Strategy: Acquire low risk oil and gas assets and apply technical expertise to develop the assets and their productivity.
Main asset: Selmo oil field in Turkey. 500 million barrels in place with 83 million barrels produced to date. Expected to generate around $20m cashflow per annum for next 2-3 years.
Shares out: 79m
Recent Share Price (24th July 2008): $1.05
Market cap: $83m
Dividends -> 6 cents in past 12 months.
Net cash balance at 30th June 2008 -> $9.5m
Financial year ends 31st December
2007
Revenue $40m
NPAT $10.7m
EPS 16 cents
P/E 6.6
Q2 2008 (to June 30) report
http://www.asx.com.au/asxpdf/20080724/pdf/31b9sq4wyjkr68.pdf
Q2 2008 Q1 2008
Net Production (BBL) 113k 116k
Ave Daily Prodn (BBL) 1,247 1,295
Ave Price (US$) $118 $90
Revenue ($A) $14.0m $11.6m
BJ estimates
Selmo 2008
Ave Daily Prodn (BBL) 1,300
Oil Price $110
Annualised revenue $50m
Net Profit Margin 30%
NPAT $15m
EPS 19 cents
P/E 5.5
Tricom report 30th June 2008
http://www.incrementalpetroleum.com/reports/IPM_EDIRNE_DRILLING_080630.pdf
2009 revenue estimate: $70m (includes Erdine revenue at oil at $120/ BBL - may be optimistic)
Verdict:
2009/10 cashflow ~$30m, equating to a P/cashflow of around 3.
Exploration prospects on top
Little or no debt
Risks
- Lower oil price
- Delays/downgrades to Erdine project
- Exploration disappointments
Erdine Gas Project, West Turkey (IPM 55%)
7 gas discoveries from 7 drilled wells.
Production planned mid 2009
Potential cashflow to IPM of around $10m, based on 9mmcf/d
Exploration, Turkey
8 exploration licenses awarded in May 2008
USA Projects
5 projects totaling 19,000 acres in San Joaquin Basin, central California.
1) Kettleman Middle Dome (IPM 10%)
Operating and producing field. Revenues cover US costs. Royalty of 25% of gross proceeds applies.
Significant production from new wells planned to commence in 2009.
2) Shallow Gas Project (IPM 50% and operator)
Rig slots booked in Q4 2008. If successful, begin production by end 2009.
Wednesday, July 23, 2008
Tuesday, July 22, 2008
We Name Two More Small Resource Stocks Today
With the stock market jumping over 3% on Monday alone, suddenly a wave of investor optimism has returned.
Calling All Serious Stock Market Investors…
This is a time to be brave.
It is a time to be bold.
As we said last week, we firmly believe the worst is over, and the market is closer to the bottom than the top.
In fact, following Monday’s 160 point or 3.3% jump in the All Ordinaries Index, we may already have seen the bottom.
But even if we have passed the bottom, that is NOT a reason to sit on the sidelines. After the 3.3% jump on Monday, the All Ordinaries Index was still down a massive 26% from its peak of November last year.
Stocks Are Still Cheap Today
Most stocks that were cheap last Friday are still cheap today.
Take the one small oil stock we named last week, Salinas Energy.
In the week since we highlighted that stock to readers of this email, the share price has jumped from around 33 cents to around 36 cents, a rise of around 9%. In a tough market like this, with the oil price falling, we think you’ll agree that is an impressive move.
Right now, with Salinas shares around 9% higher in just the last week, you may be thinking you’ve missed the boat.
Well we’ve got news for you. If we thought the Salinas Energy share price was only going to rise 9% from the 33 cents it traded at last week, you’d be sadly mistaken.
Although the 9% price hike gives people who bought last week at 33 cents a nice “feel-good” factor, over time we think the one-week 9% rise will pale into insignificance.
What sets us apart from other services is our ability to focus on, amongst other things…
• Recommending companies in sectors and industries we think offer excellent long-term prospects.
• Recommending companies with outstanding management teams and proven track records. Wherever possible, we try to meet with management to get an even better idea of a company’s prospects. We find there’s nothing better than seeing the whites of management’s eyes when recommending a company to the thousands of our paying Members.
• The long-term attractiveness of the stock market and in particular, the stocks we recommend as a BUY to our paying Members.
The last point is an important distinction. We are not interested in timing the market and short-term pops in the share price, such as we’ve seen with Salinas Energy.
There Is A Lot Of Good Value In This Stock Market
We take a long-term perspective when recommending stocks for our Members to buy. In the short-term, share prices go up and down based on supply and demand. One day, when shares are in favour, the share price might rise. The next day, when shares are out of favour, the share price might fall.
Those sorts of movements are just noise. The very best investors are immune to stock market noise.
For example, John Murray of Perennial Value Management was quoted this week in the Australian Financial Review (AFR) as saying…
“One day the market is up and the other day it is down.”
“Our view is that there is a lot of good value in the market.”
“Investors have to try not to be caught up in the day-to-day machinations of the market.”
We couldn’t agree more.
In fact, we go two steps further, by actually naming two of our very favourite resources stocks, both of whom we think have been beaten down too far by this vicious bear market.
Read on for details of those two companies …
One Great Stock Market Day Can Make All the Difference
What a difference a day can make to the mindset of investors. Suddenly, after Monday’s 160 point or 3.3% jump in the All Ordinaries Index, the mood on the street is one of optimism.
We guess it’s not too surprising, given the rise was the 7th largest one-day gain in the S&P/ASX 200 Index since 1992.
Take some of these quotes in Tuesday’s AFR…
“There seems to be a bit more calm in the market.”
“I think you have the set-up for a more sustainable rebound…Previously, there was clear evidence that some people were just giving up.”
Then we had the eagerly awaited results from Bank Of America, which reported quarterly profit that fell less than expected on record revenue. Not surprisingly, the shares bounced in Monday trading in New York.
Credit Crisis Not As Bad As People Thought
Following the Bank Of America results, Reuters quoted Steve Roukis, managing director at Matrix Asset Advisors, as saying “It suggests the credit crisis isn't as bad as people thought. A week ago there was tremendous fear about systematic risk to the system. There's definitely a floor here.”
Again on Reuters, Bank of America Chief executive Kenneth Lewis was quoted as saying on a conference call: “We do not yet see the economy slipping into prolonged recession," but "sluggishness" will likely persist through year-end.
If Lewis is correct, and the US economy is not looking at a prolonged recession, the stock market could be set for a substantial rebound.
Many stocks are priced as if a recession is guaranteed. If we’re talking about a ‘sluggish’ economy in 2008, that in itself could be enough to light a flame under the share prices of some beaten down stocks.
As you’ll see below, we think there are some compelling stock market bargains, two of which we actually name today.
Small Resources Stocks Look Plain Cheap
As regular readers of this email will know, we have consistently been bullish about the resources sector.
In recent weeks, we have become even more bullish about smaller resources stocks. As a group, they have seen their share prices hammered as investors have indiscriminately sold them off.
Our overwhelming view is that, in the resource sector specifically, the small caps are being priced way too pessimistically. We're not sure when they'll begin to benefit from better market sentiment. But we do know that good companies, whether explorers, developers or producers, will eventually be rewarded.
So instead of selling or sitting there doing nothing, instead we think you should be taking the opportunity to add to positions over the next few months to gain even greater benefit from the eventual recovery.
The bottom line is that natural resources stocks have some of the best earnings potential and the lowest valuations in the entire share market.
Our portfolios are chock full of what we consider to be high quality, cheap resources stocks.
We Name Two Cheap Resource Stocks
We named one of our favourite cheap resource stocks above – small oil producer Salinas Energy.
Today we name two other small resource stocks we think are downright cheap. Not surprisingly, both are gold producers.
Why gold? We remain of the opinion that the gold price is headed back above US$1,000 an ounce in the not too distant future, and stand by our year-end prediction of US$1,100 an ounce.
If that prediction comes anywhere near being right, we think these two small gold producers, plus all the other gold stocks in our portfolios, could be set to soar higher.
Cheap Small Resource Stock #1
St Barbara is a West Australian based gold exploration and production company. St Barbara’s current production is coming entirely from their Southern Cross operations. Although they hit their production target for the previous 12 months, in tune with many other miners, higher costs have crimped their profits.
