WORDS OUT IN EDMONTON.....ALL ABOARD
Sizing up the scary end of the risk-reward stock pool
BY GARY LAMPHIER, EDMONTON JOURNALDECEMBER 14, 2010 6:27 AM
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Edmonton Journal business columnist Gary Lamphier.
Photograph by: Greg Southam, edmontonjournal.com
EDMONTON - OK, you thrill-seeking stock market cowboys. It's time to lock ' n' load.
Today we go big-game hunting, in search of the legendary three and four baggers that set speculators' hearts aflutter.
All widows, orphans and coupon clippers, please read no further. This column is not for you.
It's a dangerous world out there, and these junior stocks are in the scary end of the risk-reward pool. Some will soar -- sometimes on hype alone -- but many others will crash and burn. So if thrill rides make you squeamish, you're better off sticking to conservative blue chips like BCE or Enbridge.
For those who are still with me, however, here's a quick look at some junior plays that may offer home-run potential (or not) in 2011:
Canaccord Genuity broker David Pescod's daily Stocktalk newsletter is always worth a read. He has a wide network of contacts and a knack for spotting intriguing penny-stock plays early.
Sterling Resources, a North Sea oil explorer whose share price has more than doubled over the past year, is one such example. Canacol Energy, Sagres Energy, Winstar Resources and Zodiac Exploration are also on Pescod's radar at the moment, as well as Papuan Precious Metals and Petroamerica Oil.
Pescod's commentaries typically offer a mix of homespun wisdom, stock-market chatter and investing tips from junior analysts or resource industry veterans such as Mike Halvorson, a director of high-flying Orezone Gold. It was Halvorson who recently brought Papuan Precious Metals to Pescod's attention. Halvorson owns the stock, which closed Monday at 39 cents.
"There (have) been some interesting sampling results to date, and the company believes it has found a previously unrecognized (gold-bearing) district. An airborne survey is underway to be followed by drilling in the first quarter," writes Pescod.
"It's one to put on your screen folks. Watch for the start of drilling in the first quarter."
Dundee Securities is another investment dealer that follows junior stocks closely and churns out daily research reports.
Malbex Resources, Palliser Oil & Gas, Tamarack Valley Energy and Allana Potash are just a few of the stocks Dundee's analysts have plugged as buys lately.
Palliser is a heavy-oil play with properties in Alberta and Saskatchewan, while Tamarack offers exposure to Alberta's Cardium play, where new drilling technologies have brought many mature oil wells back to life.
Malbex is a junior gold explorer whose flagship Del Carmen project in Argentina, at the south end of the so-called El Indio gold belt, is close to Barrick Gold's Veladero mine and its Pascua-Lama gold project.
But if you really like the thrill of in-vesting in exotic locales where more risk-averse investors dare not tread,
Allana Potash may offer the biggest bang for the buck.
Recent drilling results from its potash property in Ethiopia have produced promising results, prompting Dundee analyst Richard Kelertas to issue a buy rating on the stock with a 12-month target price of
$1.45. Allana's shares closed Monday at just 67 cents apiece.
"We believe Allana is set to have some of the lowest operating costs in the industry given the relative shallowness of the potash mineralization, its plan to use solar evaporation, and relatively cheap labour," says Kelertas, in a recent report.
"The Ethiopian government is supportive of the project and Allana has secured a strategic partner to cover a large part of the mine construction costs, in addition to securing funds to complete the exploration program and the feasibility study. For these reasons, we continue to believe Allana is the best positioned junior potash play of its peers."
Patheon, a sizable Mississauga, Ont.-based contract drug manufacturer, is one non-resource stock on Dundee's list of buys that could double or more in 2011. Once a $16 stock, Patheon has been bleeding red ink for years, and its stock recently bottomed in the $2 range.
But analysts predict a return to profitability next year, and the shares have perked up a bit since Patheon announced plans to recruit a new CEO. The stock closed Monday at $2.34. Dundee's 12-month target price is $5.
Of course, no column on junior stocks would be complete without mentioning John Kaiser, editor of the widely followed Kaiser Bottom Fishing Report.
Kaiser has followed junior resource stocks since he was an analyst at Vancouver's Pacific International Securities in the 1980s. Many of his picks -- such as Quest Rare Metals and Tasman Metals, in the nascent rare earth sector -- have generated triple-digit returns.
Although many of his picks have soared, some remain within his recommended buying range, including Spanish Mountain Gold and Adex Mining.
glamphier@edmontonjournal.com
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