Silver prices doubled since last summer, and the increase could continue through 2015, says Andrew Kaip, a director and analyst at BMO Capital Markets Corp. The sustained price of silver is dependent on three factors: short mine supply, strong industrial demand and continued investment demand.
“Can that mine supply deficit take place longer term, and can we see it extending into 2013 to 2015 despite this fact that we’re seeing pretty substantial mine growth? And the answer is yes,” Kaip said. “So long as we see sustained investment demand over the longer term, the supply/demand fundamentals for silver will remain strong, and that will provide support to the silver price.”
Kaip points to Silver Wheaton (SLW) as his favorite senior silver mining company. Kaip says a senior company like SLW has less execution risk than a junior mining enterprise, because a capital-cost overrun or a delay would have less of an effect on operations.
“Silver Wheaton is a royalty stream company,” Kaip said. “It’s showing very good growth. It’s a very good business model, and it provides investors really a much lower-risk way to acquire exposure into silver equities. So it is a preferred name in that regard.”
Master limited partnerships (MLPs) are investing in the energy infrastructure necessary to tap into shales, which are on track to account for 50% of natural gas production in the next five to seven years, says Raymond James Vice President Darren Horowitz.
“Over the past year we’ve seen rigs slowly migrate out of the older gas shales — such as the Barnett, Fayetteville and Woodford — and move into the more liquids-rich plays, such as Granite Wash, Eagle Ford, Marcellus and Cana Woodford,” Horowitz said.
Horowitz also sees opportunities for MLPs in the Jonah/Pinedale, Piceance/Uinta and the San Juan basins for domestic natural gas liquids (NGL) and natural gas development in the coming years.
“You continue to see more and more focus on a lot of these emerging plays, and ultimately that’s what’s going to drive incremental production and the need for additional infrastructure,” Horowitz said.
Master limited partnerships (MLPs) play an increasing role in building necessary energy infrastructure for liquids-rich shale formations across the United States, including the Eagle Ford and Bakken, says Credit Suisse Managing Director Yves Siegel, CFA.
“Enterprise Products Partners (EPD) just had an analyst meeting, and they are investing $3.4 billion this year,” Siegel said. “ONEOK Partners (OKS) [is] spending around $2 billion building processing facilities, as well as pipeline facilities to both process the natural gas and transport the natural gas liquids.”
EPD is building pipeline, fractionation and processing facilities in the Eagle Ford shale in south Texas, Siegel says, and OKS is building processing and transportation infrastructure at the oil-rich Bakken shale in the Northeast.
“It’s not hard to see billions of dollars getting invested in a relatively short time frame to take care of all of the natural gas and crude and natural gas liquids that will be coming out of the ground because of the shale plays,” Siegel said.
Boeing‘s (BA) 787 is on track to be certified by year-end, and as the company seeks to fulfill the current backlog of more than 800 planes, demand for titanium and composites is expected to significantly increase, says Dr. Avinash Kant, Vice President and Senior Research Analyst at D.A. Davidson & Co.
“Industry sources indicate that there is still roughly 40 million pounds of titanium inventory worldwide, a majority of it at Boeing,” Kant said. “If the B787 certification process continues to be on track and deliveries start to take place from the third quarter of 2011 onward, as projected by Boeing currently, we would expect a strong ramp in demand in 2012.”
Kant has “buy” ratings on RTI International Metals (RTI), Titanium Metals (TIE) and Hexcel (HXL), all of which are levered to increased Boeing production, especially of its B787, and he expects demand for the materials to stay solid for the next few years.
“Boeing has been producing the 787 at a three-plane-per-month run rate right now. Once certified, the company has stated that it will ramp to a 10-plane-per-month run rate over the next two to three years,” Kant said. “As RTI, TIE and HXL all have a $1.5 million and higher content in each B787 plane, the ramp in production rate of this plane is expected to be a significant growth driver for these companies.”
The spot price of uranium oxide rose 20% after the initial drop in spot prices that immediately followed the Fukushima nuclear incident, evidence of future opportunity in the space, says Donald C. Ewigleben, President, CEO and Director of Uranium Resources, Inc. (URRE).
“There is still an expectation as an industry for future growth in demand despite what has occurred at Fukushima,” Ewigleben said. “China has 13 operating plants today, it has 27 plants under construction, 50 plants planned and another 110 proposed. And they quickly responded the very week after the tsunami saying their plans are unchanged. So we know a significant demand will continue from China.”
