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Tungsten: Under Appreciated And Incredibly Valuable

Summary Tungsten is a valuable and under appreciated commodity. Tungsten has certain properties such as durability, a high melting point, and extreme hardness that allow it act as an unparalleled resource in manufacturing. Currently Tungsten supply is diminishing and will likely experience a price hike. Introduction In the midst of environmental concerns and resource scarcity, one valuable commodity often goes overlooked. Generally when people think of diminishing resources, their minds wander to gold, oil (or somewhat recently with California) water. Interestingly, there are dozens of valuable and economically important resources that are getting extracted at unsustainable levels. I will include a link here . I will also spend time (in separate articles) discussing each commodity, its current condition, and its future economic impact. I have already discussed the importance of lithium (particularly in regards to the rise of lithium-ion batteries and consumer electronics). Today I will discuss, what I believe to be, an economically, militarily, and geopolitically essential commodity. The resource I am talking about is the underappreciated metal Tungsten. What is Tungsten? Tungsten is one of the hardest and most durable substances on Earth. Its MOHR’s hardness level falls only beneath diamonds. Tungsten is only economically exploitable in a few specific regions (which I will get to in a minute) due to the geologic conditions necessary for its formation. It can be manufactured into incredibly durable products. Tungsten’s value comes from its hardness. Tungsten is virtually immune to corrosion, and it has a very high melting temperature ( 3,422 degrees celsius ). From the mid-19th century to the mid 20th century, Tungsten was study and utilized as an alloy to improve steel making processes. It was unrivaled until WW2 when supply shortages caused countries to look for alternatives. In some capacity, Molybdenum, Chromium, Corundum, Vanadium, and Nickel were/are utilized as alternatives or additives to tungsten. Tungsten still remains a crucial part of steel making, and the aforementioned metals also have their own supply issues. Formation The formation of economically viable tungsten deposits is related to the intrusion of granites during the formation of mountain ranges (orogenic process) resulting from colliding tectonic plates. Tungsten gets enriched during granite crystallization, and can form a pegmatic tungsten deposit from the last bit of granitic melt. It is released into a hot hydrothermal fluid. Uses for Tungsten Here are a few highly useful sites for studying tungsten: here & here & here . Tungsten is used in the filaments of incandescent light bulbs. Tungsten can also be made into tungsten carbide (a tungsten/carbon compound), which is essential in creating cutting tools, industrial machinery, armor-piercing rounds, abrasives, jewelry, and other assorted tools and instruments. Tungsten’s high melting point allows it to be utilized in arc wielding electrodes and forging processes. Tungsten is also important to the petroleum industry for drill bit manufacturing. Recycling Efforts Based on present and projected tungsten production and usage and maximum recycling efforts, the world will run out of tungsten by 2300. This chart assumes tungsten is recycled to its full-extent and does not take into account future economic factors, pricing, innovation, need, etc. A visual example of diminishing returns. Tungsten World Supply & Regional Concentration According to British Geologic Survey tungsten is one of the most at risk metals on Earth, and look who the leading producer is. Tungsten is most heavily concentrated in notoriously anti-U.S. regions such as China and Russia. While there are some notable reserves in the United States, there is simply not enough tungsten in the U.S. alone to match demand. 83.3% of production comes from China. Regional conflict could affect the inflow or pricing of tungsten. The U.S. imports the vast majority of tungsten, and the U.S. relies on trade deals with China (which could be affected by geopolitical factors). Who is Affected Most & How to Invest Any manufacturer that relies on tungsten will shoulder a cut into marginal profits from a commodity price hike. As economically extractable supply diminishes, miner’s will be forced to raise rates and increase prices to compensate for the additional cost of extraction. Sectors and companies that rely on tungsten include: Defense: Lockheed Martin (NYSE: LMT ) Boeing (NYSE: BA ) Orbital ATK (NYSE: OA ) General Dynamics (NYSE: GD ) iShares U.S. Aerospace & Defense ETF (NYSEARCA: ITA ) Steel: Market Vectors Steel ETF (NYSEARCA: SLX ) U.S. Steel Corporation (NYSE: X ) Solar Energy: Guggenheim Solar ETF (NYSEARCA: TAN ) First Solar (NASDAQ: FSLR ) Drill bit Manufacturers: Schlumberger (NYSE: SLB ) National Oilwell Varco (NYSE: NOV ) Halliburton (NYSE: HAL ) How to Invest It is difficult to invest directly in tungsten. There are a variety of penny stocks, “golden opportunities”, and other risky money losers out there. Instead I will offer a few indirect plays to consider. Examples of Penny Stocks I’m not going to bother analyzing them because I think they’re all bad plays. Forgive me for not dealing with penny stocks. The Safest Idea for Investing in Tungsten The Market Vectors Rare Earth/Strategic Metals ETF (NYSEARCA: REMX ) is the best option I could find for investing in tungsten and rare earth metals. Historically, as technology and extraction methods have improved, REMX has seen a decline in price from increased supply. As tungsten supply continues to diminish, prices should start to increase dramatically in the long run. I believe this will occur once total extraction exceeds total remaining supply (roughly 2021). I prefer the ETF format because it helps reduce investing risk through diversification. REMX data by YCharts REMX REMX is designed to give investors a means of tracking the performance of publicly traded companies engaged in a variety of activities that are related to the mining, refining, and manufacturing of rare earth/strategic metals. It does not necessarily directly track commodity pricing, and it is considered an indirect investment in tungsten. REMX is a small-cap ETF with 42.71 million in total assets and an SEC yield of 0.81%. I personally feel rare earth metals are in decreasing supply and invaluable in today’s economy. However, it should be noted that tungsten is only one part of REMX’s overall holdings. REMX does not specify how much it of the portfolio is based on tungsten, tungsten is named as one of the top four materials including: cerium, manganese, titanium, and tungsten. 