grow quite rapidly amid rising artificial intelligence investments.

This cyclicality in Lam’s business largely explains why it trades at a steep discount to other chip equipment manufacturers. For example, ASML (ASML), which sells the photolithography machines needed to produce the most advanced logic chips, trades on a forward price to earnings ratio of 31, versus less than 15 for Lam’s shares.

In addition to the cyclicality of consumer electronics demand, the company is facing another problem.

Last year, the U.S. imposed strict sanctions against Chinese semiconductor manufacturers, barring companies from selling chip designs and manufacturing equipment to Chinese businesses. Lam predicted these restrictions would result in a $2 billion to $2.5 billion hit to sales. That led to Wall Street analysts cutting their 2023 earnings forecast by 13%.

Despite all of this, Lam’s leadership position in a consolidated sector allows it to be highly profitable. In recent years, its operating margin has exceeded 25%; it hit 31.1% in the year to June 2022. This enabled Lam to generate a five-year average return on equity of over 50%.

Lam also generates a good free cash flow yield of 5%, well ahead of ASML and equal to its close rival, Applied Materials (AMAT). In the last two years, the company spent $1.1 billion on capital expenditure, but still managed to generate $5.5 billion in free cash flow.

Lam’s Bright Future

Lam’s management is wisely using some of that capital expenditure to move away from its reliance on the memory chip market. Some of these investments include atomic layer deposition and selective etch technologies.

The company is already the market leader in dry etch, and a prominent player in the deposition segment of the wafer fab equipment industry. The combination of these two is critical during the chip making process, along with photolithography (which produces the mask that exposes areas for materials to be deposited or removed).

Lam provides customers with some of the most advanced tools in these niche segments. And its leadership position creates scale advantages that fuel its research and development spending at levels only Applied Materials and Tokyo Electron (TOELY) can match.

We cannot overlook the fact that there is a major tailwind blowing in Lam’s favor. This comes in the form of the U.S. government’s efforts to boost domestic chip manufacturing. Last year’s Chips and Science Act includes $39 billion in manufacturing incentives for chip makers. This has produced results, with commitments from Intel, Samsung, and TSM to invest over $100 billion between them in the U.S. over the coming years.

So, while Lam may lose much of its Chinese business, the increase in investment into the U.S. from these companies will likely make up for it.

Keep in mind, too, that other nations are not sitting by idly; in fact, some are also offering incentives to chip companies to build semiconductor manufacturing capacity. For instance, in South Korea, Samsung has been offered incentives to invest $230 billion in a new memory chip manufacturing facility over the next 20 years.

So, while the near-term outlook is murky, Lam’s future as a leading equipment manufacturer in a heavily-subsidized industry looks bright. Its relationships with all the top chip makers in the world, combined with historically strong levels of capex spending in the industry, leaves Lam Research with a quasi-monopolistic position in its niche.

That should help it to continue to generate strong profit margins and consistent cash flows. LRCX is a buy in the $480 to $520 range.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trading at massive discount, and pays an 8% yield. This is my top pick for income during a rough market.Click here for details.

In these uncertain times for investors, energy midstream stocks offer an island of stability. This sector provides an attractive combination of current yield and dividend growth. However, midstream companies divide into two distinct categories, and the differences are important.

Energy midstream covers the movement and storage of energy commodities from the upstream drillers to the downstream refining, manufacturing, and utility companies. This graphic from the Alerian Midstream Energy Index fact sheet shows the services the companies included in the index offer.

Before the 2015-2016 energy sector crash, the majority of midstream companies were organized as master limited partnerships (MLPs). The crash forced massive restructuring, and many companies converted to corporations. Currently, the midstream sector includes some companies organized as corporations and others that have retained their MLP business structure.

If you invest in an MLP, you buy limited partner units. As a limited partner, you will receive a Schedule K-1 to use when reporting your taxes. The distributions (dividends) paid by an MLP are classified as return of capital and are not taxable income. Any tax consequences come from the K-1, and generally, MLP income will not be taxed.

