Time to start shopping again...?

I am sure that the past weeks have been disastrous for many investors as very few had seen this drop (and its timing) in the stock markets coming. Even those who did saw it coming may not have expected it to be this fierce. I think I may include myself in that last category. With the lion share of my portfolio invested in American stocks and a long gold position, this week has certainly been one that I do not wish to experience a second time. My long position in gold has been liquidated and I was too early to close my short position on the Dutch AEX index, which generally follows the US indices.
Now is the time to sit and think about what steps to take. Do I sell my shares, waiting for further drops? Do I move extra money into my trading account? Do I sit and wait until the bottom is there, knowing that current valuations are ludicrously low? This is probably a choice that many private investors are now thinking of and their decision partly determines the future course of the markets.
Let's have a look at the signs that we're getting. The move that we've seen since the year-highs was fiercely downward, then sideways, then fiercely downward again. Corrections like these are never ended with a sideways move. They always end after a last fierce sell-off, followed by a quick rise. The first downward move was mainly caused by financials that were (or were not) affected by the subprime woes. The second downward move, the one that we're in now, is not caused by financials - even though all newspapers, television stations and websites will tell you that investors are selling on subprime fears. And the financial sector is the only one that is going up again! The main sectors that are now hit are services, basic materials and to a lesser extent the energy sector. These are the sectors that had not yet had serious sell-offs and investors are now simply taking profits, based on fear or emotions if you like. In addition to that, the carry trade has its effect as well, which has affected precious metals prices as well.
All this means that you're now able to buy dividend cannons like Southern Copper at a p/e below 10, a growth company like Companhia Vale at a p/e of 9 and Freeport-McMoran at a p/e of 8.4. And these are not companies that have performed badly so far this year! This Thursday's sell-offs also mean that telecom stocks are reasonably priced again, even though this is not one of my favourite sectors. It means you can buy Apple at $112, where hardly anything's changed since everyone wanted the stock at $140. (I personally continue to think that it's crazy to pay over 30 x earnings for any company, unless it's a junior company with great prospects, but I seem to be the only one)
All I can say is that today we are one step closer to a turnaround, which doesn't necessarily mean that 12500 was the bottom for the Dow. There may be a further drop, but I am pretty confident that we will not see a drop as fierce as the one we've seen this Thursday. Profit has now been taken in the sectors that are fundamentally the strongest sectors and these best-performing sectors are the last ones to get hit.
From this I can conclude that the bottom is near. I will therefore not sell any of my stocks and wait for better times to come, however painful this may be. The only thing one can do is write some calls or buy some puts, just in case we haven't seen the bottom yet. I still think the precious metals are the sector to be in and especially gold. I will therefore look for a new long position in gold, once again with a stoploss. To all investors who felt the way I felt this week, hold on tight, start shopping again, but whatever you do, don't be the last one selling. After all the economy can't be that bad, because my fiancee's still out there shopping for shoes as if nothing changed this week...
Disclaimer: The author has no position in any of the above-mentioned stocks.

North American Galvanizing: buy 'on the dip'

Earlier this year, in March to be more precise, a company called North American Galvanizing and Coatings (NGA) caught my eye. NGA is a company that uses zinc for its galvanizing processes. As a result of the growing zinc prices, the company had booked impressive revenue growth as well as earnings growth. I added NGA to my list of stock picks at a price of $5.18 and closed that position at $12.06 in May. After that, the stock went up a bit further and then had a 3:2 reverse stock split before it fell down all the way to its current price of $5.75. I can imagine this stock has been quite a pain for those that have held this stock all the way from its peak in May. But the fundamentals don't lie: NGA saw its sales double in two years and its EPS increase tenfold in two years. And the story continues as the first halfyear results showed net earnings that were 80% higher than last year at $0.36 per share. Fact is that NGA trades at a P/E of 10.7 with, I repeat 80% EPS growth over the first halfyear! Technically, the stock shows a bearish picture. I would expect the RSI to bottom out anywhere around 40 in the weekchart in order for the stock to stay in its bull range. Keeping in mind the long term uptrend that zinc prices show, I will add NGA to my list of stock picks at a price of $5.75 with a $10.00 price target for mid 2008, based on the earnings growth reported in the first halfyear and the company's continued impressive growth.
The author had no position in NGA at the time of writing.

Long gold again with $700 coming close?

After this month's changes in my mining portfolio, I have now decided that it's the right time to invest in precious metals again. I already bought (speculatively) DRDGold at $0.78 and after the 10:1 reverse split, the stock kept going down. I consider $6.50 a critical level and decided to sell once that level was broken. At $6.42 my sell order was executed, while the stock ended above $6.50 again. I am still quite convinced that DRDGold will manage to get its act together, but I am also certain that it is not the best stock for short term profits. Instead, I took a long position in gold at $662, knowing that there should be some support at $660 (being 61.8% retracement level), which was successfully tested and spot gold moved up to $665 today. Should gold move below $660, there is a high likelihood of a full retracement to $640 which for me would be a very bearish sign and possibly a reason to liquidate all my positions in precious metals and certainly a reason to reduce the mining share in my portfolio. But, being the positive-minded chap that I am, I added a position in Taseko Mines Limited (TGB). I actually bought back shares in TGB. Previously, I bought TGB at $2.30 and sold at minor profits as there was little news to move the stock up. Now the situation is a lot more fruitful. The company is one of the very few AMEX-listed precious metals miners that actually makes money. Taseko has successfully positioned itself as a copper & gold miner and has a good cash position with a positive cashflow. Taseko's Prosperity and Harmony mines alone should account for some 7.5 mio ounces of proven & probable gold reserves, which already makes the company's USD 600M market capitalisation look reasonable. Add to that the company's young & producing Gibraltar copper mine and you have a clearly undervalued stock, despite its recent rise. This stock will go through the roofs in two or three years from now as the Prosperity mine will get closer to production. I think we have a winner.
The author bought TGB at $4.60 and closed his position in DROOD at $6.42.

