3 Bets That Are Better Than Gold

Like many other folks out there, I'm worried about the dollar.

My fellow Fool Morgan Housel did a great job picking apart the issue of the budget deficit the other day, and his conclusion -- that entitlement spending is one of the two major issues we face -- is scary. Why? Because I have little hope that D.C. will find the political will to do anything worthwhile in that arena.

At the same time, we've had the Federal Reserve and Treasury pulling levers and prodding the economy with ultra-low rates and all kinds of different programs. Did they save our economy from collapse? I'll give that a definite maybe, but that doesn't mean that it won't be bad for our currency.

And don't even get me started on the U.S. trade deficit.

Yet I'm still avoiding gold

When inflation worries strike, gold is usually the first stop for concerned investors. It certainly has been a popular choice lately. While the S&P 500 has lost 27% of its value since the beginning of 2000, gold has darn near quadrupled.

But don't worry gold fans, I'm not going to claim that gold is overpriced. The current price of an ounce of gold is roughly 14.3 times the price of a barrel of oil, which is very close to the historical average ratio. That's not infallible proof that gold isn't overpriced, but it makes me at least relatively comfortable with the metal's current level.

So why don't I like gold? I don't like it because it's a hunk of metal that's not going to do anything for you except fight inflation. It doesn't pay a dividend, it doesn't have cute baby-gold offspring, heck, it won't even rake your yard. It's a lazy investment if you ask me.

But what about that ugly dollar?

If gold were my only choice to protect my portfolio, that'd be one thing, but there are plenty of other choices. Here are three places I'd rather put my money:

1. Commodity-producing companies

While I may not like gold itself, shares of gold-producing companies like Yamana Gold (NYSE: AUY  ) , which offer both protection via their primary product and the potential for growth, could be a better bet. These aren't necessarily my favorite choices, but my fellow Fool Christopher Barker is always on top of the best choices in the gold group.

In the same vein, companies selling other commodities would also be a solid choice. There are tons of choices out there including major oil and gas players like Chevron and Total, natural gas specialists such as Chesapeake Energy (NYSE: CHK  ) , and metals giants like Vale and BHP Billiton.

2. Foreign companies

If there's one thing that's sure to reduce a company's risk from a falling dollar, it's doing business in another currency entirely.

For investors who want to stick to stocks traded on U.S. exchanges, it's a little more difficult to find companies that do business exclusively in another currency. But that's not to say they're not out there. Among the large caps that do most or all of their business outside the U.S. are China Mobile (NYSE: CHL  ) , Banco Santander (NYSE: STD  ) , and Aluminum Corp of China.

The Motley Fool Global Gains team has also identified a bunch of smaller, faster-growing companies, such as China Marine Food Group and China Green Agriculture (NYSE: CGA  ) .

3. Companies that have pricing power

In Berkshire Hathaway's (NYSE: BRK-B  ) shareholder letter in 2007, Warren Buffett gushed about See's Candies, going as far as to call it a "dream business."

One of the enduring features of a dream business like See's Candies is that the company sells a product that has pricing power. That is, customers will choose See's over Uncle Jimmy's Yummy Chocolate Bits, even if Uncle Jimmy's is cheaper.

Unfortunately, we can't buy shares of See's Candies (because it's not a public company), and even if you pick up some Berkshire Hathaway stock, See's results account for very little of the overall financial picture. Investors can, however, pick up shares of other companies with pricing power. When you feel like a nice, cold can of Coca-Cola's (NYSE: KO  ) classic beverage or a trip with your kids to a Disney theme park, is there really any substitute?

The point is that if inflation is your concern, look to companies that have the ability to raise prices and still keep customers coming back over and over and over again.

Editor's note: A previous version of this article understated Banco Santander's U.S. presence, which is relatively small but material. We regret the error.

Berkshire already owns See's Candies and shares of Coca-Cola. But are there stocks that Buffett only wishes he could buy? My fellow Fool Rich Greifner thinks so.

Berkshire Hathaway, Chesapeake Energy, Disney, and Coca-Cola are Motley Fool Inside Value picks. Berkshire Hathaway and Disney are Motley Fool Stock Advisor selections. China Green Agriculture and China Marine Food Group are Motley Fool Global Gains recommendations. Coca-Cola and Total SA are Motley Fool Income Investor picks. The Fool owns shares of Berkshire Hathaway, Chesapeake Energy, China Green Agriculture, and China Mobile. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway and Coca-Cola, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...


Read/Post Comments (8) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2010, at 4:54 PM, JoeSmartMoney wrote:

    Gold has been a part of the economical system for ages. It is a fact that gold plays an important part in a stable economic system of any country and it can also be used in various industries. People have been attracted to this metal since its discovery. Gold is in fact a good investment and there are few substances that can compete with it as a better investment.

    To minimise the risk of a financial crises people in continents like Europe, USA and Asia are rushing towards gold investments. So watching the economical trends, we can say that the value of gold coins is still going to get higher. Economic crises have hit everything so badly these days, but there is very less attack on the value of gold. So investors consider it wise to invest in gold.

    If there comes a very bad financial crises then gold can be used instead of paper money to trade and you would always get the better end of the deal. Gold is a good companion to help you out during hard times when every thing else looses its value.

    ---------------------------

    www.intelligentinvestingtips.com

  • Report this Comment On February 13, 2010, at 5:46 PM, karlwmiller wrote:

    U.S. Utilities and Natural Gas Producers are the best "Safe Haven" For U.S and Global Investors

    By Senior Energy Industry Executive Karl W. Miller

    February 12, 2010

    Mr. Miller thanks everyone for all of the well wishes and kind messages he has received during his medical leave and wishes everyone well in the energy markets during these difficult market conditions.

    Mr. Miller re-confirms that U.S. Utilities and Natural Gas producers continue to be the best "Safe Haven" for investors, after U.S. Treasuries, plus you get a guaranteed "put option" on price pass through to Consumers.

    Utilities continue to pass through their natural gas and other fuel price costs to all consumers, and consumers"must pay". Natural Gas producers are benefiting from this and strong domestic U.S. market fundamentals.

    Mr. Miller has warned the market over the past year this was coming and tried to get investors to position into Natural Gas and Utilities.

    Given the fact we are in middle of what is now being referred to as the worst winter ever, major global market turmoil, Mr. Miller reiterates his "Overweight Opinion" for U.S. Domestic Natural Gas Producers and "Add" to U.S. Utilities

    Investors can follow Senior Energy Industry Executive Karl W. Miller through the following RSS Feed: http://www.investorideas.com/RSS/feeds/Energy.xml

    Mr. Miller is currently on Medical Leave.

    Disclaimer:

    This column, Energy Commentary from Karl Miller, is the opinion of Karl Miller.

    Content found in the articles is subject to the terms found in the InvestorIdeas.com disclaimer and does not represent a recommendation of investment advice. Investors should seek the advice of a qualified investment professional prior to making any investment decisions.

    U.S. Utilities and Natural Gas producers are the best "Safe Haven" after U.S. Treasuries Plus You Collect a Dividend, Not Zero Percent Interest Rate" at the following link: http://www.naturalgasstocks.com/Karl_Miller/news/2046.asp

  • Report this Comment On February 13, 2010, at 5:48 PM, karlwmiller wrote:

    U.S. Utilities and Natural Gas Producers are the best "Safe Haven" For U.S and Global Investors

    By Senior Energy Industry Executive Karl W. Miller

    February 12, 2010

    Mr. Miller thanks everyone for all of the well wishes and kind messages he has received during his medical leave and wishes everyone well in the energy markets during these difficult market conditions.

    Mr. Miller re-confirms that U.S. Utilities and Natural Gas producers continue to be the best "Safe Haven" for investors, after U.S. Treasuries, plus you get a guaranteed "put option" on price pass through to Consumers.

    Utilities continue to pass through their natural gas and other fuel price costs to all consumers, and consumers"must pay". Natural Gas producers are benefiting from this and strong domestic U.S. market fundamentals.

    Mr. Miller has warned the market over the past year this was coming and tried to get investors to position into Natural Gas and Utilities.

    Given the fact we are in middle of what is now being referred to as the worst winter ever, major global market turmoil, Mr. Miller reiterates his "Overweight Opinion" for U.S. Domestic Natural Gas Producers and "Add" to U.S. Utilities

    Investors can follow Senior Energy Industry Executive Karl W. Miller through the following RSS Feed: http://www.investorideas.com/RSS/feeds/Energy.xml

    Mr. Miller is currently on Medical Leave.

    Disclaimer:

    This column, Energy Commentary from Karl Miller, is the opinion of Karl Miller.

    Content found in the articles is subject to the terms found in the InvestorIdeas.com disclaimer and does not represent a recommendation of investment advice. Investors should seek the advice of a qualified investment professional prior to making any investment decisions.

    U.S. Utilities and Natural Gas producers are the best "Safe Haven" after U.S. Treasuries Plus You Collect a Dividend, Not Zero Percent Interest Rate" at the following link: http://www.naturalgasstocks.com/Karl_Miller/news/2046.asp

  • Report this Comment On February 15, 2010, at 12:37 AM, Bloefeld wrote:

    Shale gas is not as no-brainer as folks like to think it is. The price of gas has perhaps been decoupled from that of oil. It is not as energy packed as T. Boone wants you to believe and the cost of the technology to bring it into product is astonishing.

    The production of shale gas is dependent on something that is in shortage; a specially shaped sand of a particular size and hardness. Without that sand, the wildly expensive horizontal wells cannot be perforated and brought into product. In Horn River in Canada, production came to a stop this past year as a result of this shortage.

    In general I think that all portfolio's benefit from having some strong oil and gas producers.

    But gold is gold; it has no particular intrinsic value other than it is relatively rare and is highly portable. It is the ultimate store of value if you don't have a bunch of cows or a patch of vegetables and think that financial Armageddon is on its way.

    Cheers,

    Bloefeld

  • Report this Comment On February 16, 2010, at 8:36 AM, pondee619 wrote:

    "entitlement spending"?

    "Ask not what your country can do for you, ask what you can do for your country." Funny when you realize that a Democrat spoke these words.

    Per the Declaration of Independence, we are "entitled" to "Life, liberty and the PURSUIT of happiness". Perhaps we really need to rethink what we are "entitled" to from our country, and what our counrty is entitled to from us.

  • Report this Comment On February 19, 2010, at 6:51 PM, kernel85 wrote:

    on "entitlements"

    Elderly people on Social Security heard what President Kennedy said, and most have already "done for their country," and accepted the contract -- they paid into the system for their whole working lives, and they were promised at least a minimal income in retirement. I don't want to break that contract, and anyone who does shouldn't be trusted. Pension plans are disappearing, often not long before a person retires. If you want to see a depression, see what happens when 40 million people suddenly have no money to spend.

  • Report this Comment On October 26, 2010, at 6:49 AM, Jehnavi wrote:

    Gold is a magical metal. It has superpowers and unlike other metals it can resist inflation and you can eat it in case of famine. Gold is also widely used by several XV century kingdoms so it's accepted almost everywhere.Gold is not an investment in the sense of stocks or bonds; it is money. Real money. Fiat currencies have no value less than the paper they are printed on except for the fact that the government has mandated it to be legal tender. Take that away and nobody would use paper that was not convertible.

    http://www.tipsforinvesting.net/gold-investment-advice.html

  • Report this Comment On November 14, 2010, at 12:08 AM, ajayprathore wrote:

    If I'll tell about gold in one line then 'Gold is everything'.It is because it decides the econemical structure of any country.I think it is a type of <a href="http://www.catalyst-energy.com">natural energy</a> collected by us.

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