While that’s rightly the area of focus at the moment, there are some good things going on at St Barbara. We think they have huge exploration potential and we think their $35 million annual exploration budget is yielding results.
Having recently raised new money at a share price of 40 cents, St Barbara now has around $110 million in cash. With their recent share price around 27 cents, the company is worth in total around $360 million.
We remain confident on St Barbara’s prospects. A gold price well above US$1,000 will no doubt provide a boost to sentiment, and we anticipate new highs in the gold price later this year.
Cheap Small Resource Stock #2
We have long regarded Avoca Resources as a highly attractive, emerging gold play. In a sector dominated by projects with high-cost operations and flagging profitability, this company is set to be a fresh new face on the block, with strong operating margins.
Avoca has recently confirmed that its brand new $77 million underground gold mine has been commissioned. Amazingly, it is the first new gold operation in Western Australia since 2001.
Avoca’s Higginsville gold project boats a +1 million ounce gold resource base that is continuing to grow in size. Based on the most up-to-date resource estimate announced in late-2007, the Higginsville resource base comprises 1.35 million ounces of gold.
We feel the upside potential remains enormous. Avoca currently controls the gold belt between the 15 million ounce St Ives and six million ounce Norseman goldfields.
We remain overwhelmingly positive on this company’s story. There are very few emerging, high-quality gold producers in the Australian market. With the shares currently trading at around $1.85, Avoca company is currently trading on a price-earnings multiple of around 13 times forecast 2009 consensus earnings.
When Will This Bear Market End?
We think those two gold stocks will do well over the coming weeks, months and years.
In fact, we are very confident in the future prospects of ALL our portfolio stocks. As we’ve said in the past, we view market corrections as an opportunity.
Yet many people remain reluctant to invest in the stock market in the midst of this bear market.
If we knew when this bear market was going to end, we’d be millionaires.
We won’t pretend we are able to accurately predict the future. That said, we are in the business of making educated guesses about the future. So here goes…
By the time you read this, the bear market might already have ended.
If it hasn’t already ended, it might end tomorrow.
It might end this month.
It might end this year.
It might end next year.
It might end sometime after that.
You’re right – we’re sitting on the fence.
You see, bear markets are somewhat difficult to accurately define. We fully know their accepted definition is a fall of 20% or more from their peak.
The Australian stock market peaked in November last year and is now down around 25%, making it officially a bear market.
Here A Bear, There A Bear…
But it’s not a bear market for large resources stocks.
Yet it’s an even bigger bear market for most banks, retailers and smaller companies.
So although this is officially a bear market, it doesn’t mean all stocks are falling, and it doesn’t mean all stocks are falling by the same amount.
As usual with stock market investing, it’s a case of picking the winners and avoiding the losers. That’s exactly what we try to do.
What The Very Best Investors Do In Times Like These
What do you do during these times of periodic stock market wobbles?
We don’t blame you if you sit on the sidelines, waiting out the storm.
But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices.
That’s exactly what we try to do. We concentrate on finding good quality, cheap companies to recommend to our Members as a BUY.
We wish you happy and profitable long-term investing.
Calling All Serious Stock Market Investors…
This is a time to be brave.
It is a time to be bold.
As we said last week, we firmly believe the worst is over, and the market is closer to the bottom than the top.
In fact, following Monday’s 160 point or 3.3% jump in the All Ordinaries Index, we may already have seen the bottom.
But even if we have passed the bottom, that is NOT a reason to sit on the sidelines. After the 3.3% jump on Monday, the All Ordinaries Index was still down a massive 26% from its peak of November last year.
Stocks Are Still Cheap Today
Most stocks that were cheap last Friday are still cheap today.
Take the one small oil stock we named last week, Salinas Energy.
In the week since we highlighted that stock to readers of this email, the share price has jumped from around 33 cents to around 36 cents, a rise of around 9%. In a tough market like this, with the oil price falling, we think you’ll agree that is an impressive move.
Right now, with Salinas shares around 9% higher in just the last week, you may be thinking you’ve missed the boat.
Well we’ve got news for you. If we thought the Salinas Energy share price was only going to rise 9% from the 33 cents it traded at last week, you’d be sadly mistaken.
Although the 9% price hike gives people who bought last week at 33 cents a nice “feel-good” factor, over time we think the one-week 9% rise will pale into insignificance.
What sets us apart from other services is our ability to focus on, amongst other things…
• Recommending companies in sectors and industries we think offer excellent long-term prospects.
• Recommending companies with outstanding management teams and proven track records. Wherever possible, we try to meet with management to get an even better idea of a company’s prospects. We find there’s nothing better than seeing the whites of management’s eyes when recommending a company to the thousands of our paying Members.
• The long-term attractiveness of the stock market and in particular, the stocks we recommend as a BUY to our paying Members.
The last point is an important distinction. We are not interested in timing the market and short-term pops in the share price, such as we’ve seen with Salinas Energy.
There Is A Lot Of Good Value In This Stock Market
We take a long-term perspective when recommending stocks for our Members to buy. In the short-term, share prices go up and down based on supply and demand. One day, when shares are in favour, the share price might rise. The next day, when shares are out of favour, the share price might fall.
Those sorts of movements are just noise. The very best investors are immune to stock market noise.
For example, John Murray of Perennial Value Management was quoted this week in the Australian Financial Review (AFR) as saying…
“One day the market is up and the other day it is down.”
“Our view is that there is a lot of good value in the market.”
“Investors have to try not to be caught up in the day-to-day machinations of the market.”
We couldn’t agree more.
In fact, we go two steps further, by actually naming two of our very favourite resources stocks, both of whom we think have been beaten down too far by this vicious bear market.
Read on for details of those two companies …
One Great Stock Market Day Can Make All the Difference
What a difference a day can make to the mindset of investors. Suddenly, after Monday’s 160 point or 3.3% jump in the All Ordinaries Index, the mood on the street is one of optimism.
We guess it’s not too surprising, given the rise was the 7th largest one-day gain in the S&P/ASX 200 Index since 1992.
Take some of these quotes in Tuesday’s AFR…
“There seems to be a bit more calm in the market.”
“I think you have the set-up for a more sustainable rebound…Previously, there was clear evidence that some people were just giving up.”
Then we had the eagerly awaited results from Bank Of America, which reported quarterly profit that fell less than expected on record revenue. Not surprisingly, the shares bounced in Monday trading in New York.
Credit Crisis Not As Bad As People Thought
Following the Bank Of America results, Reuters quoted Steve Roukis, managing director at Matrix Asset Advisors, as saying “It suggests the credit crisis isn't as bad as people thought. A week ago there was tremendous fear about systematic risk to the system. There's definitely a floor here.”
Again on Reuters, Bank of America Chief executive Kenneth Lewis was quoted as saying on a conference call: “We do not yet see the economy slipping into prolonged recession," but "sluggishness" will likely persist through year-end.
If Lewis is correct, and the US economy is not looking at a prolonged recession, the stock market could be set for a substantial rebound.
Many stocks are priced as if a recession is guaranteed. If we’re talking about a ‘sluggish’ economy in 2008, that in itself could be enough to light a flame under the share prices of some beaten down stocks.
As you’ll see below, we think there are some compelling stock market bargains, two of which we actually name today.
Small Resources Stocks Look Plain Cheap
As regular readers of this email will know, we have consistently been bullish about the resources sector.
In recent weeks, we have become even more bullish about smaller resources stocks. As a group, they have seen their share prices hammered as investors have indiscriminately sold them off.
Our overwhelming view is that, in the resource sector specifically, the small caps are being priced way too pessimistically. We're not sure when they'll begin to benefit from better market sentiment. But we do know that good companies, whether explorers, developers or producers, will eventually be rewarded.
So instead of selling or sitting there doing nothing, instead we think you should be taking the opportunity to add to positions over the next few months to gain even greater benefit from the eventual recovery.
The bottom line is that natural resources stocks have some of the best earnings potential and the lowest valuations in the entire share market.
Our portfolios are chock full of what we consider to be high quality, cheap resources stocks.
We Name Two Cheap Resource Stocks
We named one of our favourite cheap resource stocks above – small oil producer Salinas Energy.
