A Lithium Stock That Breaks All of My Rules
- One commodity, underperforming the commodity bull market
- Lithium is a battery technology, not an energy resource
- The one company that’s trailing the pack...so it’s still inexpensive!
I’m scratching my head right now, because everything in the commodity sector seems to be going up - except for one thing...
Granted, the market for this commodity is extremely immature - it’s not even traded on any commodity exchanges like the New York Mercantile Exchange (NYMEX) yet.
And right now there are very few companies trading on major stock exchanges that deal in this commodity.
Of course, there are plenty of small, speculative unknown companies in this sector that trade on lesser exchanges like the Pink Sheets, or the over the counter markets. Some even trade on the Toronto Stock Exchange (TSX).
The thing is, despite being relatively unrepresented in both commodity and major stock markets, this commodity is everywhere. Odds are you have a few hundred grams of this stuff within 50 feet of you.
It’s in nearly every new laptop computer, cell phone, mp3 player, and dozens of other mobile devices. And increasingly, it’s making its way into automobiles.
I’m talking about lithium, in case you haven’t guessed.
And one of my favorite ways to play the lithium trend is to buy battery technology companies. I’ve long believed that lithium is a great battery technology - not necessarily a scarce energy resource. You’ll see lots of ads talking about lithium in terms of replacing oil, but it’s not an energy resource.
If you take nothing else away from today’s letter, I want you to remember that fact:
Lithium is not an energy resource, it’s a component of battery technologies.
There’s plenty of lithium supply, and while I’m sure you can make money buying lithium miners, I’m more interested in the companies that turn the raw material into tomorrow’s batteries. That’s where the money will be made.
I’ve written about lithium before. Click here to read why there’s not a lithium supply problem.
So right now, I’m really interested in one Chinese lithium battery manufacturer. I’m mostly interested in it because it’s not performing very well.
The company in question is currently in the portfolio of our paid service: Global Commodity Investing.
And while I’m not the editor of the publication, I do help out with research from time to time.
I’m proud to say that as of right now, we only have one losing position in this portfolio. And that’s not because we’ve been selling off the losers.
In fact, our closed positions include only two losing stocks. The average closed position returned 60% to subscribers of this service.
Our open positions are up an average of 33%.
Right now, the lithium battery company is the only loser. It’s down 26% since we added it to the portfolio in January.
In fact, this company is also among the worst performers in the battery technology index.
The truly surprising thing about this company has nothing to do with commodities, batteries, China, cars or lithium.
It has to do with Warren Buffett. Amazingly, and almost completely uncovered by the mainstream media is the fact that this company is currently Warren Buffett’s 8th largest holding.
Mr. Buffett’s holding company Berkshire Hathaway (NYSE: BRK-A) owns 10% of this company.
Since this stock has been in the portfolio for so long, I’m allowed to mention its name. I’m telling you this company’s name because I honestly believe it bottomed last week. There’s no better time to build a position in this lithium battery company.
The company is BYD Company Ltd. (PK: BYDDF).
I’ve warned you before about companies listed on the pink sheets or over the counter bulletin boards.
Companies on these exchanges are largely unregulated. They don’t have to file earnings with the SEC. Some of them are legitimate up and comers, or are the only way you can buy foreign companies without having to go through foreign exchanges - but many of them are shell companies that don’t have any real operations, earnings, products, employees, goods, property, or value.
I’ve warned you to stay away from this second group of companies - or to at least limit your exposure to these companies to a few hundred speculative dollars at most.
Kevin’s rule: If you see .pk stay away.
But as with any rule, there are exceptions.
The fact that Warren Buffett is invested in BYD is solid proof that it’s not some fly-by-night operation. Mr. Buffett actually visited this company’s headquarters a few weeks ago. So...they exist. They produce goods. They’ve actually been working with Daimler (the parent company of Mercedes-Benz) to produce electronic vehicles in China.
On October 29th, The Wall Street Journal published a story about this company, and its progress with Daimler:
“Last week Daimler Chief Executive Dieter Zetsche said in Shanghai the German auto maker’s newly formed electric-car joint venture with BYD is progressing “according to plan.” He said their effort to develop a new electric battery car for the Chinese market is nearing its so-called styling freeze, which refers to a stage in the car-development process where engineering and styling specifications are set firmly.”
According to the story, Daimler and BYD expect to finish building their car by the end of 2012 or early 2013.
Sounds promising to me...
But I have to reiterate, BYD is currently the worst performing stock in the entire Global Commodity Investing portfolio.
If you’re interested in taking a closer look at some of the opportunities in the commodity investing world, I recommend clicking here to read about three ETFs we recently added to Global Commodity Investing.
These three funds are up an average 35% since we added them back in August, but I think they have plenty of room to run, especially in light of the $600 billion that Ben Bernanke just promised he was going to print.
If you have any questions or commentary about BYD, or any other lithium company, please drop me a line at editorial@resourceprospector.com.
Good Investing,
Kevin McElroy
Editor
Resource Prospector
