5/29/2012 7:00 PM ET|
5 risky ‘make my day’ investments
If Dirty Harry were an investor, he wouldn't be afraid to take a shot at these investment ideas that could pay off big for anyone brave enough to buy.
Call it the Dirty Harry portfolio. Five big bets for the brave with only one question:
Do you feel lucky?
These aren't the investments for Grandma. And they aren't wagers to make with your rent money. These are the risky bets most people are too afraid to make.
They're a gamble. Some of them could go to zero. But that risk comes with a kicker: high potential rewards. If these stocks work out, they'll pay out . . . big time.
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. JPMorgan Chase (JPM) stock, anyone? Best Buy (BBY)? How about some Greek government bonds? After all, Greece is a member of the eurozone now, so they should be fine!
At least with the next five stocks, you know you're gambling. And you might get 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: High risk
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, it's $52.
Since Fukushima, governments have scaled back plans for new reactors. Germany is going nuke-free. But that's not the whole story. World energy demand is expected to rise 40% in the next 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 (URPTF), a Canadian closed-end fund, 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 on the Pink Sheets over-the-counter market, trades for about 20% below net asset value.
2. iShares MSCI France Index Fund: Medium risk
Investors apparently don't love 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 new Socialist President Francois Hollande as well.
But how much of that worry is already reflected in the price? Parisian stocks now look très cheap.
The iShares MSCI France Index Fund (EWQ) sports a 3.7% dividend yield. France boasts some top-notch global companies, from luxury-goods giant LVMH Moët Hennessey Louis Vuitton (LVMUY) to energy multinational Total (TOT) to Sanofi (SNY), the drug maker in which Warren Buffett is a big stockholder. The index has a light 13% weighting to risky financials, too. As for Hollande, he may be a Socialist, but he is above all French. France, Inc. will survive.
3. Phoenix real estate: Medium risk
Arizona's a nice place to live -- as long as you like it hot. And these days, it's cheap, too. If you're looking for an asset that's really on sale, average real estate prices in the Phoenix area are down by more than half from their 2006 peaks, and many have fallen further still.
This was one of the hottest centers in the boom, and it's among the hardest hit now. Short sales and foreclosures are 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, though, buying means you need to do your homework.
For all of today's gloom, the U.S. population is growing, and people will continue to 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?
More from The Wall Street Journal:
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4. NovaGold Resources: High risk
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 split between Barrick Gold (ABX), one of the world's largest gold-mining companies, and NovaGold Resources (NG), 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 gold. And, as the adage goes, 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 both production and 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. It's speculative, but fun.
5. Nokia: High risk
Twelve years ago, Finland's Nokia (NOK) ruled the world cellphone industry and was valued at more than $250 billion. Today, it's on its knees and valued at around $10 billion. The company, whose American depositary shares now sell for less than $3, was caught flat-footed by the iPhone revolution.
Today, Nokia makes a fascinating wager. At long last, the company is in a turnaround under an outsider. New CEO Stephen Elop has junked the old software platform in favor of Microsoft's (MSFT) new, and surprisingly impressive, Windows Phone 7. (Microsoft is the publisher of MSN Money.)
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, plenty of patents and know-how. The alliance with Microsoft is a powerful one. Maybe Apple (AAPL) and Google (GOOG) 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.
More from The Wall Street Journal:
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