Today we name two other small resource stocks we think are downright cheap. Not surprisingly, both are gold producers.
Why gold? We remain of the opinion that the gold price is headed back above US$1,000 an ounce in the not too distant future, and stand by our year-end prediction of US$1,100 an ounce.
If that prediction comes anywhere near being right, we think these two small gold producers, plus all the other gold stocks in our portfolios, could be set to soar higher.
Cheap Small Resource Stock #1
St Barbara is a West Australian based gold exploration and production company. St Barbara’s current production is coming entirely from their Southern Cross operations. Although they hit their production target for the previous 12 months, in tune with many other miners, higher costs have crimped their profits.
While that’s rightly the area of focus at the moment, there are some good things going on at St Barbara. We think they have huge exploration potential and we think their $35 million annual exploration budget is yielding results.
Having recently raised new money at a share price of 40 cents, St Barbara now has around $110 million in cash. With their recent share price around 27 cents, the company is worth in total around $360 million.
We remain confident on St Barbara’s prospects. A gold price well above US$1,000 will no doubt provide a boost to sentiment, and we anticipate new highs in the gold price later this year.
Cheap Small Resource Stock #2
We have long regarded Avoca Resources as a highly attractive, emerging gold play. In a sector dominated by projects with high-cost operations and flagging profitability, this company is set to be a fresh new face on the block, with strong operating margins.
Avoca has recently confirmed that its brand new $77 million underground gold mine has been commissioned. Amazingly, it is the first new gold operation in Western Australia since 2001.
Avoca’s Higginsville gold project boats a +1 million ounce gold resource base that is continuing to grow in size. Based on the most up-to-date resource estimate announced in late-2007, the Higginsville resource base comprises 1.35 million ounces of gold.
We feel the upside potential remains enormous. Avoca currently controls the gold belt between the 15 million ounce St Ives and six million ounce Norseman goldfields.
We remain overwhelmingly positive on this company’s story. There are very few emerging, high-quality gold producers in the Australian market. With the shares currently trading at around $1.85, Avoca company is currently trading on a price-earnings multiple of around 13 times forecast 2009 consensus earnings.
When Will This Bear Market End?
We think those two gold stocks will do well over the coming weeks, months and years.
In fact, we are very confident in the future prospects of ALL our portfolio stocks. As we’ve said in the past, we view market corrections as an opportunity.
Yet many people remain reluctant to invest in the stock market in the midst of this bear market.
If we knew when this bear market was going to end, we’d be millionaires.
We won’t pretend we are able to accurately predict the future. That said, we are in the business of making educated guesses about the future. So here goes…
By the time you read this, the bear market might already have ended.
If it hasn’t already ended, it might end tomorrow.
It might end this month.
It might end this year.
It might end next year.
It might end sometime after that.
You’re right – we’re sitting on the fence.
You see, bear markets are somewhat difficult to accurately define. We fully know their accepted definition is a fall of 20% or more from their peak.
The Australian stock market peaked in November last year and is now down around 25%, making it officially a bear market.
Here A Bear, There A Bear…
But it’s not a bear market for large resources stocks.
Yet it’s an even bigger bear market for most banks, retailers and smaller companies.
So although this is officially a bear market, it doesn’t mean all stocks are falling, and it doesn’t mean all stocks are falling by the same amount.
As usual with stock market investing, it’s a case of picking the winners and avoiding the losers. That’s exactly what we try to do.
What The Very Best Investors Do In Times Like These
What do you do during these times of periodic stock market wobbles?
We don’t blame you if you sit on the sidelines, waiting out the storm.
But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices.
That’s exactly what we try to do. We concentrate on finding good quality, cheap companies to recommend to our Members as a BUY.
We wish you happy and profitable long-term investing.
Monday, July 14, 2008
We Name One Cheap Small Oil Stock Today!
There is no hiding from this stock market. It is taking down the good with the bad and the ugly.
But we have some good news…below we actually name one small oil stock we think is downright cheap today.
Dear Fellow Stock Market Investor,
This stock market is ugly.
We are in the business of recommending stock market winners, and at the moment, that is proving pretty damn difficult.
Picking a winner at the moment feels like trying to find a needle in a haystack.
Yet there is hope.
There is more than hope. There is opportunity. In Tuesday’s Australian Financial Review (AFR), Glenn Mumford said…
“Don’t be surprised if a bounce in equities develops as the week unfolds – and it might prove substantial.”
Whichever way you look at them, some stocks are just plain cheap.
Below we name one small oil company we think is incredibly cheap today. They have recently upgraded their calendar 2008 revenue projections by a whopping 25%, yet the share price remains in the doldrums.
Some Compelling Stock Market Bargains
We realise this is a tough time for stock market investors. Share prices are retreating on an almost daily basis. Share portfolios are hurting.
Yet shares look cheap. In fact, many shares look downright cheap. But in this ugly market, in the short-term, just because a stock is cheap doesn’t mean it can’t fall even further.
The good news is that history is on our side…
• Buying good quality assets when they are trading at a significant discount to their fair value is always a recipe for investing success.
• The time to buy cheap assets is at times of maximum pessimism. We may be at or not far off that point right now.
As you’ll see below, we think there are some compelling stock market bargains today.
Resource Stocks Continue To Power Ahead
As we said above, we currently think many stocks are just plain cheap. To emphasise the point, late last week we rushed a special email alert to our thousands of Members.
As regular readers of this email will know, we have consistently been bullish about the resources sector, particularly oil and gold. With the price of oil hitting US$145 a barrel and gold now trading back up at around US$970 an ounce, we think you’ll agree we’ve been largely on the mark with those two calls.
The resources sector has clearly outperformed the broader stock market. In fact, if you have not been exposed to the resources sector over the past few months, you’ll be sitting on some very painful losses.
The strong performance of the resources stocks has been largely confined to the big end of town – Rio Tinto, BHP Billiton and Woodside Petroleum, just to name a few. This is symptomatic of what happens in a bear market, made much worse by a global credit contraction.
In these types of markets, appetite for risk diminishes. With credit contracting, liquidity dries up. Money flows up into the big, liquid stocks at the expense of the smaller, illiquid companies.
When people are hit with margin calls or are paying down debts, they need to sell assets and reduce their risk. Hence, smaller companies, especially small miners or explorers are seen as the riskiest exposures and are therefore sold off.
These Stocks Are Priced Way Too Pessimistically
What we are seeing today is many smaller company resources stocks trading at very low levels. If we were on the brink of a commodity price collapse, such pessimism in the share price would be warranted. But as we've pointed out many times, we do not think that is the case.
If commodity prices fell significantly from here, there would be a huge reduction in supply as many miners would shut down their operations due to them becoming uneconomic. The huge amount of inflation in the mining sector is real, unlike the official inflation statistics we see every month or quarter.
This means the rise in commodity prices is justified and sustainable. In fact, we think prices will move higher in the years to come.
Our overwhelming view is that, in the resource sector specifically, the small caps are being priced way too pessimistically. We're not sure when they'll begin to benefit from better market sentiment. But we do know that good companies, whether explorers, developers or producers, will eventually be rewarded.
So instead of selling or sitting there doing nothing, instead we think you should be taking the opportunity to add to positions over the next few months to gain even greater benefit from the eventual recovery.
The bottom line is that natural resources stocks have some of the best earnings potential and the lowest valuations in the entire share market.
Our portfolios are chock full of what we consider to be high quality, cheap resources stocks.
One Very Cheap Small Oil Company
Take the small oil company we initially recommended to our Members in July last year when it was trading at 57 cents.
The company is called Salinas Energy. Today its share price is around 34 cents.
Here is what we like about Salinas Energy, and why we think it is cheap today…
• We firmly believe triple digit oil prices are here to stay. In fact, we think oil could trade as high as US$200 a barrel in the not too distant future. Oil is a naturally depleting resource, and almost all of the world’s cheap oil has already been discovered. Courtesy of the rapid industrialisation of China and India, home to over 40% of the world’s population, demand for oil is going to keep rising whilst supply keeps diminishing. Whether we like it or not, it all adds up to a rising oil price.
