Make This Trade For Astronomical Profits

Watching stock market volatility has become quite interesting the last few weeks. I’m not talking about watching the actual day-to-day VIX moves, they’ve mostly been boring. Instead, I’m referring to how the VIX has been moving in relation to what’s going on in the world.

In other words, I find investors’ reaction to major world news items to be… quizzical. There simply doesn’t seem to be a lot going on, well, anywhere, which is cause for concern among stock investors.

At first, it seemed like the nuclear threat from North Korea was going to be a source of higher VIX levels for the foreseeable future. However, traders soon brushed off the harsh rhetoric between the US and North Korea. And, even threat of nuclear war is barely moving the needle in the VIX.

Granted, it could just be that most experts believe the only solution to dealing with North Korea is a diplomatic one. Still, you’d think even the tiniest threat of nuclear annihilation would strike a chord with investors. But fear, it seems, is at a minimum these days.

At least part of the reason volatility remains lower than expected is due to the rampant amount of volatility selling taking place. I’ve mentioned this before, but selling volatility is typically a highly successful strategy. And, it’s become a major source of yield for many traders.

Shorting the VIX is just part of it though. Actual, realized volatility has also been at its lowest levels in recent history. It’s not just the options traders who aren’t concerned – stock buyers (and sellers) are simply not moving the market very much either. It’s been the case for much of 2017.

Still, volatility can become a factor in a hurry. We know from the Financial Crisis of 2008-2009 just how high and fast the VIX can move. It’s never a good idea to totally ignore volatility.  There’s nothing wrong with selling it to make money, but be darn sure you’re ready to buy it if things get dicey.

One massive trader is not convinced volatility will remain low the rest of the year. This trader made a massive bet on higher VIX levels back in the summer – and just recently rolled the enormous trade (originally set to expire in October) to December.

The trade itself is a call ratio spread financed with short puts. More specifically, the trader bought the VIX December 15 call versus two of the December 25 calls, while also selling the December 12 put. The trade was executed for a $0.20 debit, but the trader received a $0.20 credit when setting up the original October trade. In other words, this entire spread was basically done for even.

The really interesting part of this trade is just how huge it was in terms of number of contracts. The call spread was 260,000 by 520,000 contracts, with the puts also selling 260,000 times. That’s a crazy amount of options. If you include the closing/rolling of the October spread, there were 2.1 million options traded in this one gigantic trade – the highest in recorded history.

So what’s the trade mean?

Well, the strategy breaks even with the VIX between 12 and 15 on December expiration. It’s a winner from 15 up 35, with peak gains at 25. Finally, it’s a loser under 12 or above 35. Essentially, it’s a huge bet on higher volatility, or a relatively cheap way to hedge a massive stock portfolio. (By the way, peak gains would be about $250 million.)

As always, if you’re interested in betting on higher volatility or hedging your own portfolios with VIX, there are simpler ways to do so. One example is the December VIX 15-20 call spread, which can be bought for $0.75. Breakeven is at $15.75 and you can earn $4.25 max gain if the VIX spikes to 20 or above at December expiration. That’s over a 5 to 1 payout to risk ratio, which makes it a very cheap way to get long volatility if it spikes higher by the end of the year.

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Source: Investors Alley

When This Chart Changes, All Markets Will Crash

This is a chart of what investors believe inflation will average over the next 10 years. It’s based on what the current interest rates are.

It’s always close to the current rate of inflation. In other words, investors believe inflation will stay about the same.

That’s a surprisingly accurate assumption. Inflation generally does stay within a narrow range.

But when it unexpectedly jumps, like it did in 1968, the stock and bond markets fall.

The Federal Reserve calls this important metric “inflation expectations.” It understands that if expectations are stable, markets are fine.

But if inflation jumps, expectations will jump. The Fed’s goal is to manage expectations.

When inflation jumped in 1968, expectations stayed high for more than 20 years. Stocks suffered four distinct bear markets from the next 15 years. A bear market in this case is a decline of at least 20% in the S&P 500.

If inflation and inflation expectations jump, that will happen again.

Investors will see volatility and declines more often. Consumers will suffer as prices rise at stores. Overall, it will simply be terrible.

And it’s likely to happen within the next few years.


Michael Carr, CMT
Editor, Peak Velocity Trader

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Quick Profits from Renewed Interest in Solar Stocks

Is solar power becoming a lucrative investment again? It seems like solar energy companies have taken a backseat to other, more exciting tech companies over the past few years. However, new energy policies may shift solar back into the… well… light of day.