Midstream MLP units should not be owned in a qualified retirement plan such as an IRA or Roth IRA, as they can cause severe negative tax consequences. The reason is too long to go into here. Just don’t do it.

Midstream corporate shares are just like owning shares of any other publicly traded company. You receive a Form 1099 for reporting dividend income, which will be qualified dividends. You can own these shares in a retirement plan without any negative consequences.

The differences between the two midstream business types have led to an interesting divergence in dividend yields. To illustrate, let’s compare three large midstream corporations to three similar MLPs. I want to look at current yields and dividend growth for the last two years.

Midstream Corporation:

Kinder Morgan, Inc. (KMI): Current yield: 6.27%; two-year dividend growth: 5.7%

ONEOK, Inc. (OKE): Current yield: 5.72%; dividend growth: 2.1%

The Williams Companies (WMB): Current yield: 5.94%; dividend growth: 9.1%

Master Limited Partnerships:

Enterprise Product Partners LP (EPD): Current yield: 7.26%; two-year dividend growth: 8.9%

Energy Transfer LP (ET): Current yield: 9.45%; dividend growth: 100%

Plains All American Pipeline LP (PAA): Current yield: 8.17%; dividend growth: 95.5%

You can see that MLPs sport higher yields to go along with the tax-advantaged income. The MLPs have also been more aggressive with dividend growth coming out of the pandemic. Going forward, I expect the midstream corporations to grow dividends at a mid-single-digit annual rate and the MLPs to grow theirs in the high single digits.

Outside of the IRA problem, MLPs currently provide much better investment potential. If you want to own them in an IRA, look at an MLP-focused ETF. The Alerian MLP ETF (AMLP) tracks the index with the same name. The InfraCap MLP ETF (AMZA) is an actively managed fund.

Unique in the space is Plains GP Holdings LP (PAGP). Each PAGP share is backed by one PAA unit and pays identical distributions. However, if you invest in PAGP, you get a Form 1099 for tax reporting, not a K-1—the market prices PAGP to yield about 0.3% less than PAA.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

Even with professional investors, herd mentality makes successful investing a daunting task. This year, as you see prediction after prediction about a market decline, stocks have confounded the experts with solid gains. My Dividend Hunter strategy shows investors how to not fall into the “buy high, sell low” wealth destruction cycle.

Last week, one of the morning emails from Bloomberg noted: “…stocks are doing well. 2023 continues to be a great year. The S&P 500 is already up over 8%, while the NASDAQ is already up over 16%. If you just stopped things here, 2023 is a winner.”

The following paragraph discusses how, despite the good results in the market, sentiment remains negative. The exact words were: “…rallies are always hated these days.” The most recent Bank of America fund manager survey shows that active fund managers are the most pessimistic they have been since March 2009. Here is the tell-tale chart:

The chart shows the relative weighting between stocks and bonds by the fund/asset managers surveyed by the Bank of America. The peaks show when the investment pros were most heavily weighted in stocks and the low points where they had the lowest percentage of assets in the stock market.

For me, a few of the highlighted dates pop off the chart. March 2009 marked the absolute bottom of the Great Financial Crisis bear market. The post-pandemic bull market started in late Spring 2020 and peaked during the very first days of 2022. Last year was a true bear market, and now that stocks have turned up, money manager stock allocations are at the lowest level since 2009.

Two points to take away from this: first, no one can predict market downturns and bull markets. Professional fund managers consistently get it wrong. Second, there is a huge herd mentality among financial professionals. They all read the same reports and look at the same data. Also, those folks who manage money tend to not be the ones who show up on the financial news making bold predictions.

I don’t know if we are on the verge of a new bull market. My opinion is that stocks will stay range bound as they have for almost the last year. I may be wrong. (I am probably wrong.) We now operate in an investing world where every little bit of news moves the market until the next news item comes along.

For my Dividend Hunter subscribers, I recommend and teach a strategy to invest in building a growing income stream using high-yield investments, stocks, and ETFs. The focus is not on share prices because they are not predictable.

