Hey There Income Hunters,
Europe has just taken over as No.1 in the electronic vehicle (EV) space …
This is critical information to include in your trading decisions because competition will ramp up incentives and speed up the demand curve for materials, producers and service providers.
Here are just a few of the innovative ideas intended to increase interest …
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- The UK is planning to make EV purchases more attractive to consumers by allowing them to sell electricity stored in their car batteries back to the power grid when needed.vThe thought is drivers make money and the UK avoids developing new power plants by adding enough energy generation that would equate to 10 nuclear plants.
- Germany is extending its EV subsidies another four years to create greater EV uptake across the country. Berlin is currently offering a €3,000 bonus for fully electric vehicles and €2,250 towards hybrids, as well as a 10-year tax exemption and lower VAT rates. Some European manufacturers are offering an additional €3,000 bonus to buyers.
- Many other governments across Western Europe have decided to offer incentives to EV consumers … This has helped push Europe past China as the No. 1 EV market, with 43.3% market share …
- The bullish case for copper has not faded, yet the price for this critical EV resource is down 18% in the past 4 months, along with major producers …
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Today, I will give you an undervalued — yet overachieving — producer that is set to spike higher.
It’s the Cop(pers)!
First, let’s take a look at Copper Futures (Ticker: HG):
Since the capitulation trade below $4 (red circle), the futures rallied back up to downtrend resistance and are now hovering around a converged 30-day and 50-day moving average.
I call this coiling, meaning the moving averages have converged at a congested high volume zone. There are long-term and short-term players waiting to jump on a breakout.
Since the capitulation trade, volume has decreased, and this tells me the market is getting ready to resume its longer-term uptrend.
Now, you could put on a bullish option strategy in the US Copper Income Fund (Ticker: CPER), but I have a play that will juice your returns and allow you to make more for longer …
Freeport McMoran (Ticker: FCX)
FCX mines more copper than any other company in the world …
Get this …
Even with copper prices at $4 FCX would generate as much as $9 billion in operating cash flow.
There is so much cash being thrown at the EV market. With EVs needing a minimum of 5x more copper than gas-powered vehicles, the demand curve will remain very steep for decades …
And how about this: FCX has a market cap of $54 billion with only $3.25 billion in net debt. That is a lean, mean fighting machine.
The stock is trading at a discount to its fair price of $37.50 and trades at a forward P/E of 12, which is 18% below the industry average.
Let’s take a look at the FCX technical setup …
Like many of the commodity plays, price is heading towards the apex of a triangle pattern with converging moving averages. There is going to be a sizable move away from this area and it should happen in the weeks ahead.
FCX is a quality company with a very strong balance sheet. They are extremely profitable and have tremendous growth prospects.
The Macro Overlay
We must always be aware of the macro forces driving flows …
Currently, there are two events that, until resolved, hang a ton of uncertainty on the markets …
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- The debt ceiling battle, which could halt government spending into the end of October before resolution …
- The Fed’s taper policy announcement, which may not come until Nov. 3.
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So, as I think of this trade, the prudent thing to do is wait for a clear breakout above the 50 DMA and downtrend resistance …
Alternatively, if we were to get a deflation scare and a break to a new low, that would be a great opportunity to pick up FCX at extreme undervaluation.
Bring It Home
Volatility is coming. With most of the commodity markets and producers you can see in the charts that price is consolidating and building energy for a big move …
It’s imperative to stay on top of all the products and companies we believe present the lowest risk/highest reward trades and then jump on board at the first sign of big money flowing into them …
Yesterday’s inflation numbers did nothing to change the inflation higher-for-longer prognosis …
I will keep you informed, armed and ready for battle.
Live and Trade With passion My Friends,
Griff