Currently, solar power only provides about 1% of electricity in the US. However, it is by far the fastest growing major energy source in the country. As technology improves, it is very possible solar (and wind) power could replace fossil fuels as the leading source of electricity generation in the US in the next 10-15 years.

Here’s the thing…

What’s really got solar power investors excited these days is the potential for a tariff to be imposed on imported solar panels. The current administration believes cheap solar panels from foreign countries are hurting the effectiveness of US-based solar companies. As such, a tax on imported panels is being widely discussed as a way to improve domestic competition in the space.

Whether you believe in the use of tariffs or not, one certain consequence of a solar tariff is sales of US manufactured panels will increase. That’s why stock investors are snapping up shares in companies like First Solar (NASDAQ: FSLR), the largest solar company in the US.

As you can see from the chart, FSLR jumped over 5% on the news of a possible solar tariff. Like with many manufactured products, domestic solar companies have trouble competing with panels and other solar tech created in cheap labor nations, like China. Clearly, these companies would benefit from an import tax.

It’s also clear that stock investors believe the benefits of a solar tariff will aid companies like First Solar. But what do options traders think?

Apparently, options traders are not nearly so keen on FSLR’s upside as stock traders. On the same day the stock was up over 5%, 60% of the options trades in FSLR were bearish. In fact, the largest trade of the day was someone purchasing 3,000 October 20th 47.50 puts for $0.92.

That means, with the stock around $51, a trader dropped $275,000 to bet FSLR would be back below roughly $46.50 in the next month. That’s the level the stock was at before any of this tariff talk was taking place.

Why would options traders be so bearish on what appears to be good news for FSLR? First off, options traders can often be contrarian. They tend to take a more measured, longer-term approach to trade theories. While the idea of a tariff sounds good for US solar companies, who knows if and when it will be enacted. Remember the infrastructure spending promises?

My guess is the options crowd is fading the rumor, while the stock crowd is eager to front-run the situation. As an options guy, I normally side with the options traders, but who knows in this case. The stock may dip back down if there’s no movement on the tariff in the next week or so. However, if the tariff talk gains steam, the stock may keep going up.

The one thing I do believe is FSLR is highly unlikely to be sitting at $51 by October 20th expiration. And that’s why I like the idea of buying an options strangle trade here. For $350 you could grab one 50-52 strangle (buying both the 50 put and 52 call at the same time), which breaks even around $46.50 or $55.50.

Either breakeven level is plausible to get to within the next month. And, you don’t even have to guess who’s right between the stock traders and options traders.

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There’s Life in the Oil Patch

Today, we have too much oil on the market. The supply of oil is still well above its five-year average.

In other words, supply is high.

That should keep prices lower. However, Hurricane Harvey could push U.S. supply down … which is good for oil prices.

There is also the risk of a shooting war between major powers. The strength of the words used by both North Korea and the U.S. are fanning the flames of aggression.

It won’t take much of a mistake to cause an international incident. That risk is driving oil prices higher.

You can see it happening in the chart of Brent crude, the benchmark for European oil prices. Brent hit its highest point since July 2015.

The supply of oil is still well above its five-year average. But for the first time in a long time, it’s time to focus on the oil sector.

For the first time in a long time, it’s time to focus on the oil sector. While oil supply is still strong, demand is warming up.

The European economy is improving. Europe is the world’s second-largest consumer of crude oil. Increasing demand there would go a long way for rebalancing the oil market.

This trend could signal big gains in a beaten-down energy sector.


Matt Badiali
Editor, Real Wealth Strategist

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3 Stocks to Profit from No-Profit Electric Cars

There was a real race going on at this year’s annual mid-September Frankfurt Motor Show in Germany. Not an actual race, of course. But a race among automakers’ executives to see who could promise the greatest number of future electric vehicles.

This makes sense as government policymakers around the world push hard for a move away from combustion engine cars and toward battery-powered electric vehicles. France and the U.K. have a 2040 target to have that changeover happen. Norway’s target is 2030.

And as I recently highlighted in a recent article, China – home to one-third of the world’s car market – is also working on a timetable to end completely the sales of fossil-fuel-based vehicles. Its largest electric vehicle maker, BYD (OTC: BYDYY), is urging the government to set a target date of 2030.

