Hard Assets for the End of the World as We Know It

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

While my use of the term “the end of the world” is hyperbole, adding “as we know it” might make that title more prescient than most want to believe, at least if you listen to the bright guys over at PIMCO. In a recent economic report posted on the company's website, they paint a pretty scary picture of the future. Basically, the report outlines the company's very public view of the so-called new normal. This slow growth, deleveraging world won't be an easy place to survive for any investor, let alone dividend focused stock investors.

Some of the dour expectations include the United States growth rate slowing from around 2% to the 1.5% range, with even slower rates seen in Europe and Japan (which PIMCO basically expects to sit on the verge of recession). Even China, which PIMCO expects to grow between 6.5% and 7.5%, doesn't escape the negative outlook. The fund giant suggests that this growth bright spot is facing material issues in its government transition that could threaten its long-term growth profile. Ouch!

To see what someone might do when the world is “...at important crossroads in every major economy”, I took a look at that largest holdings of PIMCO Dividend and Income Builder Fund (PQIIX). Based on the doom and gloom, I pulled out some of the fund's “hard asset” plays, figuring that these are on PIMCO's list of the best places to hide.

French Oil
Total (NYSE: TOT) has a great deal of exposure to financially struggling countries in Europe. That said, the company is financially strong and should be able to weather any of the problems that come from Europe's woes, even the pathetically slow economic growth PIMCO expects. Moreover, the company has been investing heavily in an effort to find new reserves and has notable positions in the liquefied natural gas and chemicals industries.

Of concern is the company's business dealings with countries that have suspect histories when it comes to outsiders. Russia is one such country, but Total also has dealing within Africa and the Middle East, none of which is known for their ease of business dealings. With a yield hovering around 5%, however, Total might interest income minding investors. That said, heavy spending on growth projects could limit dividend growth over the near term. Still the recent price appears to discount many of the negatives that face the company over the long term.

Another Oil Giant
Royal Dutch Shell (NYSE: RDS-B) is another oil giant in the PIMCO fund. It doesn't have some of the baggage saddling Total, but it is still located in a financially weak region. Perhaps the biggest issue hampering the company's stock is an aggressive move into natural gas. Although this energy source appears to have great potential, low gas prices in the United States are a massive obstacle that only time, and a return to a more normal price/supply equilibrium, can heal.

Keeping in mind the low pricing impacting U.S. natural gas producers, it is equally important to take note of Shell's size and experience in the liquefied natural gas space. Indeed, it not only has years of experience, but also holds important intellectual property in this increasingly important industry space. Rising natural gas prices could quickly turn this negative into a massive positive.

Its yield of about 5% isn't quite double that of industry heavyweight and Dow-30 component ExxonMobil (XOM), despite their overall similarities, including the move toward natural gas. This may be a case of investors throwing the baby out with the bathwater. Less aggressive types should find Shell an appealing oil option.

Gold, Gold, Gold!
Gold Fields (NYSE: GFI) was one of the fund's top 10 holdings at the end of October, accounting for about 2.5% of assets. The company is one of the largest gold miners in the world, with a heavy concentration on South African assets. Although its production costs are on the high end of the industry, it has material reserves, which helps to ensure its long-term viability. It is also working on expanding production at key mines, which will help keep costs in check.

That said, gold is a volatile commodity and Gold Fields, like all miners, is subject to the price fluctuations of the ore it pulls out of the ground. The company's earnings and dividends have been equally as volatile. This isn't a stock for the feint of heart. However, gold is a hard asset that has historically provided some protection during difficult times. For income investors looking for gold exposure, this stock's 3%-plus dividend yield might be an interesting way to prepare for the “end of the world as we know it.”


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ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Total SA. (ADR). 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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