There was the king who held a chess tournament among the peasants and asked the winner what he wanted as his prize. The peasant, in apparent humility, asked only that a kernel of wheat be placed for him on the first square of his chessboard, two kernels on the second, four on the third and so forth. The king fell for it and had to import grain from Argentina for the next 700 years. Eighteen and a half million trillion kernels, are enough, if each kernel is a quarter-inch long (which may not be; I’ve never seen wheat in its pre-English-muffin form), to stretch to the sun and back 391,320 times.
That was nothing more than one kernel compounding at a 100 percent square for 64 squares.
And with that story Bill Priest (Epoch Investment Partners) began his presentation at GIBI (Great Investors’ Best Ideas), which is a fundraiser for the Michael J. Fox Foundation for Parkinson’s Research. I had the pleasure of chatting with Bill the night before at the “speakers’ dinner” held at Shad Rowe’s wonderful home here in Dallas, but I digress. Bill noted that at square 32 on the chessboard you would have 4 billion grains of wheat and at square 64 you have more wheat than has been harvested in recorded history. His point was that technology is just now moving on to square 33 of said chessboard with the back-half of the chessboard bringing with it amazing advances in technology.
The first speaker at GIBI, however, was T. Boone Pickens. Boone began by stating that what has happened with energy prices this year is what he had expected to happen last year. He said inventories are down and demand is up, which is good for crude oil’s price. In November of 2014, he noted, there were 1609 drilling rigs operating in the U.S. That number fell to below 400, but now there are ~550 rigs back at work. T. Boone opined that there will never be 1600 rigs working again in the U.S., but that the rigs currently operating are the best, fastest, most efficient and productive rigs he has ever seen. His “price deck” for year-end 2016 is $60 per barrel with a price deck of $70 for 2017. As written in last Friday’s Morning Tack:
Boone stated that since “they” started drilling in the Permian Basin that field has produced 50 – 60 billion barrels of oil and he expects that same type of production will occur again in the years ahead given the technology advancements. He concluded with four stock recommendations, the only one of which favorably rated by our energy analysts is Pioneer Natural Resources (PXD/$187.00/Strong Buy).
Up next at the symposium was Lisa Hess, from SkyTop Capital Management, who discussed the automobile revolution. She thinks the big winners over the next 10 years will be lithium batteries, natural gas, and electric cars, while the losers will be the “Big Three”; and, that the revolution is happening faster than anyone expects. Think about Siri for the car, collision avoidance systems, cabin overheating technology, and the quest for a lighter car. To this last point, she offered up Constellium (CSTM/$5.60) as an investment idea, which has a favorable rating from our correspondent research organization. According to Lisa, CSTS’s bullet points are: 1) it is one of four companies that can supply high-quality cast aluminum parts to the auto industry; 2) the company is poised for strong growth; 3) it has a new CEO; 4) it just received a new long-term contract; and 5) CSTM has a “cheap valuation.” The shares are down due to a bad acquisition, but the new CEO has written down a lot of that acquisition’s cost, issued some $425 million of bonds for liquidity purposes, and one of its major competitors has been acquired. She concluded that CSTM is a great way to invest in the auto revolution.