The sentiment among auto company executives toward electric vehicles has certainly changed from nine years ago. That was when the first Roadster from Tesla Motors (Nasdaq: TSLA) went on sale. Before that, the only major automaker that was serious about electric cars was Japan’s Mitsubishi Motors (OTC: MMTPF).

Related: 3 Electric Car Stocks to Crush Elon Musk and Tesla

Profits Anyone?

While some U.S. investors act as if Tesla is the only company that will be making electric vehicles, the sector is rapidly becoming very crowded. Auto companies from Europe to Japan and Korea to our domestic automakers – General Motors (NYSE: GM)Ford Motors (NYSE: F) and Chrysler Fiat Automobiles NV (NYSE: FCAU) – are all piling into selling battery-powered vehicles to the public.

This raises a big question for investors in the sector — will the automakers have to sacrifice margins and possibly even profitability in this race to, as the CEO of German carmaker BMW (OTC: BMWYY) Harold Krüger called it, “electric mobility.”

The CEO of Japan’s Honda Motor (NYSE: HMC), Takahiro Hachigō, spoke bluntly to the Financial Times about what everyone is the sector is facing at the moment, “Until we reach certain volume, the profitability will not be as great [as compared to conventional vehicles].”

In many cases, profit margins at automakers are already stretched. Margins will only worsen in this transition period to electric vehicles as investments into research and development rise and component costs do as well. All the while electric vehicle sales are still not at the profitability tipping point.

Even ignoring money-burning Tesla, other vehicle manufacturers are feeling the jolt from the move toward electric vehicles. Germany’s Daimler AG (OTC: DDAIY) said its margins could fall by two percentage points (despite a cost-cutting program) thanks to the costs associated with getting batteries and redesigning cars. One such cost is the $1 billion Daimler plans to invest in its Alabama plant to produce electric cars in the U.S.

Turning our attention to domestic automakers, analysts at BCA Research estimate that GM loses about $9,000 for every Chevy Bolt it sells. In order to get the “average” corporate profitability from the Bolt, BCA says General Motors would have to raise the price on each car by $26,900. Obviously, GM isn’t going to do that.

Much of the added costs for electric vehicles comes from the battery. And a lot of this cost comes from the necessary metals and minerals that make the battery work.

The ‘Picks & Shovel’ Winners

The good news for the automakers is that battery costs are falling. But instead of buying a car company, you should take a look at investing into the makers of electronic components that will go into future electric vehicles.

At that very same Frankfurt Motor Show, the ebullience of the auto components makers was evident. They were kids in a candy store. It’s easy to see why. . .

Right now, the vehicle manufacturers control design, and nearly every other important aspect of vehicle production. But that is slipping away from them as the wave of the future is more electrical systems and electronics and not mechanical systems.

Estimates are that 50% to 70% of the value of a car will lie in those electronic components, which the automakers purchase from other companies. Companies, ironically enough, that U.S. carmakers spun off years ago because they were thought to be low-margin businesses.

However, as with all investments, you have to pick and choose among the companies in the sector. Some auto parts companies still have their hand in the sand, saying that the changeover to an electric car future may never happen.

Here are three stocks for you to consider where management ‘gets it’.

Stock #1 – Delphi Automotive PLC

At the top of the list is a company that was once part of General Motors (NYSE: GM)Delphi Automotive PLC (NYSE: DLPH).  The spinoff was completed in 1999, as sadly, GM management listened to Wall Street advice about streamlining operations by getting rid of a business “going nowhere.”  

But now, it’s Delphi that’s in the fast lane. That will be even more true once it completes its own spinoff – of the powertrain business – that will be completed in March 2018.

The spinoff will allow Delphi to focus the remainder of itself (about ¾ of the current company) on self-driving, connected and electric cars. Delphi is heavily involved in components for hybrid vehicles and its $12 billion advanced electronics business is the company’s top revenue generator.

The reason behind the split was given by CEO Kevin Clark: “The pace of change in our industry is accelerating.” That move has pleased shareholders, adding about 28% on to the value of its stock, putting it up 50% year-to-date. Delphi is moving right along with that “pace of change” in the industry.

The company continues to innovate in all sorts of new vehicle technologies. . . . .

It teamed up with Frances’ Transdev on operating Europe’s first self-driving vehicle service and with BMW (OTC:BMWYY) on developing a self-driving car. It also partnered with Israel’s Innoviz Technologies on providing high-performance LiDAR solutions for autonomous vehicles and with Blackberry (Nasdaq: BBRY) on an autonomous driving operating system platform.

