Copper Still Says A Trade Agreement Is On The Horizon

Doctor copper has a long history as a bellwether commodity when it comes to the health and wellbeing of the global economy. We can debate the efficiency of the copper price as a leading indicator, but recently the red metal has been watching and reacting to the ongoing negotiations between the United States and China over trade.

During the 2016 election campaign, President Trump promised that he would level the playing field for trade with the nation with the world’s second leading economy. The Commander-in-Chief pointed his finger directly at China as an abuser of US trade policies. While he did not blame China and expressed his disdain for previous US administrations that allowed the Chinese to take advantage of the US, he pledged to remedy the situation if elected. In 2018, the President began the negotiations by slapping tariffs on China that have weakened their economy which has been a benefit when it comes to the discussions surrounding a new framework for trade that will end the period of protectionism by the US and retaliation by the

Chinese when it comes to US goods.

With the 2020 election season gearing up, President Trump wants to deliver on his promise to level the playing field when it comes to trade with the Chinese. A victory would be a political bonus as he hits the campaign trail in his re-election bid. The copper market has been telling us that success is on the horizon as the price of the red metal has been moving towards the $3 per pound level after trading to a low at under $2.55 at the start of 2019.

BHP Group (BBL) is based in Melbourne, Australia, but the company’s tentacles reach around the globe. BHP is one of the leading natural resources firms in the world and a leading producer of copper as it operates the largest copper mine in Chile and properties around the globe that produce the red metal. A rise in the price of copper above the $3 level would support gains in the price of BBL shares.

The price action in the red metal has been strong

Copper came into 2019 with a whimper as the price dropped to a low at $2.5430 per pound on January 3, the second day of trading of the year. Since then, the price of copper has recovered and traded at the highest level since June 2018 when it was on its way lower on the back of the trade dispute between the US and China.

On the way down, copper broke below multiple levels of technical support, the last being at $2.8750 which was the September 2017 low. In February, the price rose above that level.

Source: CQG

As the weekly chart highlights, the price of copper rallied steadily from the early January low through the end of February when the price ran out of steam on the upside at $2.9780 on the nearby COMEX futures contract. After a correction that took copper back to $2.8335 in March, the price moved to a marginally higher high at $2.9885 on April 1. The price of the base metal was trading just below the $2.90 per pound level at the end of last week with price momentum in slightly overbought territory and relative strength at the upper region of a neutral condition. Open interest has been flatlining around the 250,000-contract level since early February as copper has been following the ups and downs of the flow of trade negotiations between the US and China.

At around $2.90 per pound, the copper market remains optimistic that a trade deal is on the horizon.

An analysis of LME and COMEX stockpiles yields a bullish conclusion

In March 2018, copper inventories on the London Metals Exchange moved to a high at over 388,000 metric tons. In mid-March 2019, the stockpiles in LME warehouses had declined to a low at 111,775 tons, a drop of over 71%.

Source: LME/Kitco

As the chart shows, LME stocks suddenly increased in mid-March to 186,425 tons from the low which likely put some downside pressure on the price of copper which fell to $2.8335 during the week of March 25. However, stocks had been edging lower since the recent high and stood at 167,425 tons as of April 2. On April 4, they rose to 198,325 tons which put some pressure on the price of the red metal at the end of last week.

Meanwhile, stocks of copper in COMEX warehouses moved lower over the past two months.

Source: LME/COMEX

As the chart shows, COMEX inventories declined from around 82,000 tons to 41,425 tons as of April 4.

Overall, the current level of copper stockpiles on the two leading exchanges in the world is supportive of the price of the red metal. Declining stocks is a sign of robust demand for the red metal. I will be keeping an eye on the LME stocks next week. If they rise above the 200,000-ton level, we could see further corrective price action.

