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By ANGELA BARNES
UPDATED AT 5:45 PM EDT Friday, Sep. 19, 2003
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Fund manager Derek Webb is very bullish on gold and is quick to rhyme off the reasons for that position.
"No. 1: Gold is priced in U.S. dollars and we expect the U.S. dollar to continue to weaken . . . because the U.S. is running record twin deficits," said the president of San Francisco-based Webb Capital Management LLP.
Not only is the U.S. current account deficit running at 5 per cent of gross domestic product; so too is the fiscal deficit, he noted.
As the greenback falls, bullion becomes relatively more attractive to foreign investors.
Another reason is that while demand for gold is probably going to rise, production continues to decline.
Add to that the fact the Chinese are now allowed to buy gold, something that they really haven't been able to do since the days of Chairman Mao, he said.
On top of that, Mr. Webb thinks that inflation, while not a problem now, will re-emerge because of the accommodative monetary policy being pursued by the U.S. Federal Reserve Board. Gold is seen by many as a hedge against inflation.
In the past few years, Mr. Webb has paid increasing attention to technical analysis, which also supports his bullish stance on gold. Bullion has been in a bull market since the price hit about $280 (U.S.) an ounce in the second quarter of 2001, he said. However, for much of this year, it has been trading in a sideways fashion, he added. It set a closing high of $382.70 in early February. On Sept. 9, it eclipsed that high, closing at $382.80, its best close so far this year. It then eased back, but the descent stopped around the $374 support level dating back to May.
"That technically is very good," he said. He thinks that gold, which closed yesterday at $376.60 an ounce, could rise to $400 very soon and will likely go through that level after some struggle.
Mr. Webb, whose team runs the CI Landmark Canadian, CI Landmark American, CI Landmark Global mutual funds as well as a hedge fund and an exchange-traded fund, is also upbeat about the prospects for North American stock markets generally.
"The worst is certainly behind us, as far as earnings and profitability go," he said. Profits are rising and that rise is broadly based. Also, "we still have an accommodative Fed," he added. And the stock market indexes have completed a reverse head-and-shoulders pattern that provides a strong base to build on.
The CI Landmark Canadian Fund is up 13.7 per centso far this year.
Among the stocks that his team has bought or added to positions in recently are:
Cambior Inc. (CBJ-TSX). Longueuil, Que.-based Cambior is an intermediate-sized gold producer. "We see large production growth over the next year to year and a half from new mines," said Robert Davies, who works with Mr. Webb on the Landmark Canadian Fund. Furthermore, the stock is "quite undervalued relative to its peer group right now," he added. Cambior closed yesterday on the Toronto Stock Exchange at $3.90(Canadian), having eased back from the 52-week high of $4.05 set on Sept. 9. The 52-week low of $1.12 was set last Oct. 17.
Trican Well Service Ltd. (TCW-TSX). Trican shares set a 52-week high of $22.75 yesterday, having climbed significantly from the 52-week low of $15.60 set on Oct. 10. Trican specializes in the drilling completion process "so it is benefiting in a large way from the record drilling levels that are going on in the Western Canadian basin," Mr. Davies said. "We expect strong earnings out of them over the next couple of quarters in particular because in Canada . . . the majority of the drilling happens in the winter during the freeze-up," he said. At yesterday's close of $22, Trican's shares are trading at 15.7 times the consensus profit estimate for this year of $1.40 a share.
ConjuChem Inc. (CJC-TSX). The Montreal-based biotechnology company is developing a proprietary protocol for the treatment of diabetes. Mr. Davies noted that the company recently released "excellent" phase I/II trial results. What the results show is "that their product is able to greatly extend the presence of an essential enzyme . . . required for normal blood sugar levels in diabetics," he said. The market for such a treatment is "massive," he said.
"We think it is a tremendous growth opportunity that is undervalued in the market right now," he added. ConjuChem's shares climbed to a 52-week intraday high of $4.65 on Wednesday, far above the 52-week low of 30 cents established on March 19. They ended yesterday's session at $4.31.
AT&T Wireless Services Inc. (AWE-NYSE). Mr. Webb said the Redmond, Wash.-based wireless company's profits and cash flow are increasing primarily because subscribers' average monthly bills are increasing. AT&T Wireless has no debt and generates "huge free cash flow," he said. "The problem with this industry has been that there have been too many players in it and we are now down in the U.S. to basically five main players and they are starting to exhibit discipline in pricing," he said. AT&T Wireless shares hit a 52-week low of $3.15 (U.S.) on Oct. 10and have since climbed sharply, reaching a 52-week high of $9.18 on Sept. 8. They currently trade at $8.79.
Another stock Mr. Webb mentioned was Vancouver-based Northern Orion Resources Inc. (NNO-TSX). It owns a 12.5-per-cent indirect interest in the Bajo de la Alumbrera copper-gold mine in Argentina. It also holds a 100-per-cent interest in a second property, located 34 kilometres from Alumbrera, which has the same mineralogy as the Alumbrera mine and lots of metal, Mr. Webb said. He feels the shares, which closed yesterday at $2.05 (Canadian), are cheap; he likes the prospects for copper and gold and all base metals and he expects Northern Orion will be taken over.
Mr. Webb, who employs an active trading style, no longer owns shares in Gildan Activewear Inc. (GIL.A-TSX), Inco Ltd. (N-TSX), Methanex Corp. (MX-TSX) and Agco Corp. (AG-NYSE), all mentioned in an Aug. 30, 2002 Best Bets interview. |