95% of REMX is allocated in basic materials, giving it more of a pure play into the rare earth metals market. REMX is internationally diversified as well, and its primarily regional focus is China (22%). Conclusion Tungsten is a valuable commodity that is diminishing in supply. Tungsten has unique properties that make it an invaluable resource in today’s economy. It is possible to capitalize on a market inevitability through buying tungsten exposure. It is important to avoid undue risk inherent in penny stocks with low AUM, so consider a larger mining ETF with indirect tungsten exposure. Images Citations: roperld.com British Geological Survey USGS.gov Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Wall Street Lunch

Summary A mid-day update on arbitrage, event-driven opportunities, and value. Details of price changes and progress on POM, TWC, and DTV. In each case, there are still double-digit returns available. Lunch is for wimps. – Gordon Gekko Arbitrage Here are my collected thoughts on arbitrage, wandering from the academic to the practical definitions, with a heavy dose of the middle ground. The definition is indeed a tortured one. However, in both its strong and weak forms, the idea focuses on the key to investing: mispricing. In the recently launched Sifting the World , arbitrage will be a major focus. What arbitrage opportunities are available today? *Available as of today. The word “arbitrage” in academia means “certain profits,” whereas in practical investing, arbitrage often means “a trade we kind of like.” Some in the industry adhere to a perhaps reasonable middle ground: that arbitrage is not riskless, but unlike much of investing, it involves going long and short very similar securities and betting on a price difference. I can live with that. But it is clear that many use it in the loosest sense and, therefore, strip it of its meaning. – Cliff Asness Dresser-Rand / Siemens Update DHR has returned 4% since the last update. (click to enlarge) The buyer completed a $7.7 billion note placement as a component of the acquisition financing. The EU review is going well and is likely to result in approval this summer. Pepco / Exelon Update POM has returned over 8% since I last discussed it. (click to enlarge) Since then, it has remained an attractive long opportunity with a positive expected value. I have not added to my position, but I am holding onto it. From the outside looking in, this situation involves a lot of political noise. From the inside looking out, it is a negotiation like any other. There is a regulatory cost that needs to be paid, and both the applicants and the regulators have preferences on what that cost would be. The difference was surmountable. In the Maryland PSC approval, the commission majority split the difference with an order that was acceptable to both sides. Subsequent to the Maryland PSC approval, the deal was also approved in Delaware. Additionally, EXC completed its five-tranche $4.2 billion senior notes acquisition financing through Barclays (NYSE: BCS ) and Goldman Sachs (NYSE: GS ). Time Warner Cable / Charter Update TWC returned over 30% since I first discussed it. (click to enlarge) It remains a safe position; I still have $13 million of TWC, based on confidence in the current deal. DirecTV / AT&T Update This position is up over 5% since the last update. (click to enlarge) The parties appear to be progressing towards regulatory approvals later this summer. Event-Driven Event-driven, my wife was sorry to learn, is not used in the same sense as event planning. It involves few parties or cocktails in the backyard. Instead, the ones I focus on tend to involve: Mutual conversions Odd lot tender offers Merger securities Squeeze outs Here is how it worked out so far. I am thrilled that Seeking Alpha’s exclusive research program will include several such authors. Value Value is like honesty and fidelity – few people own up to being in the opposite camp. Also, like honesty and fidelity, talking about it a lot does not make it so. The core of value investing is thinking about securities as pieces of a business, valuing that business, and then underpaying for it. The remaining problem involves finding a counterparty with something at stake besides the same value that you are trying to capture. Today, my favorite values include this and this . Conclusion Arbitrage, event-driven, and value are often categorized separately, but I think of them as points on a spectrum. In the case of arbitrage, the investment opportunity has an explicit process for unlocking value. In event-driven opportunities, there is still a catalyst, but it is somewhat less explicit and there is greater variance in the outcomes. Value investing has the greatest range in outcomes. However, successful value investing frequently results in securities becoming targeted by M&A and other corporate events. These events often unlock value, whether or not that was explicitly part of the original investment thesis. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: The author is long TEG, POM, IGTE, HE, TWC, OWW, OVTI, BRLI, ODP, BHI, DTV, PRGO, KRFT. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

After Earnings, How Are Oil Service ETFs Looking For 2015?

