The three best assets to buy now include an emerging market currency, a natural gas exchange-traded fund (ETF) and riding along with the greatest investor of all time.
A well-known investment philosophy on Wall Street is that excess returns cannot be commonly generated without taking on excess risk. The one exception is diversification.
Different securities have different levels of exposure to economic conditions. As a result, diversification reduces the likelihood of an entire portfolio of securities suffering significant losses, decreasing risk and volatility.
The importance of diversification is common knowledge among most investors. However, many individuals stop at stocks and bonds, ignoring other asset classes that could benefit their portfolio. We have identified the top three investments across three asset classes to maximize your benefit from diversification.
3 Best Assets to Buy Now: #3
United States Natural Gas Fund (NYSEARCA: UNG)
The United States Natural Gas Fund (NYSEARCA: UNG) is a commodities exchange-traded fund (ETF) linked to the price of natural gas futures traded on the NYMEX. UNG is the only natural gas ETF listed on U.S. exchanges.
Energy prices have seen a sharp increase in recent months due to supply chain issues and a surge in demand as economies awaken from COVID-19 slumbers. Russia’s invasion of Ukraine in February 2022 further drove high global energy prices to record levels. The oil and gas exploration and production industry saw its revenue jump by 91.6% over the past year.
The invasion has hit Europe especially hard. Russian President Vladimir Putin has leveraged Europe’s dependency on Russian natural gas as a geopolitical bargaining tool.
Russia supplied 40% of the European Union’s (EU) natural gas demand, most of which was delivered through Gazprom-owned Nord Stream 1, the largest natural gas pipeline on the continent. Nord Stream 1 was operating at just 40% of expected levels before officially shutting off in early September 2022. Nord Stream 2 was completed in September 2021 but never entered service. Both pipelines suffered operation-ending damage through sabotage in October 2022, ending Russian natural gas deliveries to the EU for the foreseeable future.
As a result, natural gas prices on the continent are some of the highest in the world. EU gas prices rose 12x early 2021 figures in August 2022.
Natural gas prices have since dipped from a high of $8.81 per million Btu in September on the backs of the Europe Union exceeding its natural gas targets. The economic coalition has successfully filled over 90.0% of its gas storage ahead of winter. However, analysts expect natural gas prices to rebound.
At $5.56 per million Btu, natural gas prices remain elevated compared to the start of Russia’s invasion. Norwegian and American natural gas industries have stepped up to fill Europe’s natural gas shortage to ensure the continent’s reserves are filled. President Joe Biden had pledged to help offset Europe’s natural gas shortage by providing 15 billion cubic meters of liquid natural gas in 2022.
However, there are signs the United States may not be able to fulfill Europe’s natural gas shortfall next year. The continent’s natural gas deficit could reach 30 billion cubic meters next year. With no end to the Russia-Ukraine conflict and no permanent substitute for Russian natural gas, European and global natural gas prices are set to skyrocket in the coming months. February 2023 European natural gas futures are trading at a 50% premium compared to options expiring a month earlier.
ETFs are the best option for everyday Americans seeking to invest in commodities. Commodities are commonly traded through derivatives (futures and options contracts) which can result in such commodities being delivered to the futures or options holder. Retail investors are typically unable to store and sell barrels of crude oil or bags of sugar. With an ETF, the management team handles the delivery and storage of said commodities.
Although no U.S. ETFs are tracking European natural gas prices, the U.S. currently sends 60% of its natural gas supply to Europe. An increase in European prices will lead to a subsequent rise in American gas prices, making the UNG an attractive investment.
3 Best Assets to Buy Now: #2
Indian Rupee (INR)
The Indian Rupee (INR) is the primary currency of India and is also accepted in the Kingdom of Bhutan. The INR may be less popular to trade than the United States dollar, British pound or Chinese Yen, but that makes it no less of an attractive investment.
Inflation, supply chain issues, rising interest rates and a global economic slowdown have caused a “flight to safety” in recent months, driving investors towards the American dollar to safeguard their assets. As a result, the dollar has risen significantly relative to other foreign currencies, making it a great time to invest in other currencies at a discounted exchange rate.
China currently accounts for 28.7% of global manufacturing output. China’s modernization through exports has lifted 800 million citizens out of poverty over the last 40 years. However, modernization also brings a middle class demanding better wages, working conditions and work-life balance. As a result, China’s global manufacturing dominance has begun to wane as companies find cheaper labor elsewhere. China’s aggressive zero-COVID policy has only accelerated many companies’ divestment from the country as lockdowns have ravaged supply chains and manufacturing.