• We have stated that Salinas Energy is one of the oil sector’s biggest bargains for some time now. This is not some speculative fly-by-night oil explorer drilling speculatively for oil in politically sensitive areas of Africa. Salinas is already an oil producer via its North San Ardo field in southern California, an area where oil reserves are potentially significant.
• Salinas have recently increased their forecast revenue for calendar 2008 by 25%, based on record high oil prices and record high oil production. Yet since that announcement at the end of June, and despite the oil price going yet higher, it has had little or no impact on the Salinas Energy share price – in fact, the share price has edged down. There was a time not too long ago when such an announcement would likely have resulted in a significant jump in the share price.
• We estimate their calendar 2008 operating profits at around $15 million, and estimate their calendar 2009 operating profits could jump as high as around $30 million. For a company worth in total just $82 million, including net cash of around $7m and no debt, this looks remarkably cheap.
• But that’s not all. On top of their current oil production, Salinas also holds a 50% stake of the Paris Valley oilfield, just 6 miles from their existing North San Ardo site. This field has potential for more than 100 million barrels of oil-in-place, of which Salinas is hoping to target 25 million barrels of recoverable oil.
In summary, we think Salinas Energy continues to demonstrate all of the necessary ingredients for success. There is a sizeable disconnect between the company’s market worth and its in-ground oil value in our opinion, with no value ascribed for ongoing exploration achievements.
With its share price trading at just 34 cents, we think the upside potential is significant. The company obviously thinks so too, as it is regularly buying back some of its own shares.
Shock Revelation: Recessions Come And Go
We are realistic investors. We realise this current stock market stinks. We realise many people have lost money, and we realise that is painful.
But we also realise…
• Recessions come and go. Because we haven’t had one for such a long time now, we’ve forgotten what they look like, forgotten how long they last, forgotten what happened to share prices before, during and after the recession, and forgotten what it’s like when house prices stagnate or even fall.
• Stock market corrections come and go. Because we have just come from 5 years of double-digit percentage stock market gains, we’ve forgotten that markets can go down as well as up, forgotten that stock market investing entails taking on some level of risk, and forgotten that borrowing money to invest in the market is going to doubly hurt in a falling market.
• Share prices tend to over-react both on the way up and on the way down. In a bull market, shares that look expensive can keep rising, higher than anyone ever thought they could go. In a bear market, shares that look cheap today can keep falling further than anyone ever thought they could go.
We may not be at the bottom of the market yet, but we think we are certainly closer to the bottom than we are the top, and when it comes to smaller resource companies, many of them look just plain cheap.
The Stock Market WILL Bounce
The economy will recover. It always does.
The stock market will bounce back. It always has.
How do we know? We’ve seen it all before…
• In 1997, we had the Asian financial crisis.
• In 1998, we had the Long Term Capital Management collapse and Russia bond crisis.
• In 2001, we had the US terrorist attacks.
• In 2003, the markets plunged heavily amidst a liquidity and forced selling crisis in the insurance and banking systems.
You may hear people saying “it’s different this time”.
They may liken today’s credit crunch with the Great Depression of 1929 to 1939.
They may say it’s the mother of all recessions, with large banks across the world set to go bust.
They may tell you to get out of stocks now, and to stay out of them for the next 5 to 10 years.
What The Very Best Investors Do In Times Like These
What do you do during these times of periodic stock market wobbles?
We don’t blame you if you sit on the sidelines, waiting out the storm.
But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices.
That’s exactly what we try to do. We concentrate on finding good quality, cheap companies to recommend to our Members as a BUY.
The share prices of some of our specially selected small resource companies are currently looking very cheap.
We wish you happy and profitable long-term investing.
But we have some good news…below we actually name one small oil stock we think is downright cheap today.
Dear Fellow Stock Market Investor,
This stock market is ugly.
We are in the business of recommending stock market winners, and at the moment, that is proving pretty damn difficult.
Picking a winner at the moment feels like trying to find a needle in a haystack.
Yet there is hope.
There is more than hope. There is opportunity. In Tuesday’s Australian Financial Review (AFR), Glenn Mumford said…
“Don’t be surprised if a bounce in equities develops as the week unfolds – and it might prove substantial.”
Whichever way you look at them, some stocks are just plain cheap.
Below we name one small oil company we think is incredibly cheap today. They have recently upgraded their calendar 2008 revenue projections by a whopping 25%, yet the share price remains in the doldrums.
Some Compelling Stock Market Bargains
We realise this is a tough time for stock market investors. Share prices are retreating on an almost daily basis. Share portfolios are hurting.
Yet shares look cheap. In fact, many shares look downright cheap. But in this ugly market, in the short-term, just because a stock is cheap doesn’t mean it can’t fall even further.
The good news is that history is on our side…
• Buying good quality assets when they are trading at a significant discount to their fair value is always a recipe for investing success.
• The time to buy cheap assets is at times of maximum pessimism. We may be at or not far off that point right now.
As you’ll see below, we think there are some compelling stock market bargains today.
Resource Stocks Continue To Power Ahead
As we said above, we currently think many stocks are just plain cheap. To emphasise the point, late last week we rushed a special email alert to our thousands of Members.
As regular readers of this email will know, we have consistently been bullish about the resources sector, particularly oil and gold. With the price of oil hitting US$145 a barrel and gold now trading back up at around US$970 an ounce, we think you’ll agree we’ve been largely on the mark with those two calls.
The resources sector has clearly outperformed the broader stock market. In fact, if you have not been exposed to the resources sector over the past few months, you’ll be sitting on some very painful losses.
The strong performance of the resources stocks has been largely confined to the big end of town – Rio Tinto, BHP Billiton and Woodside Petroleum, just to name a few. This is symptomatic of what happens in a bear market, made much worse by a global credit contraction.
In these types of markets, appetite for risk diminishes. With credit contracting, liquidity dries up. Money flows up into the big, liquid stocks at the expense of the smaller, illiquid companies.
When people are hit with margin calls or are paying down debts, they need to sell assets and reduce their risk. Hence, smaller companies, especially small miners or explorers are seen as the riskiest exposures and are therefore sold off.
These Stocks Are Priced Way Too Pessimistically
What we are seeing today is many smaller company resources stocks trading at very low levels. If we were on the brink of a commodity price collapse, such pessimism in the share price would be warranted. But as we've pointed out many times, we do not think that is the case.
If commodity prices fell significantly from here, there would be a huge reduction in supply as many miners would shut down their operations due to them becoming uneconomic. The huge amount of inflation in the mining sector is real, unlike the official inflation statistics we see every month or quarter.
This means the rise in commodity prices is justified and sustainable. In fact, we think prices will move higher in the years to come.
Our overwhelming view is that, in the resource sector specifically, the small caps are being priced way too pessimistically. We're not sure when they'll begin to benefit from better market sentiment. But we do know that good companies, whether explorers, developers or producers, will eventually be rewarded.
So instead of selling or sitting there doing nothing, instead we think you should be taking the opportunity to add to positions over the next few months to gain even greater benefit from the eventual recovery.
The bottom line is that natural resources stocks have some of the best earnings potential and the lowest valuations in the entire share market.
Our portfolios are chock full of what we consider to be high quality, cheap resources stocks.
One Very Cheap Small Oil Company
Take the small oil company we initially recommended to our Members in July last year when it was trading at 57 cents.
The company is called Salinas Energy. Today its share price is around 34 cents.
Here is what we like about Salinas Energy, and why we think it is cheap today…
• We firmly believe triple digit oil prices are here to stay. In fact, we think oil could trade as high as US$200 a barrel in the not too distant future. Oil is a naturally depleting resource, and almost all of the world’s cheap oil has already been discovered. Courtesy of the rapid industrialisation of China and India, home to over 40% of the world’s population, demand for oil is going to keep rising whilst supply keeps diminishing. Whether we like it or not, it all adds up to a rising oil price.
• We have stated that Salinas Energy is one of the oil sector’s biggest bargains for some time now. This is not some speculative fly-by-night oil explorer drilling speculatively for oil in politically sensitive areas of Africa. Salinas is already an oil producer via its North San Ardo field in southern California, an area where oil reserves are potentially significant.
