Buy low, sell high. How many times have we heard that well worn saying? How about, 'buy when there is blood in the streets'? Or, 'sell when others feel greedy and be greedy when others are selling like hell', or something like that.
Well guess what. Here is your chance to have the last laugh no matter how sick and tired you are of getting the short end of the stick with this or any sector of the stock market. This article will quickly show you a dozen gold and silver miners that will give you the very opportunity to 'buy low and sell high' you have grown weary of hearing. The potential at this very moment is simply mind-boggling.
The mining sector, by every metric known to stock analysts, gurus and the rest of us, is now selling at a discount - an enormous discount - to the underlying product of their business which is, of course, mining gold and silver. Prices of mining shares are quite literally at lows seen maybe 5 times, if that, in the past 100 years.
Companies and their stocks can be valued in a variety of ways and I don't think there is a particular evaluation method that singularly gets the gold star. But it has always made sense to me to ask this question: "if I bought this entire company - every single share of it - and then decided to tear the company apart, first paying the creditors then liquidating the assets at a fair market price, how much money would I then have?"
And, "would I have more money because I bought the company at a discount to its fair tangible value or would I have payed a premium that entirely evaporates into a loss for me when the value of the pieces are completely sold off?"
Using this evaluation method, that is, finding gold and silver miners that are selling for less than their tangible value, I constructed the table below to include the 12 miners that I found to be priced by the stock market even lower than their tangible value. And if you look at their 2013 earnings projection you will note that most have decent earnings ahead - some even project explosive earnings.
The column Price / Book Value is where you will find the degree to which each miner is discounted.
A reading of 100% would signify that a miner is selling exactly at its tangible book value. Most miners today sell well above 100%. For example, Goldcorp (GG) sells for 130% of book value. Barrick Gold Corp (ABX) sells at 230%, Newmont Mining Corp (NEM) sells at 140%, and Gold Resources Corp (GORO) sells at 730% of tangible book value.
Here is my carefully researched list where everything is selling below book value. And should you do a little further research by looking at the charts of these miners, be sure you note the price of the stock when gold was nearing $1900 in 2011 - because once gold gets back on the bull and starts bucking higher, those prices could easily become your selling price.
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| Click on any chart to ENLARGE |
Best always,
John
tsiTrader@gmail.com
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very interesting .....keep up the good work john
ReplyDeleteRon (in arizona)
Hi Ron - gold has reached 1607.6 today and if it can
ReplyDeletesurpass 1619.7 sometime this week this daily cycle will
become right translated and then it will become officially
'game on'. With the way things are going in Cyprus and
the historic degree to which hedge funds are holding short
contracts, this could get very exciting for longs quickly.
Once managed money begins to blink - starts to doubt that
gold is headed towards 1526.7 - there will be high octane
short covering and front running from the smarter guys who
smell the blood in the water. Our long wait is possibly
near its end.
"Miners that Could Make You RICH! "
ReplyDeleteJohn, it is this mentality that destroyed many accounts of gold bugs in last 2-3 years. Miners will not make anyone rich. Hard work, studying markets and then hopefully proper and TIMELY execution will produce profits to a select few. What about majority? They will lose money again. This is how markets work. Commodity markets especially.
Good luck to all. We are getting first whiffs of the deflationary wind. The period up to this point was the preparation for whats to come, those who did their homework might survive. The rest - will burn it. Again.
Anon - your opening statement is, in my opinion, not only complete nonsense but also shows a complete ignorance of how gold's bull market works. That investors may have 'destroyed' their accounts over the past 2-3 years tells me that they, too, do not understand how the gold bull market works.
ReplyDeleteSo here it is, plain and simple, as I have written about hundreds of times and shown with zillions of charts.
Gold has had 7 parabolic price movements since the bull began in early 2001. The jargon I use is to call these the 'top of the C-wave' in the context of the repeating ABCD wave pattern that also has repeated 7 times, and now is in the 8th iteration.
http://www.jsmineset.com/2010/11/08/in-the-news-today-700/
This link will take you to an excellent explanation of this. It was published by Jim Sinclair.