The monthly chart has shifted to an uptrend

The longer-term monthly copper chart shows that the base metal rose to an overbought condition and remained in overbought territory from mid-2017 through early 2018. Last June, the threat of a strike at the world’s leading copper mine, Escondida in Chile, caused a short-term price spike that took the metal to 0.65 cents under the late 2017 peak at $3.3220 per pound. However, a settlement between the mine’s management BHP and workers combined with the escalating tariffs on

China by the US and Chinese retaliation caused the price to fall like a stone. To just over the $2.50 per pound level in August 2018.

Source: CQG

As the monthly chart shows, the price spent around four months consolidating between just over $2.50 and under the $2.8750 technical resistance level when price momentum declined into an oversold condition. Rising optimism over a new framework for trade between the US and China lifted the price of copper over its technical resistance price at $2.8750 and pushed the price to just shy of $3 per pound and price momentum crossed to the upside on the longer-term chart and is now in neutral territory.

China is a massive consumer of the metal

The trade dispute has weighed on China’s economy, but economic growth in the world’s most populous nation was still at over 6.5% in 2018. China continues to grow, and that means that the demand for infrastructure building across the country of 1.4 billion people is rising. At the same time, President Xi rolled out a program to reduce pollution near many Chinese cities which caused a reduction in the smelting and refining of metals. Cutting pollution in China means that import requirements for refined copper are likely rising. A trade deal could propel demand for the red metal even higher over the coming months which is a reason why copper traded to a high at almost $3 per pound.

The monthly chart indicates that the current path of least resistance for the price of copper is higher. A trade agreement between Presidents Trump and Xi could send the price back over the $3 per pound psychological level in copper and set the stage for a higher peak above the $3.3220 resistance level. On April 4, President Trump expressed optimism over a trade deal. He told markets that negotiators need another four weeks to settle the many issues but added that the two sides had already agreed on many of the most challenging factors. Intellectual property and the future of tariffs continue to be sticking points for a final deal. Therefore, we are likely to see a continuation of volatility in the copper market over the coming month with support at over $2.80 and resistance at the $3 per pound level on the nearby COMEX futures contract.

BHP Group is one of the leading producers in the world

BHP Group is a multinational commodity producing company with a large footprint in the copper market. Aside from their interest in the world’s leading copper producing mine in Chile, they own and operate many other properties around the globe. The company profile for BHP Group states:

BHP Group discovers, acquires, develops, and markets natural resources worldwide. The company engages in the exploration, development, and production of oil and gas properties; and mining of copper, silver, lead, zinc, molybdenum, uranium, gold, and iron ores, as well as metallurgical and energy coal. It also engages in the mining, smelting, and refining of nickel; provision of freight, finance, and administrative services, as well as trading, marketing, and support services; and potash development activities. BHP Group is headquartered in Melbourne, Australia. (Source: Yahoo Finance)

BHP Group has net assets of $204.997 billion, trades at a price to earnings multiple of 24.53 times earnings and pays a dividend of 4.41%. Over 1.5 million BBL shares change hands on average each day.

Source: Barchart

As the chart shows, BBL shares are correlated with the price of copper which is one of the leading products for the company. BBL has rallied steadily since early 2016 when copper fell to a low at $1.9355 per pound. Last May the shares traded at a peak at $47.92, but the issues at Escondida and the weak stock market in Q4 2018 caused a correction to a low at $38.04 in late 2018. Since then, the shares have been moving higher reaching their most recent peak at $50.59 per share last week and they closed at over the $50 level.

There is an excellent description of the difference between BBL and BHP shares via this link. The piece opines that “It is almost always better for Americans investing through retirement accounts to buy into BBL rather than BHP. As a significant producer of copper, both BBL and BHP are likely to move higher or lower with the price of the red metal over the coming weeks. As a barometer of the state of trade negotiations between the US and China, the company is likely to act as an excellent proxy for the price of the red metal which could move back above $3 per pound in the event of a trade agreement that ends the current era of protectionism.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Monthly Review Of DivGro: March 2019

review of dividend growth portfolio

Welcome to the March review of DivGro, my portfolio of dividend growth stocks. Quarter-ending months are exciting, as many of the stocks I own pay dividends in these months and I usually set a new record for monthly dividend income in quarter-ending months.

