This afternoon at the 65th Chartered Financial Analyst (CFA) conference in Chicago, Donald Coxe took to the stage to discuss a variety of commodity plays, including oil, natural gas, gold, uranium, rare Earth metals and agriculture. Donald is a leading resource on commodity investment and is the head of Coxe Advisors LLP and a key strategic advisor for Bank of Montreal (NYSE:BMO) BMO Financial Group.
First, in regards to oil, Coxe remained somewhat bullish on this commodity, although perhaps not as much as on commodities that followed later in his discussion. Describing current conditions in Western Canada as temporary and political in nature, Coxe suggested that certain oilsands plays could be bought cheap. Some examples of these would include firms such as Suncor Energy Inc. (NYSE:SU), Cenovus Energy Inc (NYSE:CVE) or Canadian Oil Sands Ltd (NYSE:COS), though he was hesitent to name any specifically. He described current price discrepancies between Canadian heavy oil prices and West Texas as constructs of pipeline and political decisions, and these could be quickly modified. Further, his belief in long reserve lifespans suggests oil sands firms are ideal investment opportunities, as they generally have greater than fifty years of reserves in the ground.
Mr. Coxe also made some interesting comments regarding natural gas. His belief on current market dislocations in North America is that this is caused somewhat by the major firms attempting to acquire junior assets at a discount from future potential. He did make the comment during his discussion that oil and natural gas would return to the six to one ratio that is current used for financial reporting purposes, which is clearly a bullish sign for natural gas when it is currently trading at more than forty to one.
In terms of gold prices, Coxe remains bullish. His particular take is similar to many others, runaway monetary policy will eventually drive debasement of currencies and therefore send gold higher. However, he believes the best way to play further increases in gold is not through ETFs like SPDR Gold Trust (NYSE:GLD) or ETNs, but rather by investing in gold producers. Coxe indicated that he believes these firms are trading at substantial discounts in terms of P/E compared to their historical levels and where he belives they are fairly valued. Firms like Barrick Gold Corporation (ABX) and Goldcorp Inc. (NYSE:GG) are two of the largest players, and have the high quality operations that Coxe looks for.
Unfortunately for investors currently with uranium positions, Coxe is less bullish on this commodity. He believes the psychological barriers established by the media in their coverage of the unfortunate disaster in Japan will forever hamper any future development of nuclear power in the developed world. While he seems to be a believer in nuclear energy as a technology, he suggests raising billions to construct these plants will simply be impossible due to political concerns going forward.
Finally, Coxe closed with his comments on rare Earth metals, and he had some bearish views there. He indicated that it would be easy for China to ramp up production of this commodity if they so wished to do so. The implication here is that there is a potential cheap future supply if Western firms ever really ramped up pressure, which would immediately erode the commodity price. Accordingly, Coxe wasn’t too favourable to this area of investment.