Until Tuesday's rout, U.S. investors were feeling pretty good about life. The economy seems to be picking up on the margin, corporate profits are high, and Warren Buffett is telling everyone to believe in America.
Raymond James strategist Jeff Saut captured the zeitgeist last week when he quoted from the book Abundance: The Future Is Better Than You Think, written by Peter Diamandis and Steven Kotler. He specifically cited the part their discussion of the future growth that will be driven by new "artificial intelligence, robotics, infinite computing, ubiquitous broadband networks, digital manufacturing, nanomaterials, synthetic biology and many other breakthrough technologies." Saut went on to pull a quote from Forbes magazine, which optimistically notes, "Over the next decade three billion new voices will join the global conversation. What will these people desire? What will they create?"
My short and optimistic answer for that is: These folks will have massive demand for the little luxuries in life that we take for granted, such as better food, power, automobiles, better housing and travel. Of all the long-term themes one can bet on in the markets, this one seems like a safe one. If you believe it, the best place to play it is with a sector involved in a resource that "they ain't making anymore."
To tap into the outlook for the resources sector, last week I attended the BMO Global Metals and Mining Conference in south Florida. The BMO conference is a premier event in the space, with hundreds of companies presenting to at least 1,000 or more investors. There is no better event to gauge the health and outlook for key mining companies.
The conference was heavy on gold names, since the sector itself is dominated by them, and the consensus view was that the miners cannot continue to underperform the metal itself. The robust pricing is going to flow through results in the coming year, boosting the group. For instance, Newmont (NEM) pointed out its ability to boost production 35% over the next half decade, while still paying out a healthy 2% dividend and maintain a strong balance sheet. New discoveries for Barrick Gold (ABX) in Nevada, plus the imminent construction of several additional mines, could boost Barrick's production by 1.5 million ounces a year. Goldcorp (GG), meanwhile, expects to increase production by nearly 70% in the next five years.
Away from gold alone, Rio Tinto (RTP) management reiterated the overall emerging-markets theme, noting that those economies will drive near-term and long-term growth. Rio has $33 billion of projects under way, and generated nearly $30 billion of earnings before interest, taxes, depreciation and amortization in 2011.
Coal miner Teck Resources (TCK) pointed out that Asian urbanization is driving demand for steel, which require the high-quality coking materials that make up most of Teck's production. Toronto-traded MBAC Fertilizer highlighted the food angle, as fertilizer is a key component to increasing agricultural productivity in the years ahead. Of course, U.S. investors can play that angle via Mosaic (MOS) or CF Industries (CF).
No matter how what angle you pursue, the general theme of owning resources is a solid one for the years ahead.