March did not disappoint. I received dividends totaling $3,220 from 43 stocks in my portfolio, a new record for monthly dividend income! Year over year, DivGro’s dividend income increased by 28%. So far in 2019, I’ve collected $6,724 in dividends or about 27% of my 2019 goal of $25,200.

Looking at how the month’s activities impacted DivGro’s projected annual dividend income (PADI), I note that five DivGro stocks announced dividend increases in March. Additionally, I opened one new position and added shares to five existing positions. On the other hand, I closed out one high-yielding position. Unfortunately, the net result of these changes is that projected annual dividend income (PADI) decreased by about 0.6% in March. Year over year, PADI increased by 39%.

DivGro’s PADI now stands at $25,376, which means I can expect to receive $2,115 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. Of course, I expect the companies I’ve invested in not only to continue to pay dividends but to also increase them over time. Also, until I retire, I hope to continue reinvesting all dividends, so DivGro’s PADI should continue to grow through dividend growth and through compounding.

Dividend Income

In March, I received a total of $3,220 in dividend income from 43 different stocks:

Following is a list of the dividends I collected in March:

  • Aflac (AFL) — income of $27.00
  • Amgen (AMGN) — income of $36.25
  • Broadcom (AVGO) — income of $53.00
  • Boeing (BA) — income of $41.10
  • BlackRock (BLK) — income of $115.50
  • Cummins (CMI) — income of $57.00
  • Chevron (CVX) — income of $28.56
  • Dominion Energy (D) — income of $91.75
  • Digital Realty Trust (DLR) — income of $48.60
  • EPR Properties (EPR) — income of $18.75
  • Eversource Energy (ES) — income of $53.50
  • Extra Space Storage (EXR) — income of $47.30
  • Ford Motor (F) — income of $300.00
  • Gilead Sciences (GILD) — income of $126.00
  • Home Depot (HD) — income of $81.60
  • Honeywell International (HON) — income of $41.00
  • International Business Machines (IBM) — income of $47.10
  • Intel (INTC) — income of $163.81
  • International Paper (IP) — income of $50.00
  • Johnson & Johnson (JNJ) — income of $111.60
  • Lockheed Martin (LMT) — income of $30.80
  • Main Street Capital (MAIN) — income of $146.26
  • McDonald’s (MCD) — income of $31.32
  • 3M (MMM) — income of $36.00
  • Microsoft (MSFT) — income of $46.00
  • NextEra Energy (NEE) — income of $31.25
  • AllianzGI Equity & Convertible Income Fund (NIE) — income of $380.00
  • Realty Income (O) — income of $56.38
  • PepsiCo (PEP) — income of $18.55
  • Pfizer (PFE) — income of $72.00
  • Public Storage (PSA) — income of $60.00
  • Ross Stores (ROST) — income of $25.50
  • Stanley Black & Decker (SWK) — income of $33.00
  • TJX (TJX) — income of $39.00
  • T. Rowe Price (TROW) — income of $152.00
  • Travelers (TRV) — income of $77.00
  • UnitedHealth (UNH) — income of $36.00
  • Union Pacific (UNP) — income of $35.20
  • United Parcel Service (UPS) — income of $33.60
  • Visa (V) — income of $4.25
  • Valero Energy (VLO) — income of $166.50
  • Walgreens Boots Alliance (WBA) — income of $88.00
  • Exxon Mobil (XOM) — income of $82.00

The following chart shows DivGro’s monthly dividends plotted against PMDI. Quarter-ending months are huge outliers:

This is one reason that I now create a rolling 12-month average of dividends received (the orange bars) plotted against a rolling 12-month average of PMDI (the blue, staggered line):

While it would be nicer if dividends were distributed more evenly, it is not something that would drive my investment decisions.

