Jim Rogers is predicting a depression.
Rogers is one of the smartest investors in the world. He's made billions of dollars investing in commodities and emerging markets over four decades. He believes the U.S. is on the verge of another 1930s market collapse.
Billionaire investor Warren Buffett said stocks are on sale. He backed this claim – buying IBM, Dollar General, and shares in his own company, Berkshire Hathaway last quarter. That's the first time Buffett bought stock in Berkshire since taking over the company more than 40 years ago.
Bob Doll, chief investment strategist at BlackRock, which has over $3 trillion in assets under management, said low labor costs and technology will allow companies to maintain high margins. In other words, corporate profits will remain strong in 2012.
Famed value investor Jeremy Grantham, who has a history of predicting major market turns, disagrees. Jeremy said, "The implication for the stock market is ugly." He predicts corporate profits will get hammered as margins revert lower to their historical norms.
In my 15-year career, I've never seen so many respected gurus have such diverse opinions about the markets. It's leading to incredible uncertainty among investors.
In uncertain times, you want to invest in the surest thing possible. Of course, that could mean placing your money in safe-havens like cash or Treasurys. But when factoring in inflation, investors will lose money over the long term.
I'd rather buy the "picks and shovels" plays in the natural gas industry. These are the companies that provide services like fracking, coil tubing, and cementing for international oil companies (IOCs).
According to research firm Barclays Capital, IOCs spent an average of $440 billion annually over the past three years to find new oil deposits and upgrade existing operations. The average annual growth over the past two years has been 10.7%.
|
2009 |
2010 |
2011 (estimate) |
2012 (estimate) |
| Total Spending (IOCs) |
$400B |
$439B |
$490B |
$540B |
| Percent Increase |
– |
9.8% |
11.6% |
10.0% |
Barclays has not come out with its official forecast for 2012. That's because some IOCs have yet to release their capital expenditure (cap-ex) budgets. However, I'm sure it will be well above $500 billion.
Large-cap oil companies have to make big investments to replace depleting reserves.
If we assume the growth rate will remain roughly 10% from this year to next, it gets us to $540 billion in cap-ex spending in 2012. And based on recent comments from ConocoPhillips, ExxonMobil, and Chevron, most of their cap-ex is going toward natural gas development.
That's great news for companies like Canyon Services Group (TSX: T.FRC, Stock Forum) and Trican Well Service (TSX: T.TCW, Stock Forum). These are two of the largest pure-play fracking-services companies in North America. (They both trade on the Toronto exchange.)
Right now, business is booming. Both companies recently reported record results. Plus, the recent "risk off" drop in the market caused each stock to drop more than 30% from its high.
I think these companies will have a huge year. Not only are they dirt cheap based on growth and valuation... their industry is being funded by cash cows that need to spend money to find new deposits, no matter how terrible the outlook for Europe, the U.S., and Asia.
Many IOCs have tens of billions in cash on their balance sheets. In other words, they don't have to borrow money to fund growth. Given the debt crisis we are seeing in most developed nations, that's a significant advantage.
Based on the fantastic risk/reward setup, this is one of the few areas I feel certain about investing in for an uncertain 2012.