Today’s Profit Watch is arriving behind schedule because I spent the morning on the phone with Silicon Valley investor and futurist Tony Seba.
I’m not allowed to say too much just yet. His upcoming book is still officially under ‘embargo’. But I can’t wait to tell you more about it.
However, there’s nothing to stop us talking about his previous book from 2014. It’s called Clean Disruption of Energy and Transportation.
Back then Tony — I guess I can call him by his first name now — was calling for Tesla and electric cars to shatter the existing framework. Tesla stock was around US$250 then.
It’s around US$1,000 now. I think it’s safe to say he called this one right.
The electric car meme that shot through the Australian market over 2016 and 2017 has fizzled out.
Lithium stocks long ago lost their lustre. And cobalt? Who cares about that anymore?
Well, it’s time to start taking another look. The battery theme is re-emerging and there are going to be further opportunities.
We got a taste of this yesterday. One stock I’ve had on my watchlist for years — yes years — is Cassini Resources Ltd [ASX:CZI].
The jewel in Cassini’s crown is its 30% stake in the Nebo-Babel nickel-copper deposit in remote Western Australia.
This project recently released its Pre-Feasibility Study earlier in 2020. Cassini’s partner here is Oz Minerals Ltd [ASX:OZL] — an ASX top 100 stock.
The Pre-Feasibility Study means Nebo-Babel is a known deposit but not yet near becoming a producing mine.
The market does have — based on various assumptions — a reasonable assessment of the project economics if the decision is made to develop a mine.
That’s now looking very likely indeed. Oz Minerals made an offer to acquire Cassini’s stake in Nebo-Babel on Monday.
Cassini shareholders got a nice 20% bump.
This suggests that other base metals projects are likely to start catching further interest and momentum as the market sniffs around for any other promising projects that can catch a bid.
But you need to know what type of investor you are here. The tricky part is not that lithium-ion batteries are going to grow into a huge market over the next decade.
It’s the chemistry inside the battery that could change.
That shifts around the supply and demand dynamics of the metals that go into them.
Tesla, for example, has made moves to get rid of cobalt because of the cost and social implications. The outlook for cobalt stocks deflates accordingly.
Keep this kind of dynamic in mind when you hear the next pitch for uranium projects.
There’s growing interest in the uranium explorers on the ASX.
The traditional rationale makes sense too. The uranium spot price makes new mines uneconomic.
The price must rise to make industry investment feasible.
Otherwise there won’t be nuclear power at any price…and the lights will go out in Japan and France, and other nuclear power countries.
Technological Disruption and the Impact on Stock Investing
This is where Tony Seba comes in.
His forecast is this traditional framework is made redundant from the wave of technological disruption.
Not only will nuclear power go, the energy system as we know it will go. These assets are already stranded and the market hasn’t caught on to the fact.
I don’t know enough about the topic yet to say categorically whether Tony Seba is 100% right.
But I suspect he is closer to the mark than most would even contemplate.
I’m not saying you can’t get a short-term trade away in uranium stocks, either.
But the idea of holding on long term from the discovery to the forecast arrival of a working mine — often a decade — is not one I’m going to back in this sector.
Perhaps this is the biggest problem with the Australian market in general.
So many of the ASX stocks are from legacy industries that can muddle along but are hardly at the forefront of innovation.
An overarching question for stock investors is: What industries can you back long term? Consider Warren Buffett’s mantra that his preferred holding timeframe is ‘forever’.
I’m not out to dish the great man, but he’s taken a bath on buying meh ideas like airlines, banks, and Kraft Heinz.
Presumably he was reaching for the perceived steady cash flows and strong balance sheets.
You don’t get those with a stock like Tesla.
It could also be a function of the size of Berkshire Hathaway now…his world of potential stocks is, ironically, much smaller than yours or mine.
Perhaps we’d all be better served with less focus on what Warren Buffett is doing and more on someone like, say, Cathie Wood.
She’s turned herself into the Queen of Wall Street by focusing on innovation and disruption.
She puts the coming wave of battery tech as central to her thesis, too.
I didn’t see any mention of nuclear power or the traditional energy grid.
It looks to me like the cosy world of the ASX 200 is on track to crumble as the reality of technology meets previous assumptions.
More to come!
PS: Our publication Profit Watch is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.