Dividend Changes

In March, the following stocks announced dividend increases:

  • General Dynamics (GD) — an increase of 9.68%
  • Realty Income — an increase of 0.22%
  • Ross Stores — an increase of 13.33%
  • Raytheon (RTN) — an increase of 8.65%
  • W.P. Carey (WPC) — an increase of 0.19%

These changes will increase DivGro’s PADI by about $39.

I like seeing dividend increases above 7% and three of the five increases top my expectations. As for the REITs O and WPC, they announce dividend increases multiple times per year. O’s year-over-year increase is 2.96%, whereas WPC’s year-over-year increase is 1.67%.

Transactions

Here is a summary of my transactions in March:

  • Merck (MRK) — new position of 30 shares

After opening a small position in Chevron (CVX) in December 2018, MRK was the highest ranked stock in the top 50 holdings of dividend ETFs not in my DivGro portfolio. MRK ranked higher on an aggregate score than several of my Health Care sector holdings and, according to Simply Safe Dividends, MRK has a Very Safe dividend safety score of 98.

I opened a relatively small position of 30 shares at $80.52 per share, as MRK is not trading at my preferred discount to fair value of at least 10%. With this opening position, I’ll be able to track MRK more closely and look for opportunities to add shares at a better valuation.

  • Omega Healthcare Investors (OHI) — sold 250 shares and closed position

I decided to close my position in OHI on concerns about the declining fundamentals of OHI’s skilled nursing tenants. OHI has a Borderline Safe dividend safety score of 47, yet the REIT’s yield of 7%+ provides some compensation for the increased risk. Unfortunately, OHI broke a streak of 21 consecutive quarters of dividend increases when it froze its dividend last April, and unless OHI declares another dividend increase in 2019, it will be removed from the CCC list of dividend growth stocks.

It turns out my closing trade was about two weeks premature, as OHI closed at a 30-day high of $38.31 on 28 March. Nevertheless, my closing price of $35.90 secured a net gain of 29% or about 18% annualized.

To (somewhat) make up for the $660 in annual dividends I gave up by closing my OHI position, I added shares to several existing positions trading at favorable comparative yields.

  • CVS Health (CVS) — added 50 shares and increased position to 200 shares

CVS continues to struggle and now is trading about 34% below its 52-week high. I paid $53.49 per share and lowered my average cost basis to $65.16. CVS froze its dividend after buying Aetna, though Simply Safe Dividends still considers the dividend Safe with a dividend safety score of 75.

I believe CVS will be fine in the long term, so the current yield is just too compelling to pass up, as illustrated in this 7-year yield channel chart:

  • Home Depot — added 10 shares and increased position to 60 shares
  • Honeywell International — added 10 shares and increased position to 60 shares
  • Iron Mountain (NYSE:IRM) — added 50 shares and increased position to 200 shares
  • 3M — added 15 shares and increased position to 40 shares

HD‘s dividend safety score is 90 (Very Safe) while the stock’s current dividend yield of 2.71% is 29% above its 5-year average of 2.11%, according to Simply Safe Dividends. I paid $182.11 per share, slightly lowering my average cost basis in the process. The stock’s dividend growth is stellar, with 5-year and 20-year dividend growth rates of 22%.

I also added 10 shares to my HON position, which is deemed a Very Safe dividend growth stock with a dividend safety score of 98. HON is trading at about fair value. Honeywell reported solid Q4’18 results and the management team increased their guidance for fiscal 2019. I think the stock is a great long term hold, though it is vulnerable to market cyclicality.

IRM‘s dividend yield of 6.8% is about 11% above its 5-year average dividend yield of 6.13%. While the REIT’s dividend safety score is on the low end at 52 (Borderline Safe), I think the 6.8% yield compensates me sufficiently for the somewhat higher risk. I paid $34.86 per share and I notice the stock is now trading above $36 per share, so my timing seemed to be good.

Finally, it is not often that one can buy MMM at a discount to fair value. I missed an even better opportunity in December 2018, but I’m happy that I grabbed 15 shares at $206.08 in March. The stock now trades at $216 per share. MMM has a Very Safe dividend safety score of 86 and boasts a 5-year dividend growth rate of 16%.