Each C-wave is followed by a healthy profit taking wave called the D-wave. The A-wave follows this but does not make a higher high than the previous C-wave top. The B-wave provides a brief correction to the A-wave and then the C-wave starts over. That is where we are now....just beginning.
Each C-wave top is followed by a lengthy period of consolidation. In late 2004 the consolidation lasted 9 months. In 2006 the consolidation was 16 months. In 2008 the consolidation was 18 months. As each C-wave has become longer in duration, each consolidation following it has naturally become longer as well.
Since the C-wave top of September 2011, gold has been in the current correction phase an 18 months .... and has been so incredibly strong that it has corrected *LESS* than any of the previous 6 C-wave corrections.
I think to not understand what I have written is to the peril of all those who have been shaken out of their positions. Too bad they, and you apparently, did not understand what they were doing.
At 18 months into this correction we are long down that road and should be beginning a new phase soon, if we have not already. This new phase will take us beyond the old high of $1923 and thereafter the sky is the limit.
I took advantage of your "Stupid Cheap" call on IAG to buy and sell a call option for next month. It's now 5 cents away from being in the money and looks likely to yield 4-7% cash and 44-72% on an annualized basis. If it is called away that's fine, I'll just stop back and get another great idea here.
ReplyDeleteThanks!
Randy - I'll keep my fingers crossed for you!
ReplyDeleteLet me know how it turns out if you get a chance, OK?
Hi John,
ReplyDeleteInteresting analysis.
I looked at the data with great interest..as I always do...with particular attention drawn to the price and book value metrics. Love that buzz word "metric"...!!!
Lets take it further shall we. So here we go.
The "Price" of any/all of the pm stocks is a refection of USD (nominal value).
Is that a valid measure ? I guess its the only one you can use for the comparison and points you make.
Point being ....the USD is fiat....and IMHO a useless tool today for measuring , notwithstanding the world wide (diminishing) acceptance as an exchangeable note. Given the debasement (ongoing) of the very same...we have devaluation of a currency against a financial asset. Shouldn't the counter effect of the devaluation of currency be appreciation of assets denominated in said currency ? There is just cause for the stock "prices" to be substantially higher as you allude to...same could be true for all stocks....hmmm !! Otherwise we have negative real returns based on depressed prices and devalued currency. That is not how economic law or market mechanisms usually work.
The next concept is that of book value. How you arrive at the notion of what the market would pay for given assets (under a fair market value concept) is really just smoke and mirrors. Sure I take it that you need to make some assumptions for your model to have substance...but in reality what does the world market pay for such.
Until gold turns substantially upwards it remains a buyers market (risk ?).Additionally given the depressed state of Precious metals, we are using todays pricing as opposed to expected future earnings, based on multiples of where prices are today. In a nutshell, prices are STUPID .... AND cheap.
I might give the appearance of disagreeing with you.....on the contrary....I think you have been too conservative.
What I have witnessed first hand although, is some opportunistic buying at corporate level of publicly listed entities engaged in that mining space(via TO, LBO, Mergers) at ultra bargain prices. Those sovereigns who want out of dollars and are willing to swap for tangible assets know what the game is.
It certainly pays to keep ones finger on the pulse...and you John...are all over it.
Its a crazy stupid world. Thanks for trying to make some sense out of it.
Hi Liquid Motion,
DeleteWhew! You had a lot to say. And I followed, more or less.
I have never thought of the price of the miners being a reflection
of the US Dollar Index, but I am sure its movements are highly negatively
correlated. I've indicators that do this - provide the correlation
between one symbol and the other. But not tonight as it's bed time.
RE: Book Value. This actually is much more cut and dry than I think
you realize. The liabilities of the company are settled using the assets
available. Now what is left are just assets. Other than squabbling over
the value of the company dump truck or the CEOs office furniture, the real
big assets are not negotiable. Cash is cash. And the number of identified
ounces of gold in the mine are hard scientifically derived measurements.
Which to say that miners can not just make up a number to put on their
balance for how much gold they have. They have do very thorough studies
and their results are verified using legal processes. In short, if they
have proven how many ounces of gold they have, just multiply that number
by $1600 and you will have the figure I am talking about.
