Supernova Inspired Investing
Mike is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Recently, The Motley Fool launched a new newsletter service called Supernova. As someone with an interest in science and astronomy, I was intrigued by what insights about interstellar destruction Fool founder David Gardner was bringing to the new service, and in honor of its recent launch I have set out to bring you my own list of three stocks that you'll want to have in your portfolio in the event of an actual near-Earth supernova.
First of all, let's discuss what would happen if a star near our own solar system were to die in a supernova explosion. It depends a lot on the relative distance and orientation of the star, but based on my five minutes of research reading Wikipedia, it seems likely that the Earth's ozone layer would be severely depleted by a reaction of nitrogen in the atmostphere with gamma radiation from the exploding star. This, in turn, will expose life on Earth to greater solar radiation and cosmic rays, damaging our ecosystem in the short term. In the long term, the lack of greenhouse gasses trapping solar energy in our biosphere will lead to a new glacial period or ice age. Recent research actually reveals that frequent near-Earth supernovae could be good for life on our planet as a whole, though probably bad for individual species who are well-adapted to the current ecosystem, like us. But let's not worry about the long term problems, because frankly, we're not going to be around for that part. You and I may not survive the aftermath of a nearby supernova, but with these three stocks, your portfolio could have a fighting chance.
Lead shielding for protection from all that increased radiation is going to be a hot commodity in the years following a near-Earth supernova. One company that should benefit from the greater demand is Metalico (NYSEMKT: MEA), a 4-Star rated stock in Motley Fool CAPS. Lead product fabrication is one of Metalico's major lines of business, along with metals recycling. Despite its small market cap of only $161 million, Metalico is the largest lead fabricator in the United States, and it operates the largest lead rolling mill in the world in Birmingham, Alabama. The company is already a leading provider of lead radiation shielding products for the nuclear energy, medical, industrial, and defense industries. In the wake of Earth being left unprotected from the Sun's dangerous solar radiation and cosmic rays, I would expect Metalico's customer list to grow to include every industry, company, and roving band of nomads on the face of the Earth. Metalico's shares are currently on deep discount thanks to a poor quarterly report back in March, so now could be the time to buy.
One of the more unfortunate side effects of the nearby supernova is that are lot of us are going to get cancer from the increased solar radiation and cosmic rays that will be pummeling the Earth. That's going to send the stock price of the largest drug-makers soaring. All of the giant, multinational, pharmaceutical companies make cancer drugs, so let's narrow it down to a pure play that specializes in cancer therapies and has a 5-Star rating in Motley Fool CAPS: Celgene (NASDAQ: CELG). Makers of popular cancer treatments Thalomid and Revlimid, Celgene's products will be in high demand once cancer rates are off the charts. After everyone gets their lead radiation shields in place, fighting cancer should become the number one economic activity in the world, and Celgene should see a fine pay-off. You don't even have to wait for the near-destruction of humanity to profit, as Celgene is on a tear with 40% annual revenue growth over the past five years.
Another side effect of our planet's radiation overdose is that the oceans' plankton will be killed off, disrupting the entire food chain in our oceans. That's going to quickly reduce the supply of seafood, increasing the demand for land-based food. And one company that should be well-positioned to profit from the need to quickly rebuild our above-water agricultural base is Archer Daniels Midland (NYSE: ADM), a 4-Star stock in Motley Fool CAPS. All that extra sunlight reaching us after we lose our ozone layer should be great for Archer Daniels Midland's seed, fertilizer, and agricultural processing and transportation businesses. ADM's animal nutrition business even has an aquaculture segment, which will be helpful for rebuilding the devastated food chain, since we won't be wasting our precious cancer drugs on the cows, pigs, and chickens. And while you wait for doomsday, you can collect Archer Daniels Midland's ever-growing 2.3% dividend.
If a star near Earth ever does explode in a supernova and you want your money to continue to grow even in the face of the downfall of civilization, Metalico, Celgene, and Archer Daniels Midland might be three stocks you would want to own to hedge against that risk. You may not survive personally, but hopefully your miserable, starving, cancer-ridden, mutant progeny will inherit your profits to buy the shelter, medicine, precious nutrients, and protection from the roving bands of nomads that they desperately need for their continued survival.
Gordogato has no positions in the stocks mentioned above. The Motley Fool owns shares of Archer Daniels Midland Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.