However, when you want to build up your portfolio income, you naturally end up buying more when prices are down, and you will see your portfolio value grow nicely when the market turns bullish. All along the way, the Dividend Hunter strategy focuses on building a growing income stream, a goal entirely within your control.

Let’s close out with an investment idea. REITs have performed poorly (actually, terribly) for the last 15 months. I don’t know if real estate stocks have bottomed, but I know you can invest in the Hoya Capital High Dividend Yield ETF (RIET) and earn a 10% yield with monthly dividends until the investing world realizes that real estate will never go away.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

Imagine a company whose stock that hit an all-time in December 2021, after soaring 50% that year. And that company’s sales doubled in the two years leading up to 2022. And its operating profits quadrupled.

Also imagine a company whose biggest product is set to see its sales collapse in the next three years from about $38 billion in 2022 to $10 billion in 2025.

Guess what? These two companies are actually one and the same: the pharmaceutical giant, Pfizer (PFE).

Pfizer’s fortunes soared during the pandemic, thanks to its partnership with BioNTech (BNTX) on the highly successful BNT162b2 COVID vaccine.

But what about post-pandemic Pfizer?

I believe this company is a perfect candidate for an equity income fund…or for an individual investor looking for a stock with rock-solid fundamentals and a nice dividend yield, which currently stands at nearly 4%.

Pfizer’s Fundamentals

Sure, Pfizer’s earnings are forecast to fall sharply in the current year—from $6.58 per share to about $3.62 a share. But that will still allow the dividend to move upwards with an acceptable level of cover. The payout ratio would rise to 46%, still well below Pfizer’s 10-year average ratio of 67%.

Other measures of Pfizer’s operating performance also show the company is quite healthy.

Sure, Pfizer’s 37% profit margin will no doubt shrink as demand for the COVID fades. But, if you take the longer-term view of Pfizer, you will see its profit margin has averaged 27% for the 10 years leading up to 2022. In that same period, Pfizer grew its revenue by a compounded 6.3% per year, and operating profits rose by 7.6% a year.

In the next year or so those long-term growth rates will slow a bit; however, they will still remain darn good. Wall Street forecasts are for Pfizer’s 2025 operating profit to be almost $24 billion (versus a peak of about $40 billion in 2022). That implies a nice, steady 10-year growth rate of 6.0% from 2015’s $13.3 billion.

If we peer ahead to 2025, Pfizer’s vaccine, BNT162b2, is likely to remain its biggest single revenue source. But Pfizer is much more than the vaccine, thanks to a portfolio of drugs that are either already approved by the FDA or are in the approval pipeline.

One such drug is Eliquis. This anticoagulant, which is a vast improvement on the older, more common warfarin, had sales of $6.5 billion in 2022. It may exceed $8 billion in sales by 2025. There is also Pfizer’s Prevnar group of vaccines, which protect against streptococcus bacteria.

Pfizer Refilling the Drug Pipeline

There is little doubt that Pfizer must refill its “medicine cabinet”—and quickly.

In addition to slowing COVID vaccine sales, Pfizer faces the loss of market exclusivity for several blockbuster drugs—including cancer medicines Xtandi and Ibrance—known as a “patent cliff.” This is expected to blow an additional $17 billion hole in Pfizer’s annual revenues by 2030.

So, Pfizer management is undertaking several moves…

First, the company is jumping into the weight loss drug sector. On December 12, it laid out plans to push ahead with a late-stage trial of an oral GLP-1 drug with potential to treat diabetes and obesity. At an investor event, the company touted the potential to claim $10 billion in annual sales by 2030. This once-a-day pill could gain a competitive advantage over weekly or monthly injections.

Pfizer has also agreed recently to acquire oncology-focused biotech firm Seagen (SGEN), for a total enterprise value of $43 billion. Seagen is a pioneer in antibody-drug conjugates (ADC), a class of drugs designed as a targeted therapy for cancer cells. They work by seeking and killing tumors without hurting healthy cells. Seagen’s four approved ADC drugs generated $4 billion in sales in 2022 and are considered first or best in class for the conditions they treat.

