Cleaning House to Make Way for New Picks
There has been a lot of pressure of late on the big cap US stocks, they are trading like a junior mining stock after they put out iffy results. While this is happening, surprise surprise, the juniors have been doing pretty well. They haven’t been going down much, and even if sideways is the new up, I’ll take it.
The US stock chart looks broken in a significant way, plus valuations are still pretty rich, so this could take awhile to sort itself out. With a significant correction in the stock prices, or a significant spike in earnings could bring valuations back into a more reasonable level.
There is no real argument to expect a spike in earnings per share on average, so the steep correction is more likely. It is busting through key support levels and going through dreaded death cross. There is no reason to be in any hurry for investors to be buying.
With US stocks performing so poorly, combined with Trump sabre-rattling for war and trying to fight with America’s three largest trading partners in trade wars, doesn’t give investors reasons to be in a hurry to buy USD as well.
That USD weakness is good for commodities like gold, silver, copper and other metals with strong supply and demand stories. The trend in the USD looks very bullish for metals, and it makes them more affordable for markets outside the US.
This brings us to the gold stocks and other metals stocks. It looks like old Mr. Market has been kind to the mining stocks. I don’t want to make Mr. Market to be looking at us with such a kind eye, more likely, what we are seeing is the valuations on the mining stocks are so low, they can’t go much lower.
We saw this similar type action after the 2008 economic collapse, when gold and gold stocks didn’t get beaten down much. But then gold was one of the first assets to make a comeback and the gold stocks came on strong.
I think that is the kind of action coming in the second half of 2018 for gold, gold stocks and other metals. I use my own experience as an indicator. Whenever I have no problem finding new companies to follow, means valuations are super cheap and they likely aren’t going to stay there for long.
As readers will notice, lately, I’ve been finding some new companies to follow, I expect to find more in the next little while.
This report, I’m going to be removing some of the past picks, to make way for future picks as I don’t want to be following too many companies.
Stock Picks on the Way Out
Before I start getting into some of the changes to past picks, I also wanted to mention some of the things I’m bearish on.
Obviously if you read my posts, I’ve been bearish on the USD for a long time, and US stock valuations are still too expensive.
Lately, I’ve been noticing a bunch of the old school market commentators in the junior mining sector pitching uranium. I would avoid uranium stocks these days and for a long time.
Supply and demand market is broken and it will likely take a very long time to fix. There was a relief rally a few months ago, when a couple of the biggest uranium mines in Canada were shut down.
I made comments when this happened that this is a fakeout for uranium not a breakout. The major pumped billions into those mines, shutting them down means they see long term demand problems.
It also removes much need for exploration as success won’t be rewarded much, and the overhang of those two mines will keep it that way for a long time.
I’m also bearish on the weed stocks that went to insane valuations over the past couple years. The bloom has left the rose for them.
Even though I’m bearish on the weed stocks is one thing, but I’m beyond bearish on the cryptocurrency related stocks that were all the rage in the past year or so. I’ve been skeptical about these cryptocurrencies, but had some hope for the background technology in the blockchain that make the cryptocurrencies function.
The blockchain technology is pretty slow, and I don’t see it taking over a lot of new markets until it gets a lot faster. If it is slow at the start of life when very few people are actually using it, doesn’t bode well for if it ever reaching critical mass to make it a mainstream thing.
The weed stocks, blockchain and cryptocurrencies have been pulling a lot of money away from the junior mining stocks. I suspect that will diminish and the junior mining stocks will become the go to sector for speculative investors looking to get in on potential high fliers.
Adamera Resources (ADZ.V) has done well in the past when I picked it at low prices, but since I picked them recently they continue to deliver bad results with the truth machine. The have had several targets to drill and have seen little joy. Now they also have a lot of stock out. I think there are better opportunities out there and I will have more soon.
Sabina Gold and Silver (SBB.T) has been a pick I’ve been in and out of in the past that has performed very well. They have an exceptional future gold mine up in Nunavut that I think will be very profitable in the future. So why drop it? They are no longer an exploration company, now they are going through the long period, when gold stocks tend to do very little for shareholders while building the mine. This is called the development discount in the mining sector. Even during the development discount window, some companies can still do well as a potential takeover candidate. When they brought in the big Chinese investor, they basically took a takeover off the table. This is the reason that I’m dropping them from coverage for awhile, until they get closer to being a mining company. I will try to time the development discount ending and the new mine beginning well, but for now, I’m a bystander watching Sabina.
Hive Blockchain Technologies (HIVE.V) was a pick I made on their first day of trading at around a dollar a share. The blockchain and cryptocurrency market was hot, they had a solid story, and a new stock without a broken stock structure and a some strong junior mining stock promoters on the team. It went over six bucks, and traded a lot at an average of around $3.50. My readers had plenty of room to buy real cheap and sell at handsome profits, so it was an excellent pick. Even now, it is still slightly up from the original pick price. But the cryptocurrency and blockchain stock hype has fallen on tough times, and I don’t see that changing anytime soon. They traded on a lot of hot air, and when the air comes out of those kind of stock promotions, it takes a long time to recover. I will continue to follow them, but can’t see any reasons to keep them as a pick.
NV Gold (NVX.V) is a recent pick of only a few weeks ago, the stock had popped up aggressively after they announced they intersected a nice package of the right kind of rocks in Nevada. I waited for a pullback to around 60 cents, then made them a pick. They have good people involved, plus their ground is in Nevada and they don’t have a lot of stock out. There is something about Nevada, if a gold company has success there, the valuations can get very big, fast. Even though they hit the right kind of rock, there are no assays from the drill holes yet. This is a good start, but then you have to come up with the gold in that rock to have something to get excited about. I did more homework, to see if I could come up with a guess of whether or not they hit any gold. In the mountains across a valley from them, are important mines and geological structures. I looked for their claim maps, but found out they haven’t put them out for competitive reasons. I completely get that, but it makes it challenging to figure out if they are close to important structures that could be the source of mineralization into the rock they drilled into. I wanted to figure out how close they are to the mines to the west, and where they have drilled and if they had claims to the south and west. It sounds like they have drilled in the mountains on their side of the valley and likely haven’t hit any gold mineralization. This exploration story could take awhile to unfold completely, but for the time being, I’m stopping coverage. I’m comfortable waiting until I can see where they are drilling and if they have claims that are close to structures that could bring gold.
There you have it, some things I'm bearish on, some picks I'm stopping coverage for to make way for new picks, and some stuff I'm bullish on.
As they say, that is what makes a market.
That’s all for now,
Allan Barry Laboucan
Allan Barry Reports
Advance Gold (AAX.V)
P.S. my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.
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