Tks John....sure I see the black and white analysis (netting of assets against liabilities)...to arrive at net asset position to then extrapolate the net book value...BUT life is a bit more complex than that... the point I am making is that there are two deeper issues there:
Deletea) Book value OR Fair market value = is a situation where you have a willing buyer and a willing seller who both agree on a given price. Just because something is worth $1600 on market doesn't mean someone is going to pay that price to acquire it (particularly with risks involved). As a buyer you want something at a discount to market...reasonable assumption...yeah ? We can therefore discount the values to allow for such....eg 2.0MLN ozs defined resource will not fetch market pricing based on net recoverable margins/yield.
b) The other side of the coin is that just because something is valued at $1600 above ground doesn't mean that is its "true" value. Given the price suppression/manipulation....we have severely undervalued resources sitting on the balance sheets of miners. There is potential here for asset values to not be representative of "value" because of accounting rules and the application of the normal mechanisms for measuring/valuing.
So one argument (and given you have taken the overly simplistic route to determine value) could be that you have applied values that are too generous/optimistic (not allowing for market discounts and other factors). Therefore implying the price could actually already be reflective of book value.
The other argument (which I favour) is that you are too conservative with your book values....which simply supports the point that Miners are STUPENDOUSLY CHEAP. Something sitting as a resource in the ground today is obviously only capable of being valued at todays prices. With no consideration of future escalation in prices, is where opportunity becomes "STEALING"...for any buyer in the know...(eg...China).
I wasn't referring to the USD Index John. I am referring to how true price cannot be determined using a false/inflated fiat currency. Like saying the Dow is back to all time highs. In inflation(monetary) adjusted terms......its not (the DOW is a weighting of pricing of 30 Stocks). Price is really just a reflection of what someone is willing to exchange (inflated)dollars at.
No matter which way you look at it....it all boils down to what the value of gold is (should be). That is the metric that should only be used to determine price and value. You and I both agree the market is not reflecting this.
The real issue here from my perspective is what you are using as your "constant" and I contend based on history that gold and silver are a far better yardstick of value than ANY fiat currency can ever be. As a measurement of value (purchasing power) gold and silver have proven over 5000 years of history that they are relatively consistent in buying the best suit of clothes in any historic culture and particularly necessary commodities like bushels of wheat, barrels of oil or other energy source, any life necessity you choose to name.
ReplyDeleteBy contrast, fiat currencies must produce INFLATION, it is a mathematical certainty as economists acknowledge by giving it a target of 2% in most regimes and at times it may go beyond that as Japan is now doing to lower the value of the YEN. This acknowledged policy will "SPEED UP" the declining purchasing power of the YEN from its normal 50 year life span of purchasing power destruction. The fact the American "dollar" has survived a hundred years is an anomaly that may not last much longer.
The mathematical certainty of fiat currencies decline was enshrined in the testimony of the 1939 Governor of the Bank of Canada Graham Towers in sworn testimony before Parliament that; "every bank loan is a NEW CREATION of money, and when it is paid back it ceases to exist" and just a little thought and analysis shows that since the fractional reserve banking system does not create INTEREST, (only the principal of a loan) the only way it can be paid in perpetuity is if loans to borrow our currency into existence as DEBT. are taken out at an exponential rate that covers BOTH principle being paid back, AND the accumulated interest. Stated another way, interest can ONLY ACCUMULATE as DEBT that can never be paid back in full in honest money of intrinsic value, it can only be partially inflated away. Perpetual debt slavery was DESIGNED into the system, unless you believe that it was just "an honest mistake" that the promoters and perpetrators did not forsee, which would be why they are fighting so hard by every means at their disposal to preserve an obviously flawed and failed system that has the whole world awash in un-payable debt.
I contend then that only precious metals (un-manipulated by bankers and politicians) is a reliable "constant" by which to measure value, certainly still calling the 2-3c purchasing power of the worlds present reserve currency a "dollar" is a deceptive and perverse travesty of language when a DOLLAR was defined originally as 300+ grams of pure gold and today is a near worthless I.O.U. (nothing) by a bankrupt government elected by bankers to serve their interests rather than the nations citizens.