The oil price slide, which started to hit global headlines in the second half of 2014, has reached such an alarming stage that investors are fervently looking out for the earnings performance of the oil service companies before passing their verdict on investment in energy stocks. The return of worries in the Euro zone, poor data points from Japan and China and no production cut led the commodity to plummet about 60% over the past six months. Presently, oil prices are hovering around five-and half year lows raising uncertainty among producers and forcing them to adopt cost-cutting measures. Though oil price is arguably yet to hit a bottom, the Zacks Industry Rank for the said space is not. Presently, it is in the bottom 9%. Thanks to this outright bearish backdrop, the sector tops investors’ attention list this earnings season as all will be interested to know the direction of oil flow. Let’s delve a little deeper into the earnings and see how things are shaping up for the space. In this piece, we have considered three stocks, namely – Baker Hughes Inc. (NYSE: BHI ) , Schlumberger Ltd. (NYSE: SLB ) and Halliburton Company (NYSE: HAL ) . Among the trio, Schlumberger reported its earnings on January 15 followed by Baker Hughes and Halliburton on January 20. Results in Detail Halliburton – the second largest oil service company – came up with earnings and revenue beat in Q4. Earnings of $1.19 per share from continuing operations beat the Zacks Consensus Estimate of $1.11. Halliburton’s revenues of $8.8 billion reflected a 15% year-over-year improvement and 0.1% beat over the Zacks Consensus Estimate. Shares were up 1.79% in the key trading session following the declaration of results. Improved stimulation work in the U.S. and drilling operations in the Middle East/Asia region led to the beat despite the oil price carnage. Baker Hughes ‘ adjusted earnings from continuing operations of $1.44 a share beat the Zacks Consensus Estimate of $1.08 and improved from the year-ago figure of $1.02 per share. Its revenues of $6.64 billion grew 13.0% and surpassed the Zacks Consensus Estimate of $6.38 billion. BHI too added about 1.24% following the release. Schlumberger – the world’s largest oilfield services provider – came up with a mixed Q4 by reporting adjusted earnings of $1.50 per share (excluding special items), which edged past the Zacks Consensus Estimate of $1.47 and the year-ago number of $1.49. However, the total revenue of $12.6 billion expanded 6.2% year over year but fell shy of the Zacks Consensus Estimate of $12.7 billion. Still, SLB has advanced more than 6% following its results only to slide 1.05% on January 20 as the company decided to slash 9,000 jobs . However, this is not something new for an oil producer, as HAL and BHI are considering such measures too. Market Impact The space got mixed signals thanks to varied performances. The merger between Halliburton and Baker Hughes as well as decent earnings have gone in favor of the companies as this would help the duo to withstand the current slump more efficiently. While a single stock pick is always an option to play earnings, we could see a deep impact on ETFs that are heavily invested in these popular oil service companies. Notably, the ETF route will help investors to mitigate one company’s average performance with the other company’s stellar results. Below, we have highlighted three oil-services ETFs with considerable allocation to SLB, HAL and BHI that could be in focus following oil-service earnings: iShares U.S. Oil Equipment & Services ETF (NYSEARCA: IEZ ) This ETF – tracking the Dow Jones U.S. Select Oil Equipment & Services Index – invests about $336 million of assets in 53 securities, focusing solely on the energy world. In-focus SLB takes up the first position here with 21.1% of holdings. Generally, when one stock accounts for as much as 21% of an ETF’s weight, its individual performance decides much of the fund’s price movement. HAL takes up the second position with about 9.3% of total assets while BHI gets the fourth position with about 7.4% share. The fund lost about 7.9% in the year-to-date frame (as of January 20, 2015) thanks to the recent energy equity sell-off. However, following the release of the earnings by the trio, IEZ has added about 4.3% (as of January 20, 2014). IEZ is a cheaper fund, charging 0.43% for its expense ratio. The fund has a Zacks ETF Rank #4 (Sell) with a High risk outlook. Market Vectors Oil Services ETF (NYSEARCA: OIH ) OIH tracks the Market Vectors US Listed Oil Services 25 Index. The index invests $978.0 million of assets in 26 holdings. OIH devotes as much as 19.7% of the portfolio weight to SLB, followed by 11.6% in HAL. BHI gets the fourth spot with about 5.38% of the total allocation. OIH is cheap in the space with an expense ratio of 0.35%. The fund is down about 7.8% so far this year (as of January 20, 2015) but has returned more than 4.3% since January 15. OIH has a Zacks ETF Rank #4 with a High risk outlook. PowerShares Dynamic Oil & Gas Services Fund (NYSEARCA: PXJ ) This product offers exposure to 30 energy stocks with BHI, SLB and HAL at the first, second and third positions, respectively, allocating more than 5% of total assets to each. PXJ tracks the Dynamic Oil & Gas Services Intellidex Index and has amassed about $56 million thus far. The ETF charges 61 bps in fees, so it is a bit more expensive than some of its counterparts in the space. The fund has added about 3.8% following the earnings release of the three companies, but has lost about 10% year to date. PXJ has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.