The net effect of my March transactions is that DivGro’s PADI decreased by about $198. However, I believe my portfolio’s risk profile has improved in the process and I’m happy that I replaced the somewhat riskier OHI with safer alternatives.

Markets

Here is a summary of various market indicators, showing the changes over the last month:

In March, the DOW 30 increased slightly, the S&P 500 increased by 1.79%, and the NASDAQ increased by 2.61%. The yield on the benchmark 10-year Treasury note fell to 2.414%, while CBOE’s measure of market volatility, the VIX, decreased to 13.71.

Portfolio Statistics

Based on the total capital invested and the portfolio’s current market value, DivGro has delivered a simple return of about 47% since inception. In comparison, DivGro’s IRR (internal rate of return) is 14.5%. (IRR takes into account the timing and size of deposits since inception, so it is a better measure of portfolio performance).

I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro’s average YoC decreased from 3.98% last month to 3.92% this month.

On the other hand, DivGro’s projected annual yield is 4.73%. This is down from last month’s value of 4.84%. I calculate the projected annual yield by dividing PADI ($25,376) by the total amount invested.

Percentage payback relates dividend income to the amount of capital invested. DivGro’s average percentage payback is 13.5%, up from last month’s 13.1%.

Here’s a chart showing DivGro’s market value breakdown. Dividends are plotted at the base of the chart so we can see them grow over time:

Looking Ahead

I’ve been working on creating a database of weekly dividend yields covering a period of 12 years. For now, the database covers dividend-paying stocks in my portfolio. In time, I’d like to add high-quality dividend growth stocks I don’t yet own.

Maintaining the database will allow me to create yield channel charts at any time to help guide investment decisions. Furthermore, I’ll be able to do a quick fair value estimate for stocks in the database by comparing the current dividend yield with the historical average dividend yield over a period of, say, five years.

I’m hoping to get back to writing monthly DivGro Pulse articles and share yield channel charts of stocks trading at or near extreme historical yields.

Please see my Performance page for various visuals summarizing DivGro’s performance.

Thanks for reading and take care, everybody!

Disclosure: I am/we are long AAPL, ABBV, ADM, AFL, AMGN, APD, AVGO, BA, BLK, CB, CMCSA, CMI, CSCO, CVS, CVX, D, DGX, DIS, DLR, EPR, ES, EXR, FDX, FRT, GD, HD, HON, HRL, IBM, INTC, IP, IRM, ITW, JNJ, JPM, KO, LMT, LOW, MAIN, MCD, MDT, MMM, MO, MRK, MSFT, NEE, NNN, O, PEP, PFE, PG, PM, ROST, RTN, SBUX, SKT, SPG, SWK, T, TJX, TROW, TRV, TXN, UNH, UNP, UPS, V, VLO, VZ, WBA, WEC, WPC, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

When Will Gene Editing Help Humans? This Investor Says It’s Already Happening

Technology has long infused health care with inspiration and hope. The trend held true on Wednesday when a trio of forward-thinking industry leaders shared their thoughts on the future of medicine at Fortune’s fourth-annual Brainstorm Health conference in San Diego.

But their discussion was also about wallets—specifically, in what technologies these investors are putting their money.

Legendary Silicon Valley investor Beth Seidenberg of Westlake Village BioPartners made news at the conference, revealing that cell therapy startup Tmunity has brought a product into human clinical trials that has knocked out multiple cancer genes.

“You read a lot about gene editing and CRISPR-Cas9 as a tool to knock-in or knock-out specific genes,” said the 14-year Kleiner Perkins veteran. “There’s a big question as to when is that ready for humans. I’m here to tell you it’s already in humans.”

