Great Investment Articles

This article looks for an opportunity to profit from the Dell battery recall, and concludes that zinc miners should be future winners. Below are some excerpts:

Dell's battery recall prompted us to look for an opportunity to profit. After some digging, we uncovered a possible winner: zinc.

After Dell Inc. <DELL.O> recalled laptop batteries made by Sony Corp. <SNE.N> on Aug. 16, our first reaction was to slam Sony. After all, $400 million is a lot of money even by multi-national standards. But rather than cursing the darkness, we thought that we'd light a candle instead. What companies stand to benefit from faulty laptop batteries? Companies that mine the only thing that all future battery technology must contain: metal.

With that in mind, we turned to the idea of the future. Unfortunately, the development of batteries is not as fast-paced as that of, say, semiconductors. The big future technology seems to be "fuel cell" tech. Fuel cells are similar to batteries, but run off of a fuel that can be replenished in an ongoing manner. Advances in the field seem to be geared around use in battery-powered and hybrid vehicles and using water as a fuel source, which is mostly theoretical right now. Wikipedia, though, notes that there is one type of fuel cell in mass production: zinc-air batteries, which are disposed of rather than refilled.

So let's imagine a world in which zinc-air batteries fuel the next generation of laptops. One would imagine the demand for zinc increasing, naturally. Fundamental Metals Monthly said in an Aug. 17 report that "According to the International Lead and Zinc Study Group, global consumption of zinc is increasing, while production of the metal is decreasing." (The most recent information at the International Lead and Zinc Study Group is subscriber only, but the reader is invited to check it out anyway. ) The research report also states that the price of zinc is up 80.2 percent so far this year.

At this point, one could imagine that futures contracts on zinc might be the way to go. Not so fast. Zinc-air is one of several competing technologies; we've merely concentrated on it because it's the best tested. Betting on a winner in a standards war, particularly when there's another tech that dominates now, is a high-risk strategy. Furthermore, zinc's price is cyclical, reflecting its importance in industrial materials; zinc is the coating that galvanizes galvanized steel. Given recent economic uncertainty, now might not be the time to go into a financial instrument tied to a cyclical material and that carries an expiration date.

That said, all battery technology has one thing in common: metal. Lithium, zinc, nickel, even potassium or barium are used in current or potential battery technology. If this is the case, then we might want to turn to the suppliers of metals in general for investment ideas, since a significant increase in demand for any metal would likely be good for a profit boost. The first idea, then, is the SPDR Metals & Mining ETF, <XME.A> which would simply be exposure to the industry in general.

Our analysis of zinc, however, suggests that perhaps we can do better with an equity investment in some company that mines the metal specifically.