Barron’s had an interview with the 74 year old commodity guru. I found that what he is advising is basically the path that I have been following for the last half year through GuruFocus. Neither of us will know if we are right for a few years, but the similarities are interesting.
Here is the full article:
http://online.barrons.com/article/SB50001424052970204076004575616732996960188.html#articleTabs_panel_article%3D1
Here are a few areas where Coxe and I overlap directly:
Coxe on Demand For Oil Coming from More Countries Than Just China
“So the demand from developing countries like China is keeping a floor under global demand for commodities?
http://www.gurufocus.com/news.php?id=105594
Coxe on Agricultural Supply Issues
“For all of my lifetime, there had been surpluses of the basic grains; I'm speaking of corn and wheat. The government had tried to get rid of the surpluses; it paid farmers not to grow crops. But we don't have any grain surpluses anymore, and we haven't for years. So if something goes wrong, as it regularly does, prices spike very quickly. There was a crop failure earlier this year in the Eastern Europe and Russia, and that pushed the price of wheat up about 50%. In commodities, a small change in the output or a small increase in demand can produce big price increases, because there is just not a big underlying surplus of production. It's not like computer chips.”
My Article Recommending Sprott Resource Corp Building the World’s Largest Farm
http://www.gurufocus.com/news.php?id=109640
Coxe on Investing in Canadian Oil Sands
“Why else do you prefer to invest in commodity-related companies, rather than commodities directly?
ExxonMobil [ticker: XOM] lost more than one-quarter of its reserve-life index for oil, because of what happened to it in Russia and Venezuela [whose governments essentially forced the company out of major energy projects]. There are so few good secure reserves. But Alberta oil-sands companies have 75 years of potential reserves, and they are secure. They aren't worried about a government coming along and looting it from them. Another thing to consider is that if we have another stock-market crash, some well-financed company is going to want to buy your assets. Maybe it will be a sovereign-wealth fund or whatever. So you have an asset that is worth something, because it is something people have to use, and so this is really a much more secure kind of investment. The reason commodity stocks got a bad name in the past was because they were so cyclical. This is the first time we've had a major crash and the underlying consumption rates have fallen only a bit, thanks to the tremendous growth in Asia and Latin America. The good commodity companies with secure reserves are the new blue-chip investments.
Name some of the commodities companies that you like.
Suncor Energy [SU] or Canadian Oil Sands Trust [COSWF]. They will be producing oil for at least 70 years in the same location. You can't say that about ExxonMobil, which has an adjusted reserve-life index for oil of about 11 years.”
I’ve Recommended Several Companies With Oil Sands Exposure
Petrobank
http://www.gurufocus.com/news.php?id=114412
Penn West
http://www.gurufocus.com/news.php?id=110410
Canadian Oil Sands Trust
http://www.gurufocus.com/news.php?id=105162
I'm not sure I'm helping myself by reading an article in which someone is basically on the same page as I am with respect to where to look for investment opportunities. I'm sure I'd be better served by reading the thoughts of someone with exactly the opposite view. In this instance I did find it interesting how closely my thinking is aligned with someone with much more experience than I have.
I maintain that most oil companies today are not priced for a world of $70 to $90 oil and that many of them make excellent investment opportunities if this turns out to be the price range for a few years. In the near future I believe Saudi Arabia has enough spare capacity to make the price of oil whatever they want it to be. Note that they quickly tightened up after the credit crisis and got oil back up from $30 to where it is today. With a few more years of demand growth from Asia and a few more years of declining rates of production from the super giant oil fields this spare capacity will be gone and so will this $70 to $90 price range.