The reveal came during a back-and-forth when the moderator, Fortune executive editor Adam Lashinsky, asked participants to weigh in on the impact of Amazon in health care. The e-commerce giant is a hot topic even at a conference focused on medical technology, since its entrance into the pharma space with its acquisition of PillPack and foray into nonprofit healthcare, along with Berkshire Hathaway and JPMorgan through Haven.

“Everyone wants to know what Amazon is doing,” said panelist Cheri Mowrey of Morgan Stanley. “We wish we had a crystal ball.” But as the investment bank’s head of health care services, Mowrey has watched as Amazon has made lots of hires in health care, describing them as “little pods of people within Amazon who are focused on specific programs—very secretive pods of people.”

A good example of this is PillPack, which has allowed the company to get comfortable with the federal regulatory and HIPAA framework. She expects Amazon’s next move will be to start monetizing medical devices.

But big money—and cures—lie in newer FDA-approved products that are coming available, says Amit Sinha of Goldman Sachs. “There’s been real value creation in fueling continued interest for treatments and modalities.”

Focusing on biotechnology investment at Goldman, Sinha considers the future of health care belongs to both big and small players. “If you look at the field of immuno-oncology, the biggest players today are large pharmaceutical companies, and part of that is because the funding required to fully develop and tap the full potential of some of these therapies required hundreds of millions of dollars.”

But breakthroughs like Tmunity’s are also impossible to ignore.

Additionally, Sinha thinks cell therapy, and its ability to do more with immune system-linked combination therapy, offers enormous potential. Said the banker: “That field alone is going to be the basis for some very important drugs over the next decade.”

For more coverage of Fortune’s Brainstorm Health conference, click here. For news delivered daily to your inbox, subscribe to Fortune’s Brainstorm Health Daily newsletter.

Toyota to give royalty-free access to hybrid-vehicle patents

TOKYO (Reuters) – Toyota Motor Corp said it would offer royalty-free access to its hybrid-vehicle technology patents through 2030, as it seeks to expand use of lower emissions vehicles before the global auto industry shifts to all-battery electric cars.

FILE PHOTO : Toyota Motor Corp’s logo is pictured on the engine of a plug-in hybrid vehicle displayed at the company’s showroom in Tokyo September 24, 2012. REUTERS/Yuriko Nakao/File Photo

The Japanese automaker said it would grant licenses on nearly 24,000 patents on technologies covering hybrid power systems, which comprise motors, power converters and batteries.

“Based on the high volume of inquiries we receive about of vehicle electrification systems from companies that recognize a need to popularize hybrid and other electrified vehicle technologies, now is the time for cooperation,” Toyota Executive Vice President Shigeki Terashi said in a statement on Wednesday.

The Nikkei Asian Review first reported Toyota’s plans to give royalty-free access to hybrid-vehicle patents.

   Since pioneering the Prius, the world’s first mass-produced hybrid car, in 1997, Toyota has sold more than 13 million cars featuring the technology, which twins a conventional gasoline engine and electric motor, saving fuel by capturing energy during coasting and breaking and using it to power the motor.

Hybrid vehicles account for around 3 percent of all vehicles sold globally, eclipsing the roughly 1 percent share of all-battery electric vehicles (EVs), according to LMC Automotive.

Toyota vehicles account for more than 80 percent of the hybrid vehicle market.

Global automakers have pledged to electrify their offerings in coming years amid tightening global emissions regulations, but many acknowledge that shifting to all-battery EVs will take time due to the high cost of the required batteries.

Toyota has long held to its belief that its hybrids, whose fuel efficiency is roughly double that of gasoline cars, are a cost-effective alternative to all-battery EVs, due to their lower cost, lack of need for charging infrastructure, and because they operate more or less like gasoline cars.

Beyond hybrids, Toyota is betting on hydrogen fuel cell vehicles as the ultimate zero-emissions vehicle, and as a result, it has lagged many of its rivals in marketing all-battery EVs.

Reporting by Naomi Tajitsu in TOKYO abd Aby Jose Koilparambil in BENGALURU; Editing by Christopher Cushing and Himani Sarkar