Stock #2 – Visteon Corporation

The next company to consider was also a spinoff – this time from Ford in 2000 – Visteon (NYSE: VC). The reasons were similar to those of General Motors.

Visteon designs and manufactures electronics products for automakers. Visteon provides everything from standard gauges to high resolution, reconfigurable digital 2D and 3D displays to infotainment and audio systems.

It is turning out to be a big winner as the automakers and Silicon Valley battle to see who will control the cockpit electronics inside your vehicle. Visteon is agnostic and winning sales from carmakers whether they are using their own systems or those of some tech company’s systems.

The vehicle display market is expected to reach $21 billion by 2022 and Visteon is sitting in the catbird seat. It already has a record $17.3 billion order backlogThat trend should keep the stock motoring ahead, adding to the more than 51% year-to-date gain.

Stock #3 – Autoliv Inc.

The third company has been a relative laggard, with its stock only up about 8.5% so far in 2017, the Swedish auto parts giant Autoliv (NYSE: ALV). Most of that upward movement in the stock price happened after a recent announcement.

Its management said it is currently considering whether to follow the path taken by Delphi and splitting itself in two, separating its fast-growing electronics business from the parts of the company that makes things like seat belts and air bags.

Autoliv’s electronics components business consists of things like radars used in autonomous vehicles and positioning systems. It expects the market for electronic safety products to more than double over the next several years, from $20 billion this year to $40 billion in 2025. Autoliv management is targeting $3 billion in such sales in 2020, up from $2.216 billion in 2016.

So there you have it – a choice between fast-growing auto parts companies or automakers that will struggle to remain profitable.

Source: Investors Alley

October Begins the Best 3 Months of the Year

No matter who you are, there’s at least one thing you like about the last three months of the year.

This is the time of year when holidays cluster. Schools and workplaces close. Families gather to celebrate.

As an investor, I like the fact that stocks deliver their best returns of the year in the last quarter.

In an average year, the Dow Jones Industrial Average and the S&P 500 produce half of their gains in this three-month period. For the Nasdaq Composite Index, the gain in the last three months of the year is about 40% of the annual average return.

Skeptics might question this trend. They may believe there’s no reason for this behavior. But there is.

Swinging for the Fences

Stocks go up when investors add money to their investment accounts. In the fourth quarter, individuals and professionals create demand for stocks.

In an average year, the Dow Jones Industrial Average and the S&P 500 produce half of their gains in this three-month period.

Individuals might fund retirement accounts as the end of the year approaches. They might also fund educational accounts as news stories about tuition costs scare them into action.

Professionals also buy in the fourth quarter. Annual reports to shareholders list all the positions they own. Managers sometimes take part in “window dressing” to make those reports look better.

Window dressing is a powerful motivation.

Bonuses for hedge fund managers depend on fourth-quarter performance. Better performance means a better bonus.

This is often the time of year when managers “swing for the fences” and make aggressive trades in pursuit of a bonus.

Once again, skeptics might not want to believe something like window dressing exists. Academic studies confirm managers sometimes buy stocks just to show off. But studies confirm this doesn’t really help the managers.

One study concluded: “Window dressers also have poor past performance, possess little skill, and incur high portfolio turnover and trade costs, characteristics which, in turn, result in worse future performance.”

A Time to Buy

Now, since window dressing exists, it can benefit highly skilled investors.

Knowing the fourth quarter could deliver large gains, investors should buy aggressive stocks. If you’re not comfortable picking stocks, buy ETFs that track aggressive indexes.

An ETF is an exchange-traded fund. These are investments that trade, like stocks. An ETF usually owns a collection of stocks, like the stocks that make up the S&P 500 Index.

In the fourth quarter, the best ETF to own is the PowerShares QQQ ETF (Nasdaq: QQQ). This ETF tracks the Nasdaq 100 Index and includes companies like Facebook, Amazon, Apple, Netflix and Alphabet (the parent of Google).

Now, the fourth quarter has also included some of the worst market crashes in history. In October 1987, the Dow fell 22.6% in one day. In 2008, the index declined more than 30% at one point.

Including those losses, history says this is a time to buy.

It will be important to manage risk, but it will also be important to accept some risk. Based on history, now is definitely not the time to avoid the stock market.