China’s manufacturing industry has seen its most significant decline in consumer goods, with India being a major winner. India, which saw $418 billion in manufacturing exports in 2020, is projected to reach $1 trillion in manufacturing exports by 2028. Manufacturing is forecasted to account for 21.0% of the country’s gross domestic product (GDP) by 2031, up from its current 15.6%.
However, India’s economic power and potential do not reside in its manufacturing industry alone. The Bombay Stock Exchange could encounter 11.0% annual growth over the next decade. India is the world’s third largest base of unicorns (privately held startups valued at over $1 billion). Gautam Adani, the world’s third-richest man is a symbol of the country’s growing economy. He made his fortunes in India’s surging infrastructure industry.
All signs point to a stronger Rupee in the coming decades. Exports and economic activity are two of the leading factors in currency value. Increased Indian exports and economic activity result in a greater demand for the Indian Rupee as companies require the INR to conduct business in the country.
The Indian Rupee should not be viewed as a short-term bet but rather as a long-term investment in a thriving economy just beginning to hit its stride. The country’s massive workforce, low wages and lack of regulation make it a prime destination for multinational corporations. India is on track in the coming decades to experience a similar modernization effort as China.
Currently the fastest-growing economy in the world, India is expected to become the third-largest global economy by 2030 and the second-largest by 2050. India’s Rupee is an excellent investment for individuals seeking slightly riskier securities with immense upside potential.
3 Best Assets to Buy Now: #1
Berkshire Hathaway (NYSE: BRK.B)
Berkshire Hathaway (NYSE: BRK.B) is an American holding company headquartered in Omaha, Nebraska. Berkshire Hathaway started its corporate life in 1888 as a Massachusetts textile company. Over the next few decades, the company would grow ever larger through mergers and acquisitions before being bought out by a group led by legendary investor Warren Buffett in 1965.
Buffett would liquidate Berkshire Hathaway’s textile business and instead invest the company’s resources into other securities. Now, 67 years later, Berkshire Hathaway would reach a staggering $696.8 billion market capitalization off the back of Warren Buffett’s investing.
Why conduct your own investment analysis when you can have the best investor of all time do it for you? Berkshire Hathaway is an investment fund in all but name. A holding company does not make or sell goods or products. Instead, it is created to hold shares of other companies. Berkshire Hathaway raises funds for interested investors through stock issuances. Warren Buffett and a team of analysts invest the money raised into various stocks and bonds to generate a return. If the value of securities held by Berkshire Hathaway increases, so does BRK stock.
Berkshire Hathaway offers two classes of stock: Class A (NYSE: BRK.A) and Class B (NYSE: BRK.B). Class A shares trade around $400,000-$500,000. Buffett believes refusing stock splits and keeping a high share price will attract investors who share his long-term investment horizon. Class B shares currently trade at just over $300 and are designed for the average retail investor. The two classes represent different portions of Berkshire Hathaway’s holdings but are largely the same outside of a few minor differences.
Warren Buffett followed in the footsteps of his mentor, famed investor Benjamin Graham. Graham is considered the “father of value investing,” favoring companies with favorable multiples that provide consistent returns over a long time horizon over flashy high-priced, high-growth stocks. Buffett’s stock selection has consistently reflected Graham’s value investing philosophy. Berkshire Hathaway’s top holdings Apple (NASDAQ: AAPL), Bank of America (NYSE: BAC), Chevron (NYSE: CVX) and Coca-Cola (NYSE: KO), are all companies with decades of continued and reliable success.
Warren Buffett’s investing track record is one of consistent success. Since 1965, Berkshire Hathaway has generated a compound annual return of 20.1% compared to the S&P 500’s 10.5%. Berkshire Hathaway Class A stock could drop 99.3% and still outperform the S&P 500 since his takeover. Buffett’s success has earned him his spot as the fifth-richest person in the world and the title of the greatest investor in history.
Now is the perfect time to buy Berkshire Hathaway stock. Value investing tends to outperform growth strategies during market downturns. The trend holds for Berkshire Hathaway. While flashy technology stocks like Google (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN) have seen their share prices plummet, BRK.B has risen by 14.0% over the past year. Berkshire Hathaway’s performance is shown below, alongside a 50-day moving average for reference.
Chart provided by Stock Rover.
Retail investors may not have access to venture capital or hedge funds. However, in Berkshire Hathaway, they have access to the greatest investor of all time.
A discounted cash flow (DCF) analysis using Stock Rover values the stock at $340.00, 7.7% higher than its latest closing price of $315.84, earning BRK.B a “BUY” recommendation from Stock Rover and a place among our three best assets to buy now.
Capison Pang writes for www.stockinvestor.com and www.dividendinvestor.com.