URRE is uniquely positioned to benefit from rising global interest in nuclear energy. The company has been producing uranium for 33 years in an environmentally sound way — both open pit and underground — and it is currently developing asset bases in Church Rock and Crownpoint, both in New Mexico.
“We own over 100 million pounds of uranium in the U.S.,” Ewigleben said. “That is the largest-held position in the U.S. and the ninth largest in the world. So we’re very well suited for what we expect to be a return of the nuclear industry and an increase in the demand for uranium.”
Midstream master limited partnerships (MLPs), the pipeline and storage operators, provide an opportunity to invest in oil and gas that hedges against commodity price volatility and fluctuations in supply, says Raymond James Vice President Darren Horowitz.
“From a volume perspective, several midstream operators run fee-based assets; however, they may have either minimum volume commitments, MVCs, or other contractual provisions that mitigate volume volatility,” Horowitz said. “These contracts generate fees regardless of the actual capacity utilized on the asset or the volume that flows through the asset.”
Horowitz points to Enterprise Products Partners (EPD) as one of his top MLP plays. He says EPD runs the most vertically integrated supply chain, and it has one of the lowest costs of capital among MLPs and a transparent balance sheet with the capacity to pursue growth opportunities.
“When you think about best connecting the areas of the most prolific supply with areas of the greatest demand, Enterprise Products Partners is at the forefront,” Horowitz said. “They own/operate over 50,000 miles of pipeline that helps transport natural gas, natural gas liquids, crude oil and refined products.”
Oil and gas master limited partnerships (MLPs) are tapping into liquids-rich shale formations across the U.S., sowing necessary energy infrastructure with the goal of harvesting handsome contracts, says Credit Suisse Managing Director Yves Siegel, CFA.
“I think what investors, or a lot of folks, lose sight of is that billions of dollars need to be invested in U.S. energy infrastructure, and the entities that are doing the heavy lifting are, for the most part, MLPs,” Siegel said. “In fact, going out the next three to five years, we think, on average, the MLP group should be able to grow distributions around 5%.”
Enterprise Products Partners (EPD) and Kinder Morgan Energy Partners (KMP) are two MLPs developing infrastructure in one important U.S. shale formation, the Eagle Ford shale in south Texas, Siegel says. Midstream oil companies recently invested $3.4 billion in the Eagle Ford shale’s infrastructure.
“The stuff [EPD is] building includes pipeline, fractionation and processing facilities. The Eagle Ford is just a burgeoning gas and oil play that’s requiring a lot of capital to be invested,” Siegel said.
M&A is poised to pick up this year among biotechnology companies, as health care uncertainty and the austerity measures of the past couple of years near an end, and large companies look to invest in increased synergy and product pipelines, says Piper Jaffray & Co. Managing Director Ian Somaiya.
“There are always two themes that occur in biotech; which companies offer the greatest synergy — easy cost-cutting measures, whether it’s value in the pipeline, which no one else realizes or is paying for today — and then just the major product opportunities, which you just need to pay up for,” Somaiya said.
Somaiya says BioMarin Pharmaceutical (BMRN) is a company with blockbuster drug potential for its Morquio syndrome treatment, and it would benefit from the synergistic opportunities of partnering with a larger company looking to expand its product pipeline.
“I think a larger entity could take advantage of the natural early stage development capabilities of BioMarin,” Somaiya said. “I would envision it generating sales in excess of a $1 billion versus its current portfolio of drugs, which at peak will generate sales of $300 million, maybe $400 million at best.”
James Jannello, Chief Executive Officer and Director of Janel World Trade Ltd., talked to The Wall Street Transcript about his company. Click here to read the complete interview.
TWST: Please start with an overview of Janel World Trade and explain what a third-party logistics provider does.
Mr. Jannello:I started Janel in 1975 in New York as a customs and logistics broker. I saw that there was a need to provide quality import customs brokerage and related transportation services in what was an emerging market at the time. The startup of the business did not require me to make a huge investment in any transportation assets, like trucks or airplanes. Rather, the business we are in is non-asset based and we are a third-party logistics provider. We basically serve as an outsourced logistics department for our clients. We take care of all the moving parts necessary with any shipment around the world, from customs brokerage to shipment tracking and homeland security mandates. We utilized the services of direct, asset-based carriers and other transportation providers to handle the movement of our customers’ shipments. We have been around a long time and we’re ranked in the top 2%, by the way, of all logistics companies when it comes to customs brokerage services.