Complex manufacturing of these ADCs should reduce rivalry from generics. Pfizer believes the business could contribute more than $10 billion in risk-adjusted revenues by 2030, or about a seventh of today’s sales.

Pfizer CEO Albert Bourla said that oncology continues to be “the largest growth driver in global medicine,” so the deal contributed to the company’s near- and long-term financial goals. Pfizer already has 24 approved cancer medicines, and 33 others are in clinical development.

Add this all up and Pfizer looks like a good long-term investment for more conservative investors—despite Wall Street doubts. It’s especially promising since it is trading very near its 52-week low and back to levels not seen since 2021.

PFE can be bought anywhere around $40 a share, locking in that 4% dividend yield.

Investors never know for sure if a company is going to post better earnings results than expected. That’s why there are always earnings surprises. However, that doesn’t keep traders from making educated guesses. In the case of Amazon (AMZN), a trader recently purchased 17,000 bullish call spreads that expire the day after earnings come out.

High current yields and growing dividends are the cure for the directionless market. And if we are in for a “lost decade” from the stock market, yield plus growing dividends is one strategy that will still produce positive total returns. The strategy works in any market—bull, bear, or stagnant.

Let me show you.

Over the last few years, master limited partnerships (MLPs) focused on growing free cash flow, providing a higher level of coverage for dividend payments. Starting in around 2017, these companies spent their time building cash flow with little to no dividend growth.

MLPs operate in the energy midstream sector. These companies own and manage assets such as pipelines, processing plants, and terminals. MLP revenues come from long-term, fee-based contracts. The midstream sector generates much more stable revenue than upstream drilling companies and downstream refiners.

Unique among midstream companies is the use of the MLP structure. Investors are technically limited partners instead of shareholders. There are some tax implications to MLP ownership that I will touch on below.

But first, let’s talk about cash flow for the MLP sector. A recent VettaFi article reported that MLP sector dividend coverage increased from 1.4 times in 2018 to 2.3 times in 2022. The coverage is the ratio of free cash flow divided by the dividends paid to investors. Five years ago, 1.2 to 1.4 times coverage was considered adequate.

From 2020 through 2022, MLPs stopped or slowed dividend growth while their free cash flow continued to grow. The major companies in the group all followed the same strategy to increase financial stability. Starting this year, the major MLPs really started to increase the distributions paid to investors. Here are a couple of examples:

In November 2022, MPLX LP (MPLX) increased its dividend by 10%, compared to a 2.5% boost in 2021.

In April 2022, Western Midstream Partners LP (WES) increased its dividend by 53%. The payout had previously grown by less than one percent per year.

In January 2023, Plains All American Pipeline LP (PAA) increased its distribution by 23%. This was the second consecutive 20%-plus annual increase.

The Alerian MLP Infrastructure Index has a current yield of 7.9%. My research indicates the MLPs in the index are likely to grow their distributions by 8% to 10% per year going forward. A combination of 8% yield plus 8% dividend growth will produce mid-teens compounding annual returns over the long run.

Now, back to those tax implications: If you invest in an MLP, you will receive a Schedule K-1 for tax reporting. K-1 requires some extra work at tax time. Also, you should not own any K-1 MLP shares in a tax-qualified account such as an IRA; otherwise, there can be severe tax consequences.

On the plus side, MLP distributions are classified as a non-taxable return of capital. Instead, the distributions reduce your cost basis.

An MLP ETF allows you to receive a 1099 for taxes but also passes through the return of capital tax advantage. The Alerian MLP ETF (AMLP) tracks the index and currently yields 7.8%. The InfraCap MLP ETF (AMZA) is actively managed and pays stable monthly dividends. AMZA currently yields 8.8%.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

This week in Hidden Profits Report, I’m introducing a new feature. This is a topic I will revisit from time to time when I see the type of extraordinary opportunities I am going to talk about today.

This part of Hidden Profits is for investors who want to get rich.

