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Cobalt Gigastocks
BY JASON STEVENSON - 18/04/2017 | VIEW MORE ARTICLES BY THE DAILY RECKONING

When I first started analysing something called The Gigastock Phenomenon, I knew there was the potential for once-in-a-lifetime stock gains.

But even I have been taken aback by how quickly this boom is blowing up.

(If you haven’t yet looked into my three latest Gigastock ‘hyper-growth’ plays, you can by clicking here.)

The run-up in lithium stocks and cobalt stocks in particular over the six months has been a sight to behold.

So what comes next in the battery boom?

Even bigger gains, if I’m right.

But you need to pick the right resources and, more crucially, the right stocks.

And, conversely, you need to steer clear of the WRONG resources, and the wrong stocks.

As such, I think there’s one type of stock that falls into the Gigastock category that I think you should keep a wide berth from. At least for now…

COBALT stocks

Not all Gigastocks are equal.

And I believe cobalt and cobalt stocks are topping out.

Cobalt has been making headlines recently.

The Democratic Republic of Congo — the world’s largest cobalt supplier — has seen multiple conflicts between armed groups and security forces. The conflicts are fuelled by disputes over land, ethnicity and mineral resources.

Furthermore, the country’s president, Joseph Kabila, refused to step down when his constitutional mandate expired in December 2016. The Sydney Morning Herald reported recently:

Militia fighters in central Democratic Republic of Congo decapitated about 40 police officers in an ambush on Saturday, the deadliest attack on security forces since an insurrection in the region began last August.

The Kamuina Nsapu militants attacked the police on Friday as they drove from Tshikapa to Kananga, local authorities said.

The militia members stole arms and vehicles, according to Francois Kalamba, speaker of the Kasai provincial assembly.

The insurgency, which has spread to five provinces, poses the most serious threat yet to the rule of President Joseph Kabila, whose failure to step down at the end of his constitutional mandate in December was followed by a wave of killings and lawlessness across the vast central African nation.

Fears of a new civil war have increased sharply. If that happens, it would trigger massive supply shortages for cobalt (and copper) at a time when lithium-ion battery manufacturers are hungry for the key ingredient.

So what is that bad news for cobalt?

Well, the cobalt price has pretty much doubled since I first said it was set to soar. Take a look at the chart for yourself:


Source: infomine.com; Resource Speculator
[Click to enlarge]

Readers who bought my two cobalt plays — and followed the instructions on buy-up-to prices — could have made a lot of money, very quickly.

We sold Barra Resources Ltd [ASX:BAR] for a 138.6% profit at 10.5 cents per share on 27 February. The buy-in price was 4.4 cents.

I also tipped another cobalt play which I can’t name, as it’s still an open recommendation. We sold part of our holding for a 75.8% gain on 27 February. Our remaining 25% exposure remains in a HOLD position.

This is NOT because of cobalt, which I believe is beyond bubble territory. It’s because the company ALSO has a great copper story, and we may look to buy more stock when the timing looks better.

For now, I recommend being careful with all cobalt plays

Cobalt is mostly surging because of what’s happening in the DCR. Recent news over there didn’t do much for the price, despite the terrible spectre of 40 police being decapitated. That tells me much of the uncertainty is already priced into the base metal.

When tensions start cooling, prices are likely to nosedive. There’s obviously no knowing when, or if, that will happen. But caution is advised — cobalt looks like a bubble.

We’re starting to see lots of companies who haven’t done anything for years announce that they suddenly found cobalt in what I can only imagine is an effort to get their share prices higher.

Some companies are even buying ‘pure’ cobalt projects. Yet cobalt is often a bi-product of nickel and copper. The nickel and copper associated with the cobalt is often low grade, and not economically feasible at current prices. These companies will be in a world of pain when cobalt starts pulling back.

Don’t get the wrong idea, though. Some cobalt plays are still making investors good money, with the base metal trading near its highs. But enthusiasm towards the sector is starting to wear thin.

A lot of companies that are throwing around the word ‘cobalt’ aren’t seeing much of a share price response now. In fact, some companies have seen their share prices fall.

That tells me the bubble may be at the peak.

As I show you here, the Gigastock Phenomenon — related to the ongoing battery boom — could well yield once-in-a-lifetime gains for early investors.

But you need to be strategic.

You need to pick your spots.

You need to AVOID looking at what everyone else is looking at…and at areas where the big gains have already been made.



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The Daily Reckoning's mission is to look at the investment world and the financial world in a sceptical and contrarian way. To do that day in and day out and tell you honestly what we see, even if it isn't always popular. If you'd like to subscribe to an alternative look at the mainstream interpretation of events, join for free here.



 

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