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Are Commodities a Buy?

Getting to the market today—first we had the August 24 bottom, a month later we had the retest, and now we’ve got a rally that, while it’s not perfect, is certainly creating some winners. I think selective buying is okay. But what to buy? For my money, there are two methods of stock-picking that tend to work.

Rockwell Kent: “This is My Own”

Are Commodities a Buy?

Zillow (ZG) or United Technologies (UTX)?


Last weekend my wife and I visited some old friends in the Adirondack Mountains of New York, and on Sunday, we took part in the Essex County Cheese Tour, which featured three local farms that had opened to public, giving tours and selling their wares direct to the public.

One of these was Asgaard Farm, which produces goat cheese.

The cheese was good, as was the free cider and the crisp, fresh apple that I enjoyed.

But what intrigued me most was learning that Asgaard Farm was the home of Rockwell Kent from 1927 until his death in 1971.

Who was Rockwell Kent?

He was an artist first, and a writer second. He was the original painter of those four-foot high letters on his barn. But he was most famous, perhaps, for doing the black-and-white pen, brush and ink drawings for a 1930 edition of Moby Dick.

Born in Tarrytown, New York, Kent was never a rich man; sometimes, like many artists, he was poor. Nevertheless, he packed a lot into his life.

In his first four decades, Kent took inspiration from his travels to wild and unpopulated regions of the earth, including Monhegan Island, Maine; Winona, Minnesota; Newfoundland, Alaska, Vermont, Tierra del Fuego, Ireland and Greenland.

What he found there, in addition to natural beauty, was himself. In fact, in 1930, he wrote this in the second preface to “Wilderness,” an account of a winter he spent in Seward, Alaska with his son:

“The thought that was born to me in the quietness of that adventure—that in the wilderness, in uneventful solitude, men for companionship must find themselves—has come to be for me the truth. Maybe the only truth I know.

“Go, young men to grow wise and wise men to stay young, not West nor East nor North nor South, but anywhere that men are not. For we all need, profoundly, to maintain ourselves in our essential, God-descended manhood against the forces of the day we live in—to be at last less products of a culture than the makers of it. There, in that wilderness so anciently unchanged it might have seen a hundred cultures flower and die, there realize—you must—that what is you, what feels and fears and hungers and exalts, is ancient as the wilderness itself, rich as the wilderness and kin to it. And of those ancient values of the soul, Art through all its fashions of utterance, despite them all, despite the turmoil of this age, despite New York and Harlem, steel and jazz, proclaims above the riot of Godlessness that there, in Man, eternally, is all the very much man ever knew of God.”

Kent not only embraced wilderness and solitude, he also embraced socialism, which earned him both a subpoena to testify for Senator Joe McCarthy’s Permanent Subcommittee on Investigation in 1953 and the Lenin Peace Prize in 1967.

He loved his country; he just wanted it to be more egalitarian.

He married three times. He was not a faithful husband.

But he is buried next to his wife at Asgaard farm, and here is what his stone looks like.

At the top is the inscription “THIS IS MY OWN,” which puzzled me.

A little research reveals that “This Is My Own” is the title of one of his books, one that details a year spent at the farm.

But further research reveals that the words came originally from that famous Scottish poet, Sir Walter Scott, who wrote:

BREATHES there the man with soul so dead,
Who never to himself hath said,
‘This is my own, my native land!’
Whose heart hath ne’er within him burn’d
As home his footsteps he hath turn’d
From wandering on a foreign strand?
If such there breathe, go, mark him well;
For him no Minstrel raptures swell;
High though his titles, proud his name,
Boundless his wealth as wish can claim;
Despite those titles, power, and pelf,
The wretch, concentred all in self,
Living, shall forfeit fair renown,
And, doubly dying, shall go down
To the vile dust from whence he sprung,
Unwept, unhonour’d, and unsung

Kent was far from a perfect man, but he had vision, he had energy, and he loved both his farm and his country.