• Salinas have recently increased their forecast revenue for calendar 2008 by 25%, based on record high oil prices and record high oil production. Yet since that announcement at the end of June, and despite the oil price going yet higher, it has had little or no impact on the Salinas Energy share price – in fact, the share price has edged down. There was a time not too long ago when such an announcement would likely have resulted in a significant jump in the share price.
• We estimate their calendar 2008 operating profits at around $15 million, and estimate their calendar 2009 operating profits could jump as high as around $30 million. For a company worth in total just $82 million, including net cash of around $7m and no debt, this looks remarkably cheap.
• But that’s not all. On top of their current oil production, Salinas also holds a 50% stake of the Paris Valley oilfield, just 6 miles from their existing North San Ardo site. This field has potential for more than 100 million barrels of oil-in-place, of which Salinas is hoping to target 25 million barrels of recoverable oil.
In summary, we think Salinas Energy continues to demonstrate all of the necessary ingredients for success. There is a sizeable disconnect between the company’s market worth and its in-ground oil value in our opinion, with no value ascribed for ongoing exploration achievements.
With its share price trading at just 34 cents, we think the upside potential is significant. The company obviously thinks so too, as it is regularly buying back some of its own shares.
Shock Revelation: Recessions Come And Go
We are realistic investors. We realise this current stock market stinks. We realise many people have lost money, and we realise that is painful.
But we also realise…
• Recessions come and go. Because we haven’t had one for such a long time now, we’ve forgotten what they look like, forgotten how long they last, forgotten what happened to share prices before, during and after the recession, and forgotten what it’s like when house prices stagnate or even fall.
• Stock market corrections come and go. Because we have just come from 5 years of double-digit percentage stock market gains, we’ve forgotten that markets can go down as well as up, forgotten that stock market investing entails taking on some level of risk, and forgotten that borrowing money to invest in the market is going to doubly hurt in a falling market.
• Share prices tend to over-react both on the way up and on the way down. In a bull market, shares that look expensive can keep rising, higher than anyone ever thought they could go. In a bear market, shares that look cheap today can keep falling further than anyone ever thought they could go.
We may not be at the bottom of the market yet, but we think we are certainly closer to the bottom than we are the top, and when it comes to smaller resource companies, many of them look just plain cheap.
The Stock Market WILL Bounce
The economy will recover. It always does.
The stock market will bounce back. It always has.
How do we know? We’ve seen it all before…
• In 1997, we had the Asian financial crisis.
• In 1998, we had the Long Term Capital Management collapse and Russia bond crisis.
• In 2001, we had the US terrorist attacks.
• In 2003, the markets plunged heavily amidst a liquidity and forced selling crisis in the insurance and banking systems.
You may hear people saying “it’s different this time”.
They may liken today’s credit crunch with the Great Depression of 1929 to 1939.
They may say it’s the mother of all recessions, with large banks across the world set to go bust.
They may tell you to get out of stocks now, and to stay out of them for the next 5 to 10 years.
What The Very Best Investors Do In Times Like These
What do you do during these times of periodic stock market wobbles?
We don’t blame you if you sit on the sidelines, waiting out the storm.
But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices.
That’s exactly what we try to do. We concentrate on finding good quality, cheap companies to recommend to our Members as a BUY.
The share prices of some of our specially selected small resource companies are currently looking very cheap.
We wish you happy and profitable long-term investing.
Tuesday, July 1, 2008
Start The New Financial Year With A Bang
It has been a tough month and a tough 12 months for stock market investors, with the All Ordinaries Index off 15.5% for the year and 10.3% for the month of June.
Yet there is hope…plenty of hope. Oil, gold and other commodity prices continue to trade near record highs, all boding well for our specially selected resource stocks.
Below we review the UPS and DOWNS of the last 12 months and highlight just 2 of the many small resource stocks we are recommending as a BUY today.
Happy New Financial Year Fellow Stock Market Investor,
We start this week with a thought...
On Monday morning this week the Australian stock market opened nearly 50 points higher.
That was despite a fall on Wall Street on Friday of over 100 points. It was also despite widespread predictions of a fall for the Aussie market – for example, a headline on the front page of the Australian Financial Review (AFR) said “Markets on edge as bears roam Wall St”.
True to form, by the end of the day, the All Ordinaries Index had fallen 17 points. But that early morning rise got us thinking…
As has become the norm over the past 6 odd months, resources stocks were higher, not surprising when you consider many commodities are trading at or near record highs.
We find it rather interesting that the market rose in early morning trade, despite all the doom and gloom and generally negative sentiment.
Stock markets are always looking forward, not back.
They are not looking at the oil price of over $US140 a barrel today, instead they are looking at what they might think the oil price is in 3, 6 and 12 month’s time.
They are not looking at interest rates today; they are looking at interest rates in the future.
The Aussie economy is slowing. It will slow further in the months ahead as higher interest rates and higher petrol prices continue to put the bite on working families. That’s why the share prices of many industrial, banking and retailing stocks are trading at or near 52 week lows.
The shares of many companies in those same sectors look cheap today, but if you look forward a few months, look to a slowing economy and the prospect of static to falling house prices, they don’t look so cheap.
Is The Worst Of The Stock Market Almost Over?
On Monday morning, the market looked forward. It looked at…
• High commodity prices today and in the future.
• High oil prices today and in the future.
Could it also have looked forward at…
• The near bottom of the US stock market?
• The cheapness of some selected industrial, banking and retailing stocks?
• The fact that the stock market bottoms before the economy bottoms, and perhaps, just perhaps, the market can see the bottom of the US economy?
• A soft landing for the Aussie economy, where interest rates start nudging down, house prices flatten instead of falling, unemployment levels stay roughly steady, and the resources boom carries on in a steady state for the foreseeable future?
As usual with economic predictions, there are no right or wrong answers. We’re not saying this is the bottom of the market for industrial, banking and retail stocks. We’re not saying this is the bottom for the US stock market. We’re not saying Aussie interest rates won’t go even higher.
How You Can Profit From This Racing Certainty
But one thing is absolutely for certain…
Stocks are significantly cheaper today than they were a year ago, and cheaper than when they hit their peak in November last year.
We don’t know about you, but we like to buy things on the cheap. And when things are cheap, we like to buy more of them.
It never ceases to amaze us that people who were happy to buy stocks when they were trading at their all time highs just a few months ago are now completely put off the stock market.
A few months ago we mentioned the story of one of our friends who sent us an email saying…
“I don’t think I will EVER buy any more stocks. I invested $3000 and they are now worth just over a grand, what a joke. I am hoping they will climb up to around $1,500 and I am going to sell then, losing 50%, and get out for life.”
Inexperienced investors are often sucked into buying when prices are high, afraid of missing out on future profits. Conversely, they sell when the share price is at a low point, just wanting to get out, to avoid any further pain.
Stock market investing is a great way to build long-term wealth. To give up on it because of one or two bad experiences is a mistake. Instead, a better course of action would be to learn from your mistakes, change strategy, and vow to conquer the stock market.
We Tell You The Exact Stocks To Buy, And When To Buy Them
We tell our Members exactly which stocks to buy, and when, and which stocks to sell, and when. Our stock recommendations and our research and advice is completely independent.
We do not offer any brokerage services, we do not offer any investment banking services and we are not paid by any of the companies that we recommend.
We are long-term investors. We are patient. We minimise risks. We don’t panic. Our stock recommendations reflect those qualities.
There are three main pillars to our success story…
1. We have a passion and an absolute dedication to making you money.
2. We are totally committed to searching for and picking the stocks with the very best chance of rising in value in the weeks, months and years ahead.
3. We will offer you an outstanding level of service.
We firmly believe great stockmarket wealth is accumulated over a long period of time.
The Ups and Downs of 2007/8
We wish farewell and good riddance to tax year 2007/8. It has been a year of ups and downs…
The UPS
• Australian interest rates have risen four times over the past 12 months, and now stand at a mortgage-stressful 7.25%.
• Rents are up, and supply of rental properties remains tight.
• Oil is up 175% since early 2007 and on Friday hit yet another all time record high of US$143 a barrel.
• A rising oil price means higher petrol prices – $1.60 a litre, and rising.
• Gold breached the US$1000 an ounce mark back in March, and today still trades at around US$930 an ounce, up over 40% in the last 12 months.
