Five Risky Plays That Could Make Your Day
Call it the Dirty Harry portfolio. Five big bets for the brave, and only one question.
Do you feel lucky?
These aren't the investments for Grandma. And they aren't wagers to take with your rent money. These are the risky bets most people are too afraid to take.
They're a gamble. Some of them could go to zero.
But that risk comes with a kicker: high potential rewards. If these things work out they'll pay out, big time.
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There's a saying on Wall Street: There's no such thing as a safe investment, only one whose risks aren't yet apparent. Investors keep learning it all over again. J.P. Morgan Chase stock, anyone? Best Buy? How about some Greek government bonds? After all, they're members of the euro zone now, they should be fine!
At least here you'll know you're gambling. And you're getting paid for the risks.
So, in the words of Clint Eastwood's steel-nerved Inspector "Dirty" Harry Callahan: "You've got to ask yourself a question. 'Do I feel lucky?' Well, do ya, punk?"
1. Uranium Participation Risk: High
If you're looking for cheap fuel, this is it. Uranium prices have collapsed 30% since the Fukushima tragedy in Japan last year. A pound of uranium traded for $140 in 2007. Today: $52.
Since Fukushima, governments have scaled back plans for new reactors. Germany is going nuke-free. But it's not the whole story. World energy demand is expected to rise 40% over 20 years. Getting there without more nuclear reactors will be especially tough. Meanwhile, the world hardly mines enough uranium to feed the reactors that already operate. Uranium is well below replacement cost.
Uranium Participation is a Canadian closed-end fund which owns physical uranium in a warehouse, the way a gold fund owns gold. The stock, which trades under the symbol "U" on the Toronto Stock Exchange and as "URPTF" in the Pink Sheets over-the-counter market, trades for about 20% below the net asset value.
2. iShares MSCI France Index Fund Risk: Medium
Investors are not loving Paris in the springtime. The main CAC-40 index is down 20% in a month and it has halved from its 2007 peak. People were already worried about the country's debts and the European crisis. Now they are worried about the new, Socialist president as well.
But how much of those worries are already reflected in the price? This sale has left Parisian stocks looking very cheap.
This exchange-traded fund (EWQ) sports a 3.7% dividend yield. France boasts some top-notch global companies, from luxury-goods giant LVMH to energy multinational Total to Sanofi, the drug maker in which Warren Buffett is a big stockholder. The index has a light 13% weighting to risky financials, too. As for President François Hollande: He may be a Socialist, but he is above all a Frenchman. France Inc. will survive.
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3. Phoenix real estate Risk: Medium
Arizona's a nice place to live—so long as you like it hot. These days, it's cheap, too. If you're looking for an asset that's really on sale, average prices in the Phoenix area are down by more than half from their 2006 peaks, and many have fallen a lot further still.
This was one of the hottest centers in the boom and it's among the hardest hit now.
There are short sales and foreclosures everywhere. You can get four bedrooms, 3,500 square feet and a pool in a decent neighborhood for $150,000—or $700 a month at current mortgage rates. As always with real estate, buying means you need to do your homework.
For all of today's gloom, the U.S. population is growing and people will need more houses. Real-estate markets like Phoenix took off because people figured retiring baby boomers would move somewhere cheap and warm. Has that changed?
4. NovaGold Resources Risk: High
Way out in the Alaskan wilderness, in the far, far northwest, is an area known as Donlin Creek. There is gold in them thar hills. Lots of it.
Developers say they've found at least 34 million ounces of "proven and probable" reserves—with a gross value today of $54 billion—and there is almost certainly much more.
The Donlin Creek gold project is 50%-owned by Barrick Gold, one of the world's largest gold-mining companies, and 50%-owned by NovaGold, a small one. At $5 and change a share, NovaGold is valued at $1.7 billion.
It will be many years—maybe eight—before Donlin Creek actually starts producing its first ounces of gold. There is many a slip between cup and lip.
Gold exploration is famously exciting for investors, and not always in a good way. In this case you are taking a flyer on production, and on the future of gold prices.
Some really smart people have joined the gamble on this stock, including hedge-fund managers Seth Klarman and John Paulson and Fidelity Investments' star fund manager Will Danoff. Speculative, but fun.
5. Nokia Risk: High
Twelve years ago, Finland's Nokia ruled the cellphone industry around the world and was valued at more than $250 billion. Today, it's on its knees and it's valued at around $10 billion. The company, whose American depositary shares now sell for under $3, was caught flatfooted by the iPhone revolution.
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Today it makes a fascinating wager. Nokia, at long last, is in a turnaround under an outsider. New CEO Stephen Elop has junked the old software platform for Microsoft's new, and surprisingly impressive, Windows Phone 7.
The transition is proving painful. Sales collapsed last quarter. The old lines stopped selling, and the new ones are just getting going.
Nokia has a strong balance sheet and some worthwhile assets: a very strong brand in most of the world, great hardware, and plenty of patents and know-how. The alliance with Microsoft is a powerful one. Maybe Apple and Google have already "won" the mobile-phone business, and everyone else is doomed. But that's what they once said about Nokia.
Things change in this industry. Microsoft, which is desperate to play catch-up in smartphones, could buy Nokia today out of petty cash.
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