RE: Looking AheadNo Bids in Summer Malaise
By David J. DesLauriers
16 Aug 2007 at 05:30 PM GMT-04:00
TORONTO (ResourceInvestor.com) -- The behaviour of the market over the last month or so has epitomized the usual characterizations of the summer months, and August in particular. By the looks of this annual pattern, one might suggest that going to cash in May and redeploying in mid-August could be a massively profitable strategy. The resource-laden TSX has been gyrating a few hundred points a day with a serious downside bias, having dropped about a thousand points in just the last month.
The lack of meaningful bids around, and huge endless offers, suggest a major buying opportunity for those with the patience and discipline to wait out the bargains. If, in fact, the majority of the street is right that September will usher in a serious rebound amidst enthusiastic volumes, then we can certainly identify resource sector specific bargains all over our screen.
In particular, just about every uranium name has been beaten to a substantial discount of 52-week highs. Despite a small drop in the spot price, people are quickly forgetting that just a few years ago the price of yellowcake was sub-$25 a pound. At the latest quote of $110 a pound, it seems fairly silly to think the bloom is permanently off of the rose, and numerous analysts and industry insiders are convinced that we will see the $200 a pound level over the next few years. Picking away at quality plays in this environment makes a tremendous amount of sense as the economics work in spades at current prices, and indeed, even if the metals gives a little more back.
Equally the precious metals, despite gold’s solid performance in holding its ground and silver’s slightly less impressive performance, are going no bid. Given the credit problems emerging in the United States this is most assuredly another example of the market’s inefficiency. This is as good a time as any for gold to make its inevitable run towards a 4-digit handle. Junior developer names particularly are being absolutely savaged for no good reason, and will surely rebound with gusto when the game reverts back to this space.
Nickel is another area that quickly faded from favour. Granted, the price of the metal has come off $10 per pound, but those who follow the macro fundamentals see $20 as being achievable again in the coming months. At the end of the day, $13 nickel is still a huge price at which monstrous margins are had. We believe that this fall the nickel stories that have been severely beaten will find their way back up towards the highs.
In a final analysis, uranium, precious metals and nickel names have been butchered to an unfair degree and bargain hunters who went to cash should be looking to refill their hats around these levels, in our opinion. The last two years have seen huge capital gains for the sector in November and December. Maybe it will be September this year, or maybe it will mirror 2005 and 2006 – but what is certain is that this is overdone and at some point it will turn quickly and viciously to the upside. Those who are well-leveraged will once again be pleased by the buoyancy.