• The Aussie dollar continues to ride high, trading at around US$0.96 cents, a 25 year high, with many commentators predicting parity in the coming months.
• Global steel prices, iron ore, coking coal, thermal coal and copper, amongst others, all trade at or near their record highs.
• Many resource stocks are significantly higher than the levels they were at 12 months ago. For example, Woodside Petroleum is up around 47%, BHP Billiton is up 26%, Rio Tinto is up 38%, Origin Energy is up 62% and Newcrest Mining is up 48%, just to name a few.
• Some smaller resource stocks have soared over the past 12 months, like these selected companies…
Cockatoo Coal +302%
A Small Oil & Coal Company +215%
Integra Mining +203%
Carnarvon Petroleum +121%
(Total returns from 1st July 2007 to 30th June 2008. Source: Bloomberg)
For more on the small oil and coal company whose share price has gone up 215% in the past 12 months, read on. As you’ll see, not content with the gains to date, even at today’s price we recommend the shares as a BUY.
It’s just one of the ways we think we can help start your new financial year with a bang.
The DOWNS
• The All Ordinaries Index has fallen 15.5% over the past 12 months.
• The same index is down a whopping 22% from its record all time high of November last year.
• Highly indebted companies like Allco Finance, ABC Learning and Centro Properties, amongst others, have seen their shares absolutely hammered.
• Banks and retailers were hit hard as higher interest rates and petrol prices slowed the economy. National Australia Bank are down around 35% in the last 12 months, Westpac is down 20%, Commonwealth Bank is down 27%, ANZ is down 35%, Harvey Norman is down 42% and David Jones is down 48%.
• Uranium, zinc and nickel are all some way off the levels they traded at 12 months ago.
• Some smaller companies stocks have fallen heavily over the past 12 months, including some of our portfolio stocks. We’re the first to admit we’re not perfect, and we do get some of our recommendations wrong, like OceanaGold down 78%, Marathon Resources also down 78% and Biota Holdings down 59%.
We’d love to be able to say to you that the 2008/9 tax year is going to be an UP year for the stock market.
But we can’t say that.
We do have a sneaking feeling it may be an up year, mainly because we expect resource stocks to continue their merry way, but also because we suspect a strong buying opportunity for banks and selected industrials and retailers may be just around the corner.
Our Members will be the first to know when we recommend selected bank, industrials and retail as a BUY.
Our One Guarantee – There Will Be HUGE Winners In 2008/9
We can guarantee one thing however…amongst the literally hundreds of smaller resource stocks, there will be some HUGE winners in 2008/9. That’s the easy part. Knowing which stocks today will be the huge winners of tomorrow is obviously the hard part.
Although we follow larger companies, often recommending them as a BUY when we think the time is right, the area in which we really specialise is in smaller companies, and particularly smaller resource companies.
As we alluded to above, we don’t get every recommendation right. But the good news is that to be a successful investor, you don’t have to get every selection right.
The very best investors, investment bankers, traders, hedge fund managers, portfolio managers and the like aim for a 60% strike rate of winners versus losers.
Our 3 Keys To Investment Success
A 60% strike rate doesn’t sound super exciting. But at that level, most investors should be able to generate above average returns.
The key thing to understand is that share prices can go up thousands of percentage points, but can ‘only’ go down 100%.
We’re generally looking for 3 things from our model share portfolios…
1. Smaller companies with the potential to double, triple, quadruple and more over periods lasting from several months to several years.
2. Larger companies with good share price downside protection whilst offering above average returns in the months and years ahead.
3. More winners than losers.
We think we’ve been doing a pretty good job with our share recommendations. But ultimately our Members are the ones that really count, the ones who make the only judgement that counts to us.
These Stocks Have More Than Quadrupled In Under 3 Years
Above we mentioned our preference for smaller companies, and that we are generally looking for companies with the potential to double, triple, quadruple and more in value over periods lasting from several months to several years.
Take these companies we initially recommended to our Members when they were small companies, each worth less than $30 million at the time of recommendation…
Carnarvon Petroleum – Up an amazing 881% since February 2006!
Platinum Australia – Up an astonishing 711% since November 2005!
Terramin Australia – Up a breathtaking 667% since December 2005!
(Share prices taken on Monday 30th June 2008. Gains don’t include dividends.)
An Incredible Buying Opportunity
A couple of months ago, Wilson Asset Management principal Geoff Wilson was quoted in the AFR as saying some “exceptional” opportunities have presented themselves, particularly in the mid-to-small company sector.
“I am more excited about the next 12 months than I have been in the last two or three years.”
Fast forward to today, and on Monday this week Wilson Asset Management portfolio manager Matthew Kidman was quoted in the AFR as saying…
“Over a period, this will look like an incredible buying opportunity, but sentiment is just awfully negative. With bear markets, it just takes a while (for things to improve)”.
We couldn’t agree more. Whilst we are cautious on the short-term outlook for the stock market, on a long-term perspective, we are seeing some excellent value in some of our specially selected smaller resource companies.
The Small Oil & Coal Company Whose Best Days Could Be Still Ahead
Take the small oil and coal company we highlighted above, the one whose share price has already soared 215% in the last 12 months alone.
Not content with that gain, just last week we re-recommended the company as a BUY to our Members.
We initially recommended our Members BUY the company at 5.9 cents way back in December 2005. At the time of our recommendation, the whole company was only worth around $10 million.
In March this year, the share price was a disappointing 4.4 cents. As you may recall, it was about that time that the stock market was in a state of fear and panic. Margin calls were rife, panic selling abounded and smaller companies, particularly smaller resource companies, saw their share prices particularly hammered.
We concluded our March 2008 report on the company with…“Although the current share price performance does not demonstrate it, we believe that exciting times lie ahead for shareholders and that 2008 should be a positive year.”
Little did we know, but just 2 months later, the company announced a “company transforming” acquisition in a deal worth $235 million. As can be seen from the chart below, the stock market clearly liked the acquisition too, with the share price rocketing to over 30 cents.
Today the shares have slipped back a little to around 21 cents, but that is still a gain of 366% since our report in March 2008 and a gain of 247% since our initial BUY recommendation in December 2005.
But we don’t think the gains are going to be finished just yet, as judged by our BUY re-recommendation at around 20 cents of just last week.
There are two other key facets of our investing strategy…
1. There can be substantial profitable investing opportunities for long-term Members. For people who bought this company way back in December 2005 but didn’t follow our regular updates about the company in the months and years that followed, we think it might be likely they’d have sold out in frustration and/or boredom, perhaps even booking a loss, but definitely missing out on the huge profits long-time Members may now be sitting on.
Not having a long-term perspective and not following our recommendations over a number of years could prove to be a very expensive mistake.
2. We are patient, long-term investors. Although the share price performance of this company was disappointing for long periods of time, we didn’t lose faith in the company and in particular, their management.
In a stock market rife with short-termism and the desire for quick profits, we like to think we stand out as different – and we think the example of this company and our long-term investing record show that difference in action.
Your Huge Investing Advantage
Because the company was so small, it didn’t get onto the radar of the big investment houses.
That’s where the smaller private investor has a huge advantage, because lurking around in the small company universe are many hidden stock market gems that just won’t get noticed by larger investors.
As we said previously, the three big winners we mentioned above – Carnarvon Petroleum, Platinum Australia and Terramin Australia – were all initially recommended to Members when they were each worth less than $30 million.
After their tremendous share price performances, each is worth significantly more, and only now are institutional investors getting interested in these companies. In the meantime, Members who bought in at our initial recommendation prices should already be sitting on significant profits, with potentially more to come.
The Small Gold Miner We’ve Just Re-Recommended As A Buy
Then there’s the small gold producer/explorer we recently recommended as a BUY to our Members.
• We first began following the company’s progress more than two years ago. We’ve been greatly impressed by their ability to deliver on their exploration and development goals.
• The final piece in the jigsaw puzzle is now in place, as the company has just produced its first gold bar. The commissioning of their initial Brazilian gold mine, well below budget, is a major feat considering the current environment of delays and cost blow-outs right across the resources sector.
• This is NOT a speculative resource play. We firmly see the company as a long-term generator of wealth for shareholders. The company is run by what we consider to be one of the resource sector’s most highly regarded boards and management teams, which have a goal of building a high quality and growing mid-cap gold producer.