I don’t mean “hitting the lottery rich” or “finding some super top-secret option trading system that will make you rich by 4:00 next Tuesday” rich.

Instead, this is the “do what history shows works time after time to make money” way to build wealth…

Look, the odds of hitting the Powerball are 1 in $292 million.

You have a better chance of being hit by space debris (1 in 10,000 according to scientists interviewed by the BBC recently) or being attacked by a bear (1 in 2.1 million) than you do of winning the lottery.

Odds may be better for the options trading systems but not by much.

I have seen just about every options trading scheme that can be imagined over the past thirty years.

To my misfortune, I have even tried a few.

I do know some folks who have done very well trading options.

Options trading did not make them rich overnight.

Most sold options far more frequently than they bought them.

Most of them know math at a level that would make a NASA engineer blush.

Options trading is a full-time job for them. They are grinding out fortunes, not hitting windfalls from highly speculative bets.

So, what I want to talk about is not a “get rich quick in the markets” scheme.

It’s the “quit trading and start buying businesses” approach to getting wealthy.

It’s not for the faint of heart. We will buy businesses in industries wildly out of favor with Wall Street and the investing public.

Your odds of success are good with this approach.

That does not mean it will be easy.

And it will not happen overnight.

At times the volatility will make you want to scream (or vomit).

You will probably see your account balance fall by 50% or more several times during the journey.

With all that in mind, let us start on the first part of the journey.

The first step is forgetting everything you learned in college. Forget what your broker told you about things like diversification and asset allocation.

That is all for protecting wealth and earning a decent rate of return, not building it.

If you are ready, let’s start out on the first steps of our journey to get as rich as possible as quickly as possible.

When you look at industries everyone thinks are on the verge of collapse, real estate must be at the top of the list.

I have read so many headlines about the coming real estate financial Armageddon that it is starting to be exhausting.

Real estate values are going to collapse, which will cause all the banks to fail.

According to financial media and the latest crop of instant experts, trillions of CRE-related debts are coming due, and it may well mean the end of the world.

Digging beyond the headlines and sound bites exposes this fascinating story as the load of “horse deposits” it is at heart.

The problem is with offices.

It’s not all offices. Just the big city downtown offices where people have embraced work from home and that has changed the need for office space for many companies.

I don’t see an issue when I look at residential-related real estate warehouses, logistic properties, self-storage assets, and data centers.

Demand is high, vacancies are low, and rents are stable.

The property owners in these segments of the CRE market may have to pay higher rates to roll over maturing debt, but there will be little of a problem passing at least some of the costs onto tenants.

Everyone is talking about the fact that Blackstone Inc. (BX) and Starwood Capital have had to limit withdrawals from their closed-end commercial real estate funds. It seems that high-net-worth investors and institutions wanted to take cash out.

Both funds have monthly and quarterly withdrawal limits to prevent selling properties at the wrong time.

It makes a statement of the opinion of investors about real estate but says nothing about valuations or the finances of real estate companies.

No one is talking about the fact that Blackstone just closed on one of its largest institutional real estate funds of more than $30 billion. The fund will be investing in CRE segments like logistics, rental housing, hospitality, lab office, and data centers.

Starwood just closed a $10 billion fund and has been investing in single-family homes and logistics properties, and hotels.

Increasingly publicly traded real estate-related investments reflect all the potential negatives and then some for real estate over the next year.

Let me be clear that it will get bumpy.

There will be a recession at some point. I have been saying that for over a year, and now even the Fed agrees with me.

The headlines will continue to be negative because negative sells.

The prices of real estate-related equities are going to be very volatile. I expect to see wild swings in both directions.

The swings create the opportunity.

Buying real estate securities on the down sings will plant the seeds of a fortune to be harvested several years down the road.

On Thursday, we will start to look at real estate companies that have the financial strength to survive the volatility and provide patient-aggressive investors with massive gains.
Check out the picture on the next page. It’s a beat up building that would’ve turned $25k into $4.1 million. It’s not a real estate play. Actually, with the Fed raising rates, it’s the best asset to buy right now. View this beat up, millionaire-making asset.