Michael Carr, CMT
Editor, Peak Velocity Trader

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Source: Banyan Hill

Sell These 3 Popular High-Yield Stocks Before They Crash

Sometimes what looks like a great investment deal is just the opposite. I see many investors and financial writers who view stocks trading at a discount to book value as “good deals”. The reality is that these “good deals” are often a danger to your portfolio value. This especially applies to the business development company (BDC) sector.

The book or net asset value of a company is the assets owned minus debt divided by the number of shares outstanding. You can view it as the amount an investor would receive for each share if the company were to be liquidated. It is an understandable assumption that if a stock is trading at a discount to the net asset value, an investor picks up some “free” value by purchasing shares at less than the liquidation value. If you add in a high dividend yield, this type of stock looks like a winner. Yet several features of pass-through and the BDC business structures make this analysis a path to losing money on this type of stock.

Companies that use a pass-through business structure do not pay corporate income taxes in exchange for paying out the majority –usually 90%– of net income as dividends to investors. Since these companies have little or no retained income to fund growth, the usual practice is to pay for growth projects or acquisitions with a combination of issuing new equity and debt capital. A company with stock trading at a premium has a significant advantage when raising capital through additional stock issuance. For example, a company price at 1.2 times book value can buy $120 worth of assets for every $100 of new stock issue. For a company with stock trading at a discount, issuing new shares means the company will overpay for assets to grow the business. If the stock is at a 20% discount to NAV, using stock to raise capital means the company will pay $125 for $100 of asset growth.

BDCs face another challenge. A BDC must pay out at least 90% of the net interest income it earns as dividends and the BDC rules do not allow these companies to set up loan loss reserves. By law, BDCs make business loans to high-risk, non-public mid-sized corporations. Because of the types of lending clients it serves, a BDC cannot avoid loan losses. If the company does not have a growth plan, the asset base will steadily bleed off. Another rule limits debt to 50% of assets, so a BDC must issue stock, just to stay even.

For a BDC, having a stock that trades at a deep discount to NAV inevitably leads to a death spiral of declining interest income earnings and dividend reductions. It is very, very difficult for a BDC management team to stop the decline, as the dividend cuts lead to share price declines, which leads to a deeper discount to NAV. No matter what you may read, avoid any BDC trading at a significant discount to NAV or book value. Here are three you’ll want to avoid:

Prospect Capital Corporation (NASDAQ: PSEC) is one of the larger BDC’s with a $2.4 billion market cap. In August PSEC slashed its dividend by 28%. This was the second dividend reduction in the last two-and-a-half years. The stock trades at a 28% discount to NAV, so is well into the death spiral. Do not be tempted by the 10.8% yield.

Apollo Investment Corp. (NASDAQ: AINV) is a $1.4 billion market cap BDC. The company reduced its dividend by 25% in 2016. AINV trades at a 10% discount to NAV. The current yield is 10.0% and the company’s net investment income just covered the dividend for the 2017 second quarter.

Small cap BDC Medley Capital Corp (NYSE: MCC) may look attractive with its 11% yield. However, the stock is now trading at a 31% discount to book value. Earlier in 2017 Medley Capital was forced to cut its dividend by 27%. Shares fell 16% in on day and despite small bump in July they’ve continued to slide.

High-yields can look attractive in a low yield environment where none of the traditional safer investments like bonds and CDs pay anything near what we expect or need… especially if you’re looking to live off it for retirement money. That’s why it pays to look at closely at numbers like NAV and cash flow.

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The Dollar vs. Bitcoin

The U.S. government will pay $474 billion in interest on its debt this year. And that’s with rates around 1%.

Total debt is now $19.845 trillion, and it just exceeded annual GDP.

Our unfunded liabilities top $100 trillion.

I believe that eventually we’re headed for a financial reset. I don’t know exactly when or how. That will depend on the whims of bankers and politicians.

But I can’t picture any long-term (20-year) scenario where the dollar does well. There appears to be zero chance of cutting federal spending anytime soon. It should have happened long ago, yet the spending seems destined to keep rising until the whole thing implodes.

Eventually the interest on the debt will become unsustainable, and we’ll have to start monetizing our debt on a massive scale. I’m not saying we’ll default on our bonds. I’m simply questioning whether the dollars they’re paid back with will have much value.

When this happens, we’ll have an opportunity to choose a new system. I would vote for a cattle-based monetary system over the current one, personally.

But luckily we have bitcoin. The rise of cryptocurrencies like bitcoin may prove to be a catalyst that speeds the transition.


Cryptocurrencies offer a path forward to a new and better monetary system.