• We believe the rewards for shareholders will be in the form of sustainable capital growth and dividends driven by long-term production and exploration success, rather than many of its peers with a short-term focus on chasing whatever commodity might currently be ‘hot’ to generate short-term share price appreciation.
• We have every confidence in the company’s eventual ability to reach its annualised production target of 35,000 ounces. With the gold price at around A$960 and their anticipated production costs of around $A450 an ounce, we’re very confident the company will generate robust cash flows, and we think that should ultimately be reflected in a sharply increased share price.
• We concluded our recent report by saying we think the recent share price weakness provides an astute buying opportunity, even for existing holders. Accordingly, we recommend the company as a BUY to all Members around 60 cents.
The good news is the shares still trade at around the 60 cent mark they were at when we recently recommended them as a BUY.
After the market’s “horror” June, we believe the share prices of some of our specially selected small resource companies are looking decidedly cheap.
We wish you happy and profitable long-term investing.
P.S. The Aussie stock market has just endured its worst June performance in 68 years and its worst financial year in more than 25 years. Yet Glenn Mumford said in the AFR this week “…investors should avoid assuming the worst…it’s not difficult to construct a positive trajectory for US equities.” And most people agree what’s good for US shares is good for Australian shares.
P.P.S. The oil price is high and remains high. As a reminder, we believe triple-digit oil prices are here to stay, and that oil could easily trade as high as US$200 per barrel. On the downside, it means high petrol prices are here to stay. But on the upside, we think we’ve found a unique collection of smaller oil companies that are set to benefit hugely from the high and rising oil price in the months and years ahead. We believe, once again, the June stock market sell-off is offering new Members some compelling investment opportunities right now.
Yet there is hope…plenty of hope. Oil, gold and other commodity prices continue to trade near record highs, all boding well for our specially selected resource stocks.
Below we review the UPS and DOWNS of the last 12 months and highlight just 2 of the many small resource stocks we are recommending as a BUY today.
Happy New Financial Year Fellow Stock Market Investor,
We start this week with a thought...
On Monday morning this week the Australian stock market opened nearly 50 points higher.
That was despite a fall on Wall Street on Friday of over 100 points. It was also despite widespread predictions of a fall for the Aussie market – for example, a headline on the front page of the Australian Financial Review (AFR) said “Markets on edge as bears roam Wall St”.
True to form, by the end of the day, the All Ordinaries Index had fallen 17 points. But that early morning rise got us thinking…
As has become the norm over the past 6 odd months, resources stocks were higher, not surprising when you consider many commodities are trading at or near record highs.
We find it rather interesting that the market rose in early morning trade, despite all the doom and gloom and generally negative sentiment.
Stock markets are always looking forward, not back.
They are not looking at the oil price of over $US140 a barrel today, instead they are looking at what they might think the oil price is in 3, 6 and 12 month’s time.
They are not looking at interest rates today; they are looking at interest rates in the future.
The Aussie economy is slowing. It will slow further in the months ahead as higher interest rates and higher petrol prices continue to put the bite on working families. That’s why the share prices of many industrial, banking and retailing stocks are trading at or near 52 week lows.
The shares of many companies in those same sectors look cheap today, but if you look forward a few months, look to a slowing economy and the prospect of static to falling house prices, they don’t look so cheap.
Is The Worst Of The Stock Market Almost Over?
On Monday morning, the market looked forward. It looked at…
• High commodity prices today and in the future.
• High oil prices today and in the future.
Could it also have looked forward at…
• The near bottom of the US stock market?
• The cheapness of some selected industrial, banking and retailing stocks?
• The fact that the stock market bottoms before the economy bottoms, and perhaps, just perhaps, the market can see the bottom of the US economy?
• A soft landing for the Aussie economy, where interest rates start nudging down, house prices flatten instead of falling, unemployment levels stay roughly steady, and the resources boom carries on in a steady state for the foreseeable future?
As usual with economic predictions, there are no right or wrong answers. We’re not saying this is the bottom of the market for industrial, banking and retail stocks. We’re not saying this is the bottom for the US stock market. We’re not saying Aussie interest rates won’t go even higher.
How You Can Profit From This Racing Certainty
But one thing is absolutely for certain…
Stocks are significantly cheaper today than they were a year ago, and cheaper than when they hit their peak in November last year.
We don’t know about you, but we like to buy things on the cheap. And when things are cheap, we like to buy more of them.
It never ceases to amaze us that people who were happy to buy stocks when they were trading at their all time highs just a few months ago are now completely put off the stock market.
A few months ago we mentioned the story of one of our friends who sent us an email saying…
“I don’t think I will EVER buy any more stocks. I invested $3000 and they are now worth just over a grand, what a joke. I am hoping they will climb up to around $1,500 and I am going to sell then, losing 50%, and get out for life.”
Inexperienced investors are often sucked into buying when prices are high, afraid of missing out on future profits. Conversely, they sell when the share price is at a low point, just wanting to get out, to avoid any further pain.
Stock market investing is a great way to build long-term wealth. To give up on it because of one or two bad experiences is a mistake. Instead, a better course of action would be to learn from your mistakes, change strategy, and vow to conquer the stock market.
We Tell You The Exact Stocks To Buy, And When To Buy Them
We tell our Members exactly which stocks to buy, and when, and which stocks to sell, and when. Our stock recommendations and our research and advice is completely independent.
We do not offer any brokerage services, we do not offer any investment banking services and we are not paid by any of the companies that we recommend.
We are long-term investors. We are patient. We minimise risks. We don’t panic. Our stock recommendations reflect those qualities.
There are three main pillars to our success story…
1. We have a passion and an absolute dedication to making you money.
2. We are totally committed to searching for and picking the stocks with the very best chance of rising in value in the weeks, months and years ahead.
3. We will offer you an outstanding level of service.
We firmly believe great stockmarket wealth is accumulated over a long period of time.
The Ups and Downs of 2007/8
We wish farewell and good riddance to tax year 2007/8. It has been a year of ups and downs…
The UPS
• Australian interest rates have risen four times over the past 12 months, and now stand at a mortgage-stressful 7.25%.
• Rents are up, and supply of rental properties remains tight.
• Oil is up 175% since early 2007 and on Friday hit yet another all time record high of US$143 a barrel.
• A rising oil price means higher petrol prices – $1.60 a litre, and rising.
• Gold breached the US$1000 an ounce mark back in March, and today still trades at around US$930 an ounce, up over 40% in the last 12 months.
• The Aussie dollar continues to ride high, trading at around US$0.96 cents, a 25 year high, with many commentators predicting parity in the coming months.
• Global steel prices, iron ore, coking coal, thermal coal and copper, amongst others, all trade at or near their record highs.
• Many resource stocks are significantly higher than the levels they were at 12 months ago. For example, Woodside Petroleum is up around 47%, BHP Billiton is up 26%, Rio Tinto is up 38%, Origin Energy is up 62% and Newcrest Mining is up 48%, just to name a few.
• Some smaller resource stocks have soared over the past 12 months, like these selected companies…
Cockatoo Coal +302%
A Small Oil & Coal Company +215%
Integra Mining +203%
Carnarvon Petroleum +121%
(Total returns from 1st July 2007 to 30th June 2008. Source: Bloomberg)
For more on the small oil and coal company whose share price has gone up 215% in the past 12 months, read on. As you’ll see, not content with the gains to date, even at today’s price we recommend the shares as a BUY.
It’s just one of the ways we think we can help start your new financial year with a bang.
The DOWNS
• The All Ordinaries Index has fallen 15.5% over the past 12 months.
• The same index is down a whopping 22% from its record all time high of November last year.
• Highly indebted companies like Allco Finance, ABC Learning and Centro Properties, amongst others, have seen their shares absolutely hammered.
• Banks and retailers were hit hard as higher interest rates and petrol prices slowed the economy. National Australia Bank are down around 35% in the last 12 months, Westpac is down 20%, Commonwealth Bank is down 27%, ANZ is down 35%, Harvey Norman is down 42% and David Jones is down 48%.
• Uranium, zinc and nickel are all some way off the levels they traded at 12 months ago.