With the fall of Silicon Valley Bank, the financial news media has remained focused on finding the next “crisis” of the day.

The so-called banking crisis petered out after a couple of weeks, but that didn’t stop the pundits from using it to proclaim that commercial property values and commercial mortgages would be the next problem for the banking industry.

Let’s dig in – and find the opportunity…

Here is how the story goes:

An article in Bloomberg last week noted that a $1.5 trillion “Wall of Debt” is approaching for commercial property owners. As a result, office and retail properties may fall by as much as 40%.

The crisis theory involves owners being unable to refinance because their property values have fallen. Also, lenders—mainly local and regional banks—may be in trouble when property owners default on commercial mortgages.

There are several fallacies to the argument. Bloomberg states that $1.5 trillion of commercial mortgages will mature between now and the end of 2025. But property owners will start lining up new financing many months before their current loans mature. You won’t see banks out repossessing commercial properties because the owner made the last payment and didn’t plan ahead.

The article also focuses on office and retail properties. For both of these types of real estate, there is a tremendous range of quality or status and location. A Class-A office building in Miami will not decline in value, and an owner will have lenders lined up at the door to offer terms on a new loan. And yet a Class-C office building in San Francisco may soon lack tenants as work-from-home policies remain the norm.

There exists a wide range of commercial property types. Hopefully, lenders in the space have spread their risk across different types of properties. For example, here is the breakdown for the commercial loan portfolio of Starwood Property Trust (STWD):

There is a risk that regulators may tighten lending and asset standards for banks. Smaller local and regional banks would be the most affected. Smaller banks have provided 30% of the credit for office properties and 46% of the financing of retail properties.

Challenges for a specific group of lenders, in this case, smaller banks, provide opportunities for less regulated sources of real estate financing. Over the last month, the commercial mortgage REIT stock prices have fallen along with bank share prices. These REITs have excellent long-term track records, and I would expect them to take advantage and thrive in a credit-challenged real estate market. Here are three to research:

Starwood Property Trust (STWD) is currently yielding 11%.

Blackstone Mortgage Trust (BXMT), paying 14.5%.

Arbor Realty Trust (ABR), with a current yield of 15%.

I recommend two of these three to my Dividend Hunter subscribers. See below on how to join.

The global transition away from fossil fuels in favor of low carbon energy sources is accelerating. In 2022, a little more than $1 trillion was invested in new technologies such as renewable energy, energy storage, carbon capture and storage, electric vehicles, and more.

Not only is this a new annual record amount, but—for the first time ever—it matches the amount invested in fossil fuels, according to Bloomberg New Energy Finance (NEF).

However, at the same time that copper demand is growing due to the energy transition, the global supply pipeline is running thin, due to shrinking exploration budgets and a dramatic slowdown in the number of new deposits discovered, as well as the quality of those deposits.

That’s why—after a long period of relatively small deals—large mining mergers and acquisitions deals focused on copper are back in a big way.

Here’s the ones to look at…

Mining M&A

The latest salvo came from mining giant Glencore PLC (GLNCY), which announced on April 4 an unsolicited $23 billion offer to buy Canada’s Teck Resources (TECK). If the offer is accepted, it would create the world’s third-largest copper miner, producing 1.4 million tons of the metal a year.

On April 11, Glencore sweetened its offer. Under the revised proposal, it has offered to pay a cash element that could amount to $8.2 billion to buy Teck shareholders out of their stake in a coal-focused spin-off, while also granting them a 24% stake in a separate industrial metals business that would be created off the back of the deal.

“Glencore acknowledges that certain Teck investors may prefer a full coal exit and others may not desire thermal coal exposure,” the company said in a statement. As such, the revised offer allows investors to choose cash instead of shares or a combination of both in the coal spin-off. However, the valuation of the total offer remains the same as the original bid, at about $23 billion.