Myron - well said. Thank you!
ReplyDeleteIt's not as simple as multiplying the reserves/resources in the ground by $1600. Kinross did that when they acquired Red Back Mining. In hindsight, the reserves/resources of Tasiast were over-estimated so much (along with the economics of building the mine) that Kinross took a $6 BILL write off on a $7 BILL acquisition. So much for "legal" reserves multiplied by $1600/oz. Then one has to factor in nationalization and other 1 off events (strikes, floods, fires, earthquakes, cave ins, permits pulled, wars, etc.) to determine just how viable those ounces are.
DeleteAnon - I do absolutely understand what you have written and agree with
ReplyDeleteevery word.
But unfortunately the stock market is not always as rational as you or I.
I have owned, and I'll bet you have as well, miners that rationally were
bullet proof fundamentally. When the market turns sour, my positions would
go right down the toilet with all the entire sector. I would analyze and read
and scheme and worry and recalculate and research more and read yahoo finance
bulletin boards and others to see if there was ANY POSSIBLE EXPLANATION for
my stock going down with the others.
I would visit the company websites and scour their 10-K filings, literally
reading all 200 pages for one quarter after the other quarter and nearly
drive myself mad trying to figure out why a perfectly good, in my opinion
an 'above average' stock, was getting *SLAUGHTERED*.
By now I am sure you can read my mind.
*THERE WAS NO RATIONAL REASON.*
Well, I take that back. There was a rational reason but it had absolutely
nothing to do with complicated and precise valuation methodology.
It had to do with psychology, with fear, with emotion, with selling
to cover margin calls on other positions, with intermediate cycles
and yearly cycles coming due and pulling the entire sector down.
At the point we are at right now, as the market for miners is starting to
turn upward, the entire sector is about to explode higher and again,
it will be because of an about-face in the psychology of buyers. And
further, miners that have positive earnings and are selling below
book value will sky rocket with all the others. And no doubt the miners
selling below book value and no earnings will sky right along with the rest
of them.
just to be clear are you saying above 100% is over priced or under priced, for example
ReplyDelete(GORO) sells at 730%
are you saying there stocks are to high or to low?
Steve - if one purchased GORO for $7.30 and then liquidated
ReplyDeletethe company by paying off the debtors then pocketing the
left over cash, one would have exactly $1.00 In this case,
one would have payed $7.30 to end up with $1.00 Not a very good
deal. Another company selling at, say 60% of book value would
then, hypothetically, cost 60 cents to buy and after liquidation,
etc., one would have exactly $1.00 This would be a GREAT trade.
John I play a few of these and like the buy in right now does this open the door for some royalty company plays as I have a few of them also Gold and Silver wise. Would this not be a time for some company's with questionable working capital if you can call it questionable buy they know there no. I simply say that because some bet on the come more than others meaning they know what they have. The main difference in a good deal for both sides is that the miner gets to hang on verses the miner can improve with more capital is a fine line any thoughts in what factors judge the best scenario for both side or who hold the hammer so to say?
ReplyDeleteThanks
Cathy
Cathy - if I understand your question - that it has to do with evaluating miners
ReplyDeletewith an eye on their working capital, or lack thereof - I certainly think the subject
is very relevant. Unfortunately, I don't think I have a simple answer about who gets
the last say. What I generally recognize is that the larger miners need to acquire
smaller miners that have viable projects as this is the best way for them to cost-
effectively enhance/replace their constantly depleting resources. It would seem to
make sense for a larger miner to buy a smaller miner who has already done the incredible
amount of legwork - permits, studies, drills, etc. etc. and is already able to mine
the property profitably. Even better if this resource can be acquired in a market downturn
such as we have now, where assets like this are available at fire sale prices.
if one purchased GORO for $7.30 and then liquidated
ReplyDeletethe company by paying off the debtors then pocketing the
left over cash, one would have exactly $1.00 In this case,
one would have payed $7.30 to end up with $1.00 Not a very good
deal. Another company selling at, say 60% of book value would
then, hypothetically, cost 60 cents to buy and after liquidation,
etc.,.....how to invest in the stock market