• Some smaller companies stocks have fallen heavily over the past 12 months, including some of our portfolio stocks. We’re the first to admit we’re not perfect, and we do get some of our recommendations wrong, like OceanaGold down 78%, Marathon Resources also down 78% and Biota Holdings down 59%.
We’d love to be able to say to you that the 2008/9 tax year is going to be an UP year for the stock market.
But we can’t say that.
We do have a sneaking feeling it may be an up year, mainly because we expect resource stocks to continue their merry way, but also because we suspect a strong buying opportunity for banks and selected industrials and retailers may be just around the corner.
Our Members will be the first to know when we recommend selected bank, industrials and retail as a BUY.
Our One Guarantee – There Will Be HUGE Winners In 2008/9
We can guarantee one thing however…amongst the literally hundreds of smaller resource stocks, there will be some HUGE winners in 2008/9. That’s the easy part. Knowing which stocks today will be the huge winners of tomorrow is obviously the hard part.
Although we follow larger companies, often recommending them as a BUY when we think the time is right, the area in which we really specialise is in smaller companies, and particularly smaller resource companies.
As we alluded to above, we don’t get every recommendation right. But the good news is that to be a successful investor, you don’t have to get every selection right.
The very best investors, investment bankers, traders, hedge fund managers, portfolio managers and the like aim for a 60% strike rate of winners versus losers.
Our 3 Keys To Investment Success
A 60% strike rate doesn’t sound super exciting. But at that level, most investors should be able to generate above average returns.
The key thing to understand is that share prices can go up thousands of percentage points, but can ‘only’ go down 100%.
We’re generally looking for 3 things from our model share portfolios…
1. Smaller companies with the potential to double, triple, quadruple and more over periods lasting from several months to several years.
2. Larger companies with good share price downside protection whilst offering above average returns in the months and years ahead.
3. More winners than losers.
We think we’ve been doing a pretty good job with our share recommendations. But ultimately our Members are the ones that really count, the ones who make the only judgement that counts to us.
These Stocks Have More Than Quadrupled In Under 3 Years
Above we mentioned our preference for smaller companies, and that we are generally looking for companies with the potential to double, triple, quadruple and more in value over periods lasting from several months to several years.
Take these companies we initially recommended to our Members when they were small companies, each worth less than $30 million at the time of recommendation…
Carnarvon Petroleum – Up an amazing 881% since February 2006!
Platinum Australia – Up an astonishing 711% since November 2005!
Terramin Australia – Up a breathtaking 667% since December 2005!
(Share prices taken on Monday 30th June 2008. Gains don’t include dividends.)
An Incredible Buying Opportunity
A couple of months ago, Wilson Asset Management principal Geoff Wilson was quoted in the AFR as saying some “exceptional” opportunities have presented themselves, particularly in the mid-to-small company sector.
“I am more excited about the next 12 months than I have been in the last two or three years.”
Fast forward to today, and on Monday this week Wilson Asset Management portfolio manager Matthew Kidman was quoted in the AFR as saying…
“Over a period, this will look like an incredible buying opportunity, but sentiment is just awfully negative. With bear markets, it just takes a while (for things to improve)”.
We couldn’t agree more. Whilst we are cautious on the short-term outlook for the stock market, on a long-term perspective, we are seeing some excellent value in some of our specially selected smaller resource companies.
The Small Oil & Coal Company Whose Best Days Could Be Still Ahead
Take the small oil and coal company we highlighted above, the one whose share price has already soared 215% in the last 12 months alone.
Not content with that gain, just last week we re-recommended the company as a BUY to our Members.
We initially recommended our Members BUY the company at 5.9 cents way back in December 2005. At the time of our recommendation, the whole company was only worth around $10 million.
In March this year, the share price was a disappointing 4.4 cents. As you may recall, it was about that time that the stock market was in a state of fear and panic. Margin calls were rife, panic selling abounded and smaller companies, particularly smaller resource companies, saw their share prices particularly hammered.
We concluded our March 2008 report on the company with…“Although the current share price performance does not demonstrate it, we believe that exciting times lie ahead for shareholders and that 2008 should be a positive year.”
Little did we know, but just 2 months later, the company announced a “company transforming” acquisition in a deal worth $235 million. As can be seen from the chart below, the stock market clearly liked the acquisition too, with the share price rocketing to over 30 cents.
Today the shares have slipped back a little to around 21 cents, but that is still a gain of 366% since our report in March 2008 and a gain of 247% since our initial BUY recommendation in December 2005.
But we don’t think the gains are going to be finished just yet, as judged by our BUY re-recommendation at around 20 cents of just last week.
There are two other key facets of our investing strategy…
1. There can be substantial profitable investing opportunities for long-term Members. For people who bought this company way back in December 2005 but didn’t follow our regular updates about the company in the months and years that followed, we think it might be likely they’d have sold out in frustration and/or boredom, perhaps even booking a loss, but definitely missing out on the huge profits long-time Members may now be sitting on.
Not having a long-term perspective and not following our recommendations over a number of years could prove to be a very expensive mistake.
2. We are patient, long-term investors. Although the share price performance of this company was disappointing for long periods of time, we didn’t lose faith in the company and in particular, their management.
In a stock market rife with short-termism and the desire for quick profits, we like to think we stand out as different – and we think the example of this company and our long-term investing record show that difference in action.
Your Huge Investing Advantage
Because the company was so small, it didn’t get onto the radar of the big investment houses.
That’s where the smaller private investor has a huge advantage, because lurking around in the small company universe are many hidden stock market gems that just won’t get noticed by larger investors.
As we said previously, the three big winners we mentioned above – Carnarvon Petroleum, Platinum Australia and Terramin Australia – were all initially recommended to Members when they were each worth less than $30 million.
After their tremendous share price performances, each is worth significantly more, and only now are institutional investors getting interested in these companies. In the meantime, Members who bought in at our initial recommendation prices should already be sitting on significant profits, with potentially more to come.
The Small Gold Miner We’ve Just Re-Recommended As A Buy
Then there’s the small gold producer/explorer we recently recommended as a BUY to our Members.
• We first began following the company’s progress more than two years ago. We’ve been greatly impressed by their ability to deliver on their exploration and development goals.
• The final piece in the jigsaw puzzle is now in place, as the company has just produced its first gold bar. The commissioning of their initial Brazilian gold mine, well below budget, is a major feat considering the current environment of delays and cost blow-outs right across the resources sector.
• This is NOT a speculative resource play. We firmly see the company as a long-term generator of wealth for shareholders. The company is run by what we consider to be one of the resource sector’s most highly regarded boards and management teams, which have a goal of building a high quality and growing mid-cap gold producer.
• We believe the rewards for shareholders will be in the form of sustainable capital growth and dividends driven by long-term production and exploration success, rather than many of its peers with a short-term focus on chasing whatever commodity might currently be ‘hot’ to generate short-term share price appreciation.
• We have every confidence in the company’s eventual ability to reach its annualised production target of 35,000 ounces. With the gold price at around A$960 and their anticipated production costs of around $A450 an ounce, we’re very confident the company will generate robust cash flows, and we think that should ultimately be reflected in a sharply increased share price.
• We concluded our recent report by saying we think the recent share price weakness provides an astute buying opportunity, even for existing holders. Accordingly, we recommend the company as a BUY to all Members around 60 cents.
The good news is the shares still trade at around the 60 cent mark they were at when we recently recommended them as a BUY.
After the market’s “horror” June, we believe the share prices of some of our specially selected small resource companies are looking decidedly cheap.
We wish you happy and profitable long-term investing.
P.S. The Aussie stock market has just endured its worst June performance in 68 years and its worst financial year in more than 25 years. Yet Glenn Mumford said in the AFR this week “…investors should avoid assuming the worst…it’s not difficult to construct a positive trajectory for US equities.” And most people agree what’s good for US shares is good for Australian shares.
P.P.S. The oil price is high and remains high. As a reminder, we believe triple-digit oil prices are here to stay, and that oil could easily trade as high as US$200 per barrel. On the downside, it means high petrol prices are here to stay. But on the upside, we think we’ve found a unique collection of smaller oil companies that are set to benefit hugely from the high and rising oil price in the months and years ahead. We believe, once again, the June stock market sell-off is offering new Members some compelling investment opportunities right now.
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