If you’re a resource stock owner, you know last week was brutal…
Crude oil fell 9%. Copper fell a stupendous 15%. Even gold – which has been the strongest resource this year – fell 7%. These drops led to tremendous selloffs in even the biggest and best names in resources.
Top producers Freeport McMoRan (largest public copper miner), Cameco (largest public uranium miner), Peabody Energy (largest U.S. coal company), and Suncor Energy (huge oil sands producer) plummeted to new 52-week lows.
[ad#Google Adsense 336×280-IA]But a little-known commodity investment I’ve written about constantly over the past two years has, amazingly, “sailed” through the selloff. This investment pays reliable income… and is so beaten-down from its highs, it can hardly fall any lower.
I’m talking about natural gas income trusts…
Income trusts are collections of oil- and gas-producing properties. They enjoy a tax status similar to REITs, which means they can pass most of their income on to shareholders in the form of “distribution” payments. The beauty of owning a natural gas trust is that it will pay you to wait on strengthening gas prices.
In March 2010, natural gas was in “super-cheap” territory compared to oil. It couldn’t go much lower. So I introduced a handful of natural gas income trusts that were all paying double-digit dividends.
One of the trusts I mentioned was San Juan Basin (SJT). If you bought then, you’ve received over $2.12 in dividends. That’s 11% in dividends alone so far. The share price is up 20% as well. So the total return on San Juan Trust is 31%.
Not bad, especially considering natural gas prices are down slightly during that 18-month stretch. That’s the power of buying cheap commodities.
Let’s look at how that compares to buying “pricey” commodities. By March 2010, oil had run up from about $35 a barrel to $80 in 12 months. Here’s how some of the big oil investments have performed since then:
All of these oil companies have also experienced massive volatility. Investors and funds flocked to them as oil prices rose, only to bail out spectacularly as oil prices fell recently.
Our natural gas investment barely flinched. It just kept sending us checks. That’s exactly why we invest in cheap commodities. When we’re sitting at the bottom of the curve, our downside risk is limited.
This oil correction is putting oil and oil stocks back in the “cheap and beaten-down” column. We’ll be loading up soon. Until then, keep cashing your natural gas paychecks… You’ll need that capital for the deals that are coming.
Good investing,
— Matt Badiali
[ad#jack p.s.]
Source: The Growth Stock Wire