The usual rule in natural resource stocks, particularly juniors, is "Sell in May and Go Away." So at this point, if you wanted to follow that truisim, you are already a week late.
However, at least in the natural resource stocks, I think that this year will be different. I plan to stay aggressively invested right through the summer, with the emphasis on gold, platinum group metals, and uranium exploration stocks.
"Sell in May and Go Away" works in general because the brokers tend to go off on vacation, so there is nobody pushing the junior stocks at customer. The bids fall out from under them on any whiff of bad news. Those needing to sell, or panicking beause of the steadily lower bids, are taken in by this spin cycle. They sell at a loss.
Around mid-August, when all the suckers have theoretically thrown in the towel, the smart money comes back into the junior natural resource stocks to get ready for what is typically a back-to-business fall rally. That is the cycle.
August would have worked just right last year, because there was a decent spring rally. Many of us in junior-stock-land remember wishing we had sold in May last year, and are therefore selling now, just to get out even on stocks, or take our losses and fuggetaboudit.
But here is why I think this year is different.
With the notable exceptions of oil and gas, potash, and coal, natural resource stocks have had a lousy spring. This is the case despite the fact that the underlying commodities which they seek to develop are doing fine. True, both gold and uranium have had corrections from highs, but if you look at how far they have come in the last few years, the corrections look modest and normal.
Here is something I have noticed on the bulletin boards I frequent which cover natural resource stocks. While everybody is buzzing about oil-gas penny stocks, potash and coal plays, they have given up even discussing gold and uranium issues.
To me that signals capitulation. Capitulation in the stocks that are tied to the only true money, gold. Capitulation in the stocks with a stake in nuclear power, the only true answer to global warming for at least the next three decades.
Want to see capitulation? Check out this chart of Pinetree Capital, a closed-end fund in Canada whose holdings are concentrated in natural resource juniors.
stockcharts.com
I have a specific rationale for each stock I own, in addition to the overriding trend, which I am saying is a market bottom poised for a sharp rally. While I don't have space in this essay to go into depth on each, here is a sketchy sense of my rationale.
I like the afore-mentioned Pinetree Capital PNPFF.PK PNP.TO because of the broad exposure it gives me to natural resource juniors. This stock has been kicked until it is bloody.
Talk about being trashed. Cash Minerals CHXMF.PK CHX.V used to be a buck and now it is a quarter. It has underlying value in its uranium holdings in the Yukon, in which it is partnered up with Mega Uranium. The company just replaced its CEO with the former CFO, and is putting new emphasis on its large coal holdings. The coal holdings are a sleeper, in that I don't think Mr. Market has paid them any mind until this week.
I like the uranium exploration play in Labrador called Crosshair (CXX.TO, CXZ on AMEX). If you read up on this one and study the claims maps, you might notice that Crosshair management is doing its own mini-roll-up of promising uranium lands in Labrador. Plus the company just said it will spin off to shareholders its gold exploration holdings in Newfoundland into a new company called Gemini. So for $4400 worth of stock (5,500 shares at 80 cents), I get a beat-up uranium with potential and a promised 1,000-share spin-off that will be holding its own money-raising stock placements.
In mining, I think it is important to own a mix of drill plays and producers. My uranium producer with growth potential is Denison (DNN on the AMEX, DML on the Toronto). It has the backing of the Lundin mining family and it owns what is now a fully operating uranium mill in Utah. I am postulating that the backers are going to use Denison as a roll-up play in uranium juniors. Even without that, by the end of the year, that Utah mill is going to be cranking out serious amounts of U308.
My largest play is Kodiak Exploration KXLAF, KXL.V, which I have discussed here in my first Seeking Alpha article.
National Bank of Canada just came out with initial coverage dated June 2, and this could open the gates for summer stock recommendations by previous fence-sitters. The company is cashed up, and they are doing a lot of scraping and drilling up there in the old gold mining district of Beardmore-Geraldton, Ontario, on land we already know hosts several kilometers of surface showings of gold plus some gold at depth. Plus the company plans to spin off its uranium and base metal plays, so there is potential for stock dividends there.
For palladium and some platinum, I like North American Palladium, PDL on the Toronto, PAL on the Amex. They are starting to make real money from their Canadian palladium mine, and they are developing some higher-grade material that is way down under on the same site. Meanwhile, they have an interesting partnership with Goldfields in Finland, called the Arctic Platinum Project, which should be covered by a completed feasibility study before September. PAL provides platinum group exposure without being in South Africa, which has critical electric power problems that have already affected mining there and will for at least a couple of years to come.
The real game is about to begin, and it starts now, while everybody is either laying on the beach or packing their bags. All it will take is a few fund managers who used up their vacation in Vail in March.
Michael |