A system where the money supply can be hard-coded. One that doesn’t require middlemen… and that vastly increases efficiency.

It’s no coincidence that bitcoin is rising now.

Bitcoin was launched amid bank bailouts in 2009 by a guy who thought the financial system was broken. Fortunately, Satoshi Nakamoto was a genius, and he created a brilliant piece of software.

It’s growing exponentially now because people are looking at the current system, shaking their heads and then looking for something else.

And bitcoin is transforming the financial world with blockchain because the technology is superior.

People want this. They want a way to store value and trusted transactions that doesn’t suck.

If this crazy monetary revolution does happen, don’t you want to own at least a piece of it?

Cryptocurrency ownership rates are still well under 1%. If you do buy, you’ll still be doing so extremely early.

Good investing,

Adam Sharp
Co-Founder, Early Investing

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Source:  Early Investing

Buy These 3 Stocks Before the Next Big Computer Hack

According to a Lloyds of London report issued in July, a global cyber attack could result in damages of as much as $121.4 billion. But based on the growing frequency of such cyber attacks and hacks, this estimate will likely turn out to be too conservative.

The reason is straightforward. The world’s volume of data has been growing exponentially year after year, with the trend really accelerating after 2005. This gives cyber criminals more and more opportunity to gain access to massive amounts of data in a single breach. And potentially a bigger payoff.

Research from IT services firm gives us an idea of how much of our data is out there, exposed to unsavory people. Its research forecast that…

  • By 2020, over one-third of all data will live in or pass through the cloud.
  • In 2020, data production is estimated to be 44 times greater than in 2009. That’s a 4,300% increase!

The reality is that our personal data as well as corporate and government data will become more and more exposed to those who would exploit access to such data. That does open though a world of opportunity for investors. More on that later.

But first, more on this nasty underside of life in the 21stcentury coming to the fore again as the credit-reporting agency Equifax (NYSE: EFX) revealed a massive breach of its cyber defenses.

Equifax Debacle

Equifax, with $3.1 billion in revenues in 2016, has a dual role as both a credit-data bureau and fraud monitor. Yet, its cyber defenses could be best described as a sieve.

The hack, which began in mid-May, went undetected for two and a half months. Exposed were the personal records of up to 143 million Americans. That’s nearly half the U.S. population, folks.

The hackers gained access to both the credit card files as well as the company’s back-end systems that store exhaustive data profiles on consumers. This data included Social Security numbers, driver’s license numbers and other sensitive information.

This isn’t the industry’s first brush with poor security of customers’ data. In 2013, it was discovered that an identity thief in Vietnam ran a service that helped others access millions of Americans’ credit reports from a company Experian PLC (OTC: EXPGY) had recently purchased.

Of course, massive data breaches aren’t confined to just this industry. Last December, Yahoo (now part of Verizon (NYSE: VZ) revealed that attacks between 2013 and 2016 had compromised the personal information of more than a billion users. The data stolen included names, phone numbers, birth dates and passwords.

But Equifax’s approach to the breach seemed particularly egregious to me.

First, it did not report the breach for 40 days – just beating the deadline of 45 days, which certain states require. Then, if you were affected by the hack and sign up for Equifax’s offer of one year of its TrustedID product, which scans the black web for your stolen information, you lose all rights to sue the company.

And finally, three Equifax executives sold $1.8 million worth of stock just days after the breach was discovered. That may have been a coincidence, but still the stench from Equifax is almost overwhelming. Talk about a stock to avoid.

More Dangers Lurk

You and I are more at risk though from more than just fraud being committed in our name. Other types of hackers are aiming at other important targets in our lives.

According to a report from cyber security company Symantec (Nasdaq: SYMC), hackers have breached the operational systems of utility companies in the U.S. Symantec says they are lying in wait with the ability to switch off the power and sabotage computer networks.

The group of hackers goes by several names – Dragonfly, Energetic Bear and Berserk Bear. The group is believed to have ties to Russia and has been around for a while. In 2014, it is believed to have compromised the systems of more than 1,000 organizations in 84 countries.

Access is almost too easy for these hackers. With the recent hack of U.S. utilities, entry was gained by simply tricking employees into opening Microsoft Word documents that steal employees’ usernames and passwords.

The danger is very real. Eric Chien of Symantec said that even if hackers compromised a small electric utility company, they could put the power grid at risk by either removing or putting too much power into the grid.