Portfolio shake-up

The past months I have been busy trying to diversify to a certain degree. This was highly necessary as a great part of my portfolio was in mining stocks. I usually do not buy the very risky junior miners - which does lower my risk profile - but having to great a share in mining makes your portfolio very volatile. I sold Yamana Gold earlier this month at USD 12.65 as the technical picture started to become a bit more cloudy. This was followed by the announcement of a proposed threeway deal with Northern Orion and Meridian Gold, which made the stock drop to the lowest close of this year at USD 11.12. Among my current mining favourites are still Endeavour Silver Corp and uranium miner Uranerz. These will stay in my portfolio, whilst other miners I may sell off in the coming months. Aurizon Mines (AZK) may be added to this. I sold AZK last week at $3.90 as I expected there to be some resistance around that level. I might buy back at a later stage. I sold EGO last week at $4.80. To replace these miners, I am specifically looking out for alternative energy stocks. One of my favourites is still the slugglishly moving Evergreen Solar, which I believe is suffering from a temporary correction in a multi-year uptrend to be followed by a higher peak - well past the previous high of USD 17.50. I bought this stock in February of this year around current levels. Before that, I benefited of the 2005/2006 uptrend from USD 8.60 to USD 15.00. Even though this month I sold Beacon Power Corp at USD 1.50 (bought at USD 0.89), it is certainly not my idea to all of a sudden neglect this stock. I was purely safeguarding some profits and plan to get on the Beacon train again at lower levels. The excitement surrounding Beacon Power Corp is triggered by growing interest for the company's flywheel technology, which I believe will further grow from this point. However, the current hype cannot be argumented by numbers. Beacon Power is still not making any money and therefore any gains are purely based on prophecies. I do believe in this company, but it will take some time until earnings reports can justify a USD 1.50 share price. I will continue to keep an eye on the technical picture and will buy when much of the excitement has evaporated. At the same time, I am looking at Fuelcell; a company that produces fuel cell power plants that are ideal for the replacement of 'dirty energy' and thereby help reduce emissions. With a number of customers ranging from hospitals and universities to utility companies and manufacturing plants, the fuelcell technology is gaining popularity across industries. To come back to the mining industry, I added DRD Gold (now changed into ticker code DROOD) at $0.78 because of improving technical indicators. DRD Gold remains a very uncertain share to invest in. I see it purely as a speculative buy and I watch the technical indicators very closely to determine whether to buy or to sell. Investors seem to be a bit cautious because of the management change. Looking at the first quarter, the main issue for DRD is that the reserves are there, but the production is not. There have been too many hiccups in the past few years and even this first quarter showed a drop in production, both in Australasian and South African mining operations. On the positive side, I consider the Argonaut project to certainly have very high potential. A positive response to the Prospecting Right Application of the company's Argonaut project may be applauded. Once again, I still consider this stock a speculative one. Not a good basis for a stable portfolio but like my earlier purchases of GRZ and KRY, speculative buys are not always bad buys! Finally, with regard to the indices, I am currently short AEX and short S&P. 1520 will be a critical level for the S&P as will 550 for the AEX. Later this year, I plan to move some of my investments from North America to Europe as I see better growth prospects for European companies. The author holds long positions in EXK, URZ, ESLR and DROOD at the time of writing.

Bullish on zinc? Mining stocks aren't the only option.

I hadn't expected to get the opportunity to post during my absence, but I had some spare time in the morning here in Kuala Lumpur and decided to go online in my hotel room. Upon checking the performance of the basic materials sector, I came across a remarkable company this morning. North American Galvanizing Company (AMEX:NGA) caught my eye as it is not a mining company (which I would typically be looking for). It is a company that use zinc for its galvanisation processes. As a result of growing zinc prices, the company has booked tremendous growth in the past years. Its sales more than doubled in two years and EPS are ten times what they were two years ago. And all this is down to higher prices for zinc. Even though this may not be your most logical stock pick, zinc bulls might want to think again. NGA trades at a P/E of 8.9 and is therefore much cheaper and a lower-risk option than most mining companies, whilst the effects of rising zinc prices on sales are quite similar. Technically, the stock also shows a positive outlook. The downward trend of the RSI in the weekly chart has been broken with support around 40, which means that the stock might be bottoming now in a longer-term bull trend. Considering the company's growth in the past four years, this is a very affordable stock. Keeping in mind the bright outlook for zinc prices, I will add NGA t my list of stock picks at a price of $5.18 with an $8.00 price target for end 2007.