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Protecting Your penny stocks "Benjamins"
Today is the 302nd birthday of Benjamin Franklin, author of the famous phrase, "A penny saved is a penny earned." If Franklin were alive today, he might have added a few words about protecting ones pennies from the ravages of inflation and reckless monetary policies. But since he cannot add these refinements, we will…after first paying our respects to this great American.
And Franklin was a politician, diplomat, philosopher, ambassador and Founding Father of the United States of America. It was Franklin who famously summed up the form of U.S. federal government – if not its ultimate fate – as he walked out of the proceedings of the Constitutional Convention of 1787. When asked what sort of government had been established, Franklin replied, "A republic, if you can keep it." More than two centuries after his death, Franklin is among the most revered and respected figures in American history. Indeed, Franklin is among the best-known Americans throughout the world. Certainly, Franklin's intellect and accomplishments are the foundation of his fame. But one aspect of Franklin's worldwide fame comes from the fact that his image is printed on the U.S. $100 bill. Thus, Ben Franklin is ubiquitous in international trade and commerce.
This monetary aspect of Franklin's fame is worth bearing in mind. Because it now takes about one of those $100 bills to purchase one of these barrels of oil. And it takes nine of those $100 bills
to purchase an ounce of gold. Just a year ago, a "Benjamin" would buy nearly two barrels of oil, not one. And it took just a bit more than six Benjamins to buy that gold coin illustrated above. While we are thinking about it, how much food can you buy this year at the grocery store for the amount indicated on one Ben Franklin $100 bill? Less than you could last year, right? Simply put, the value of your U.S. currency is declining, while the costs for the things you buy are rising. So what's the cure? In my investment letter, Outstanding Investments, we recommend heavy doses of selected gold mining stocks. Most of the stocks we have recommended have been on a tear lately. But I believe that there is more room for these shares to appreciate in the rising price environment for gold. Oil and gas stocks also seem like excellent candidates to preserve the value of your pennies. One great natural gas-producing firm in the Outstanding Investments portfolio is Chesapeake Energy Corp. (CHK: NYSE) – a company that is rapidly increasing its output from the Barnett Shale play. Chesapeake has produced a return of almost 40% in just over two years since we added it to the portfolio. Keep in mind that this was during a time of, essentially, flat natural gas prices. [Eric's Note: Faithful Rude Awakening readers may recall that Byron's predecessor at Outstanding Investments also admired Chesapeake Energy, and he told us so in the September 28, 2006 edition . Chesapeake stock is currently selling at about $38.50 per share, with a price-to-earnings ratio of about 12. During the past couple of years Chesapeake embarked on a phenomenally successful drilling and production program within the heart of the U.S. And the future appears even brighter for this Oklahoma City-based company. Using between 38-40 drilling rigs that it either owns outright or operates under contract, Chesapeake expects to complete – on average – a gas well in the Barnett Shale play about every 15 hours through at least 2010! Aubrey McClendon, Cheasapeake's CEO, recently stated that the company plans to continue acquiring leaseholds in Tarrant, Johnson and Dallas counties in Texas. So Chesapeake will be drilling its additional acreage in due course. In 2007, Chesapeake's gross production from the Barnett Shale was 600 million cubic feet of gas equivalent (400 million cubic feet per day net), compared with 2006 gross production of 250 million cubic feet per day. According to CEO McClendon, "We now will focus on achieving our 2008 gross production exit rate target of 900-1,000 million cubic feet per day." This is an output increase of over 60%. In other words, Chesapeake will be increasing gas output, in all likelihood in an environment of rising energy and natural gas prices. Hmmm…seems like the sort of stock that could protect your pennies, or maybe even hand you a few more…especially if the global supplies of oil and gas begin to decline. How dire is the global outlook for oil and gas supplies? Houston's own Matt Simmons provides a few hints. Mr. Simmons is a leading light of the energy industry, and one of the smartest oil and gas guys you will ever encounter. This is what Mr. Simmons had to say in a recent interview about the world's energy situation, discussing whether or not the world increase oil output over the next 10 years: "If we were lucky enough to open up the entire outer continental shelf, and then we were lucky enough to invent quickly enough seismic equipment to start doing some sort of a high-grading of where we should drill, and then we were lucky enough to have a growing fleet of newer offshore rigs that could drill wells, and we just discovered two new North Seas, then there's grounds that we could basically spend $400 or $500 billion and maybe end up 10 years from now with 6 million barrels per day of fresh supply. But the problem is that each one of those things that I said, 'If we were lucky enough,' we don't have. And 10-15 years from now, our 73 million barrels per day of current crude production could easily be down to 50 or 45. So you say even if you had another 6 million barrels per day, you can't climb back out of the hole." Needless to say, none of the politicians who are running for U.S. president says anything even remotely like this in any of their speeches. Really, where are the modern Benjamin Franklins? Do you think that the face of any modern- day politicians will ever appear on any form of American legal tender? If that happened, we would probably be living in a "banana republic," and not the U.S. republic that Ben Franklin helped to found. Then again, in a banana republic, at least they produce bananas. So it behooves you to look after your own financial future. If you protect your wealth by investing in precious metals and energy plays, you will be acting out the wisdom of Benjamin Franklin. Invest in gold. Invest in energy. Invest for your own future. Happy birthday, Benjamin Franklin! ------------------------------ Rude Endnote: So, here's a question. How many "Benjamins" will it take to buy a barrel of oil, ounce of gold and bushel of wheat by this time next year? read also :information on penny stocks |
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