Glencore is hardly alone in its interest copper. The M&A spree extends to the $6.5 billion bid for Australia’s Oz Minerals by BHP Group Ltd (BHP), the recent takeover of Turquoise Hill by Rio Tinto PLC (RIO), and the Newmont Mining (NEM) unsolicited $17 billion offer for Australia’s Newcrest Mining (NCMGY), which was raised to $19.5 billion on April 11.

Under the terms of the revised Newmont offer, Newcrest shareholders would also get some cash. This would be a special dividend of $1.10 a share, worth almost $1 billion in total. Newcrest investors would also get a bigger share of the combined company. Newmont is offering 0.4 of its own shares for each one they hold, up from 0.38 at the previous attempt.

All these deals have something in common: copper. The world’s need for copper is driving this surge of interest from miners, all of whom anticipate a shortage later this decade, and have plenty of cash to put to work after years of high profits.

As we seek to electrify everything, from power generation to transportation to heating (heat pumps), copper is the one material that’s used everywhere in the energy transition. Copper’s essential role in electrical wiring, grid infrastructure, wind turbines, and electric vehicles makes it indispensable for the energy transition.

Demand for copper could rise to 40 million tons a year by 2030, up from 25 million tons a year in 2021, according to estimates from S&P Global. Given that it takes up to a decade to open a producing copper mine, the coming shortfall is inevitable.

However, much of the world’s most accessible, high-grade copper deposits have already been mined. The stark reality was laid out by S&P Global, which stated that most of the copper that’s being produced currently comes from assets that were discovered in the 1990s!

That leaves relatively few high-quality copper resources still available, with the easiest way to find such resources on the stock market and not through exploration. That has led to fierce competition among the major miners for these dwindling resources.

BHP Group

Among the major miners, my top choice remains BHP Billiton. The company mines copper, silver, zinc, molybdenum, uranium, gold, iron ore, as well as metallurgical and thermal coal. It also is involved in mining, smelting, and refining of nickel and potash production. Most of its revenues come from assets in the relative safe havens of Australia, North America, and Europe.

To say the least, the company—the world’s biggest mining company, as measured by market capitalization—is doing quite well.

Adjusted free cash flow in fiscal year 2022 totaled $24.3 billion (a new record year) and up from the previous record of $19.4 billion, set in the 2021 fiscal year. That has allowed BHP to pay down its debt—net debt of $333 million, as of June 30, 2022, is down from more than $20 billion in the 2016 fiscal year.

This puts BHP in a position to weather economic cycles—especially since its generally low-cost, high-quality assets mean the company is one of the few miners that can remain profitable through the commodity cycle.

Despite weak output from its flagship Escondida mine in Chile, BHP management maintained copper guidance, given the strong performance of the company’s other copper mines. BHP’s copper division accounts for about 20% of the miner’s forecast earnings.

The company is paying a fair price for Oz Minerals. And with net debt of about $7 billion—around 0.2 times its EBITDA (as of the end of December 2022), BHP can easily afford the $6.6 billion price tag for Oz Minerals.

BHP’s offer is a bet on copper as well as nickel, with continued confidence in Australia’s relatively stable geopolitics. The deal will also offer BHP a pipeline of growth opportunities.

Oz Minerals’ Prominent Hill and Carrapateena mines are both close to BHP’s Olympic Dam mine (the world’s fourth-largest copper deposit and the largest known single deposit of uranium) and Oak Dam prospect, opening up the potential for synergies with infrastructure. And Oz’s West Musgrave nickel and copper project in Western Australia is under construction. It will likely supply nickel to BHP’s Nickel West operations once fully ramped up later this decade.

BHP shares have rallied by 17% over the past six months. I expect more to come. While its dividend will not be as massive as it had been over the last year or two, BHP will still treat shareholders generously. The current dividend yield of 8.8% is nothing to sneeze at.

The stock can be bought anywhere in the low $60s per share.

I put out calls to traders and managers I know on Wall Street to get their take on the recent economic data.  This is data the Federal Reserve also uses to make decisions… And they told me some surprising things.  One of them being that bond yields look as if they’re about to collapse. We