He died of a heart attack in 1971, aged 88.

--- The Market Today

To my knowledge, Rockwell Kent was never an investor, but if he were, I think he’d be an investor in emerging markets, ideally countries with low population density and plenty of natural resources.

And if he were, he’d almost certainly have taken a bath earlier this year, as commodities of all sorts tumbled under the twin influences of slowing growth in China and increased oil production in the U.S.

In late September, the S&P Copper Index was down 21% for the year, the S&P Global Oil Index was down 24%, and the S&P Platinum Index was down 25%.

The sector has rallied since, but is this uptrend the real thing, or will stocks roll over and hit new lows?

I truly don’t know, but I can tell you what my bias is. My bias is for investing in companies that actually add value to the world, by taking one thing, adding labor and intelligence to it, and producing something of higher value.

In short, commodities aren’t my cup of tea.

And the long-term performance of commodity stocks in general gives me no reasons to change my mind. Sure, there are occasional periods when commodities shine, but in the long run, they get blown away by real growth stocks whose companies are actually making the word better.

So, getting to the market today—first we had the August 24 bottom, a month later we had the retest, and now we’ve got a rally that, while it’s not perfect, is certainly creating some winners. I think selective buying is okay.

But what to buy?

For my money, there are two methods of stock-picking that tend to work.

The first is chart-based. You want to find a stock that’s been lifted by a lot of institutional buying power.

The second is value-based. You want to find stocks that are cheap, and that will be higher months and years down the road.

The first system is especially suited for investors who are impatient.

If that’s you, maybe this chart appeals to you.

Note that Zillow (ZG) bottomed in early August, just as the broad marketing was keeling over, and the stock was fairly immune to the selling pressures that took most stocks down in September. That was a sign that institutions were moving in. The stock topped 35 last week, and buying it here might work out fine.

On the other hand, the stock could easily pull back to 30 in any short-term correction—so it’s a tricky situation. What I really recommend is that you become a regular reader of Cabot Top Ten Trader, which originally recommended the stock.

There you’ll not only read Mike Cintolo’s timely analysis of the company’s real estate intelligence and marketing business—including its recent acquisition of Trulia—you’ll also get expert advice on where to buy the stock.

And you’ll get regular updates every week thereafter, along with profiles of 10 strong stocks every Monday.

Details here.

If you’re more interested in buying value, on the other hand, and you have the patience to hold for a year or two or three, then maybe this stock is for you.

United Technologies (UTX) is a big company with five divisions: Otis Elevator; UTC Climate, Controls and Security; Pratt & Whitney; UTC Aerospace Systems and Sikorsky Helicopters.

The company’s growth is minimal now, not least because of the slowdown in China, but management isn’t sitting still.

In July, they announced an agreement to sell Sikorsky Helicopters to Lockheed Martin for $9 billion, and there’s little doubt they’ll use the proceeds to invest in smaller, faster-growing companies.

You can see the stock’s drop in reaction to the news. Before the announcement, UTX was trading at 110; now it’s down 16% from that level.

But the stock pays a hefty dividend of 2.8%. It’s been increasing its dividend for every one of the past 21 years. And Roy Ward of Cabot Benjamin Graham Value Investor says the stock is cheap.

But there’s one catch.

As with all of Roy’s value recommendations, there’s a Maximum Buy Price, and you don’t want to pay more than that price, as that reduces your Margin of Safety, while decreasing your potential profit.

So if you’re really interested in United Technologies, as well as other great low-risk value stocks, I recommend that you learn more about Cabot Benjamin Graham Value Investor.

Note: since 1995, Roy’s Cabot Value Model has provided an impressive return of 1,036% compared to a return of 508% for Warren Buffett’s Berkshire Hathaway! During the same 19-year period, the Dow has gained just 218%.

The first step is to click here.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory

Timothy Lutts is Chairman Emeritus of Cabot Wealth Network, leading a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems.