Best$1 Stock you've Seen Yet
Everywhere I look, I’m reminded that gold is reaching new highs. In fact, gold for December delivery surged to another record high above $1,226 an ounce last night, the 20th time the precious metal has reached a new high since Halloween.
For gold investors, even better days lie ahead. Higher highs are coming for the price of the yellow metal.
The worst thing investors can do right now is to ignore this trend. Just because you weren’t buying gold at $850 or $1,000 doesn’t mean you missed the boat. And waiting will only make it worse because a pullback just isn’t going to happen. But what is likely is that investors who buy and maintain positions in strong gold mining companies will be sitting on pretty gains in a few years, if not a few months.
Gold prices have continued to soar as concern over inflation increases. Inflation fears are being fueled by historically low interest rates, an oversupply of money, and out of control fiscal and monetary stimulus around the world that aims to jumpstart the global economy. It’s no coincidence that gold's run started right after Bernanke signaled that the Fed would soak up $300 billion in Treasuries, and $750 billion more in bad mortgage debt.
Central banks around the world, exactly the same organizations that are responsible for the flood of money, are buying gold too. This demand is helping to propel gold prices higher.
Gold’s attraction as a safe-haven asset has also been strengthened by central banks’ stated intentions to diversify away from the U.S. dollar, and by debt concerns in countries such as
As the U.S. dollar weakens, the price of gold strengthens. And it’s already started, with gold rising 14% from $1,062 an ounce in November 2008 to $1,210 today. Now I’m not saying that the dollar is going to plummet, but I’m sure not holding my breath for a bull-run in the greenback anytime soon.
By buying miners, investors have leverage to the upside since margins expand with higher gold prices. That’s because production cost per ounce is fixed.
I recently recommended a gold miner to subscribers of my SmallCapInvestor PRO advisory that operates with some of the lowest costs in the industry. The company’s cost per ounce of gold produced was only $271 in 2009. Every dollar increase in the price of gold means an additional dollar of profit to this company. Or more money available to fund expansion, increase production, pay down debt, or return to shareholders.
Gold miners will still generate revenue even if gold prices trade in a tight range, or even decline. But any decline will be short lived, and a return to gold below $1,000 remains very unlikely. There’s simply too much demand for gold right now, and with investors piling into gold, the bull market is likely to continue.
But there are skeptics, despite all the bullish sentiment. Some claim gold at $1,200 represents an asset bubble. MarketWatch quoted William Gamble, president of Emerging Market Strategies as saying, “I cannot think of, nor have I read of, any coherent economic reason for gold at this level.”
And with today’s news that European Central bank President Jean-Claude Trichet plans to phase out liquidity measures, and a positive move in the dollar, Mr. Gamble’s words seem timely.
But noted commodity investors like Jim Rogers believe gold will trade above $2,000 in the next decade, and others are estimating values more that twice that. Sure, corrections will come, but the upward trend will continue as investors jump back in, or add to positions, on any pullback. As
But as always, investors do need to be selective in the stocks they purchase and look for compelling values. The recent run-up in gold has resulted in an average P/E for gold miners of 35. That’s not as lofty as valuations are likely to get, but it does mean discretion is warranted, and many mining companies have diluted shareholders by issuing additional equity to help pay down debt, or fund operations.
The junior miner I added to the SmallCapInvestor PRO portfolio represents an excellent profit opportunity for investors looking to get in on the ground floor. This company has recorded the value of its gold reserves at a conservative three-year average price of only $800. What was the company’s average selling price in its last quarter? Just $955 - which is still well below the current market price but $155 above its conservative estimate.
This means current reserves are worth than reported on the company’s books. And with production increasing, this company is selling more gold than ever before, and at higher margins. The best news is that this stock is currently trading at just $1 per share.
Shares in the company currently trade at just 19-times trailing twelve month EPS. That PE makes the company downright inexpensive, especially when compared with other small-cap mining companies like Richmont Mines (AMEX: RIC) and Jaguar Mining (NYSE: JAG). These two companies are trading at over 40-times trailing earnings. You can learn more about my favorite gold mining stock that is poised for profits, sign up for a no risk trial subscription to SmallCapInvestor PRO.com.
The bull market in gold has room to run. Investors should buy shares of gold miners like mine to protect themselves from inflation, and to capitalize on increasing demand for the precious metal.