This should not come as a shock to any of us. In July, the Department of Homeland Security and the FBI warned that the U.S. energy industry had been targeted by hackers.

Cybersecurity Investments

While these hackers may be waiting for the exact right moment to strike, you should not.

Wall Street continues to largely ignore the threat of cyberattacks and hacks. This has left most cybersecurity stocks trailing the performance of other technology sectors, making them relative bargains.

For the broadest possible exposure to the sector, I like the ETFMG Prime Cyber Security ETF (NYSE: HACK). It is up nearly 13% year-to-date and just 10% over the 52 weeks.

Its portfolio consists of 25 stocks, with its top five positions being: Palo Alto Networks (NYSE: PANW)Cisco Systems (Nasdaq: CSCO), the aforementioned Symantec, Splunk (Nasdaq: SPLK) and the British cybersecurity firm, Sophos Group.

This group of stocks contains my next two choices – Symantec and Palo Alto Networks. These companies are benefiting from the growth of the IT security industry from $75 billion in 2015 to $101 billion in 2018, according to IT research firm Gartner.

Symantec provides a wide range of Internet security solutions to both individuals (41% of revenue) and businesses (59% of revenue). You probably have one of its Norton products installed on your computer.

The company’s last earnings report was strong with revenues jumping nearly 33% year-on-year. These kind of results should continue propelling the stock higher (up 34.5% year-to-date and 31.25% over the past 52 weeks).

Palo Alto Networks offers network security solutions, such as next-generation firewall products, to businesses, service providers and governments. As of the end of 2016, the company was third in the security appliance segment (in terms of revenues) trailing only Cisco Systems and Check Point Software Technologies (Nasdaq: CHKP).

It continues gaining customers, with it recently adding 3,000 to its 42,500 global customer base. I also like the fact that Palo Alto’s balance sheet is strong with cash on the books and no debt obligations.

As with Symantec, its latest quarterly report was good with revenues climbing 27% year-on-year. Those kinds of numbers should finally get the stock going. It is up more than 16% year-to-date, but just 1% over the past year.

Owning some sort of cybersecurity is one of the rare no-brainers in the investment world, especially in light of recent events like the Equifax breach.

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Source: Investors Alley

3 Electric Car Stocks to Crush Elon Musk and Tesla

There was news out last week about electric cars that will change the industry forever. And it was bigger than anything that Elon Musk has ever said.

What could possibly be more important than Elon Musk when it comes to electric vehicles, you ask? That’s easy – the world’s largest vehicle market – China.

Comments were published by Xinhua (China’s official news agency), from the vice-minister of industry and information technology, Xin Guobin, that the government will likely announce the future date when production of internal combustion engine vehicles will be banned. In going down this road, China is following the path already taken by countries like France and the U.K. that have prohibited the manufacture of such vehicles, beginning in 2040.

China’s move is so important because of its size – it manufactures the most vehicles, with about 28 million vehicles produced in 2016 according to data from the International Organization of Motor Vehicle Manufacturers. And it is already the biggest electric car market, with 507,000 such vehicles produced domestically last year, a rise of over 50% from the prior year.

And yet, still only one in five Chinese citizens own a vehicle!

An official announcement of a ban on internal combustion vehicles while give an almost unimaginable boost to the global electric vehicle industry. This news already set off a frenzy among investors worldwide.

So let’s ‘imagine’ a bit… I’m going to reveal to you the best ways to play this milestone for the electric vehicle industry. And it does not involve buying Elon Musk’s Tesla Motors (Nasdaq: TSLA).

China’s Electric Powerhouse

I was almost amused at the reaction of some U.S. investors. They bid up the price of Tesla by more than 10% last week after the news broke.

Tesla will be lucky to get even a tiny sliver of the Chinese market. It should not be surprising to you, but the companies that will gain the vast majority of market share will be Chinese companies.

The Chinese government has zeroed in on electric vehicles as a “strategic and emerging industry”. To this end, the government plans a 48-fold increase in charging stations nationwide to 4.8 million by 2020. That’s because the government’s goal is to have 5 million electric vehicles on the road by then.

There are a number of Chinese companies already in the electric car race. One example is Volvo, which is controlled by the parent company of Geely Automobile (OTC: GELYY), will introduce its first 100% electric car in China in 2019.

Leading the race already in China is BYD (OTC: BYDDY), of which Warren Buffet owns 8.25%. It is currently the world’s largest electric car maker and produced nearly 47,000 electric and hybrid vehicles in the first seven months of 2017.

And it is also the world’s biggest producer of electric car batteries in the world. While Tesla investors are breathlessly awaiting the company’s Gigafactory to crank up annual production of batteries to one gigawatt, BYD passed that mark more than three years ago. BYD is bringing online an additional four gigawatts of battery-making capacity by year’s end. That will make its annual battery output 12 times larger than Tesla’s!

So its stock nearly 20% move up in Hong Kong is a bit more justified than Tesla’s, although it is probably too much too soon. By the way, Buffett’s investment into BYD in 2008 has now grown more than sixfold.

Electric Dreams to Come True

You may wonder whether all the hype surrounding the future of electric vehicles is justified. I believe it is – the only disagreements are as to the timing of the changeover to an electric future.

Research from Bloomberg New Energy Finance (BNEF) forecast that falling battery costs will make electric vehicles cheaper than conventional ones by 2025. Batteries currently account for roughly 50% the cost of an electric car, but BNEF says these costs will fall 77% by 2030.

The automaker Renault also believes the cost difference between the two types of vehicles will be negligible by the mid-2020s. That could mean there are more than 37 million electric vehicles on the road in 2025, according to Navigant Research.

Looking even further ahead, BNEF predicts there will be 530 million electric vehicles traveling on global highways in 2040, a third of the overall market. Even OPEC says there will be 266 million such vehicles by then, having quintupled its forecast number over the past year.

Of course, all of these forecasts are contingent on one thing – the falling price of batteries and cars.

That brings me to that best path of investing for you in this electric future… the electric car revolution cannot happen without the necessary commodities that go into the making of electric cars, and most importantly – the batteries.

New Commodities Boom

Thanks to rising production of electric vehicles, there will increasing demand for metals and minerals such as copper, aluminum, nickel, manganese, graphite and certain rare earths.

Let’s look at copper, for example. Electric cars contain about three times more copper than a regular vehicle. That’s because copper is needed in these vehicles’ motors, inverters and charging points as well as in the lithium-ion batteries. And don’t forget about all those charging stations that will be needed.

Copper recently hit a three-year high, rising 18% for the year at one point. While a pullback is underway, rising demand for copper from electric cars meeting dwindling supplies will mean higher prices going forward. New mine supplies will be needed, perhaps as much as 20 million metric tons by 2025. That much added supply is unlikely considering the long lead times (a decade or more) it takes to bring a copper mine online.

Another example of commodities needed for electric vehicles are two rare earths – neodymium and praseodymium – whose prices have over 50% so far this year. That’s because some electric carmakers, such as Tesla, are choosing to use rare earth-based permanent magnet motors rather than induction motors because they are lighter and more powerful. Argonaut Research says such usage will cause demand for these two rare earths to soar by 250% over the next decade.

And now I want to tell you about the hottest commodities sector…

Lithium and Cobalt

That hottest of all commodities sector centers on the key elements needed in lithium-ion batteries – lithium and cobalt (needed for the cathodes). These commodities account for roughly 60% of the cost of a lithium-ion battery, so says Simon Moores of the specialized consultancy, Benchmark Mineral Intelligence.

And these prices are soaring, according to data from Benchmark. Since 2015, lithium prices have quadrupled and cobalt prices have doubled. The price gains, especially for cobalt, have only accelerated this year.

These gains are highly likely to continue. Another consultancy, Roskill, forecast demand for lithium will soar fourfold by 2025. I’m sure that’s why the London Metal Exchange is considering starting to trade a lithium contract.  And cobalt demand will also soar.

There are intricacies to these specialized markets. For instance, lithium can be obtained either from lithium brine deposits, which are found in salt flats, or it can be mined from spudumene lithium hard rock deposits. In general, brine is a lower-cost asset to develop. But then there are other considerations such as the richness of the find and its location.

Then after mining, there are specialized types and multiple grades of lithium and cobalt that are needed for lithium-ion batteries. Some of these include lithium carbonate, lithium hydroxide, cobalt sulphate and cobalt hydroxide.

Investors almost got it right this past week when they poured money into the Global X Lithium & Battery Tech ETF (NYSE: LIT). Investors sent the price of this ETF up by 10.25% last week, pushing this year’s gain to 55.25%.

This is the right space to be in, but LIT is the wrong instrument. Its top position – 23.5% of the portfolio – is FMC Corporation (NYSE: FMC), which I would not touch with a 10-foot pole.

How would I play the electric car revolution?

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