Less downside, more upside
You’ll find those values in theother two groups of gold stocks– mid-tier and juniors. They offer far better potential upside thantheir larger counterparts.
While putting together my research for the next Prudent Investing recommendation, I found that some of the mid-tier gold stocks are trading at truly exceptional values.
There are dozens of examples. For example, Northern Dynasty Minerals (TSX: T.NDM)has made one of the largest gold discoveries in decades. The companyhas a market cap of about $680 million and almost 50 million ounces ofgold reserves and resources. It works out to about $14 per ounce ofgold in the ground.
There are a lot of other factors here too. Northern Dynasty’s gold deposit was found in some of the harshest conditions of North America.On top of that, the gold is very, very deep. The odds of it everbecoming a mine are slim, but it has a lot of gold. And its gold isexceptionally cheap. It’s tough to get much cheaper than $14 an ouncein the ground. Remember, Goldcorp was valued at more than $400 perounce.
Also, there’s other mid-tier gold companies like NovaGold (TSX: T.NG), which trades for about $55 per ounce of gold in the ground. Then there’s Detour Gold (TSX: T.DGC) with a market cap of $470 million and a price per ounce of gold in the ground of $35.
Don’t get me wrong, there are plenty of other considerationsthat come into play when valuing gold stocks. But the price per ouncein the ground has been one of the best indicators of value in goldstocks for decades. And when assets are undervalued, their downsiderisk is lower and upside potential even greater.
What I found for readers of our premium service is probablymore exceptional. It’s so undervalued investors getting in now shouldbe set up for a three-bagger in the next two years. That’s if gold doesnot move any higher. And if gold went to $1100 or higher, theupside potential is downright staggering. My biggest concern for thatstock is actually not how high it could go, but how high it can gobefore one of the majors buys it out. That’s the biggest risk facinginvestors in most of the undervalued mid-tier gold companies.
Then there are the juniors. You may be familiar with them. Inmany cases they’ll trade for a few cents per share, own some goldexploration project in some far off land, generate no revenues, andlive off its ability to print and sell new shares.
The way I’ve always looked at juniors is that you musthave a bull market to make any decent money there. And what you reallyneed is a euphoric bubble. Their time will come. But we’ll probablyneed $1100 gold or more for the fireworks to really get started. Ofcourse, value is value, wherever you find it. That’s a topic foranother day though.
Too hot, too cold, and just right
What we have going on here certainly looks like a bull market in gold.
The last year has not been kind to gold investors. The creditcrunch, which was supposed to be gold’s time to shine, didn’t turn outso well for gold - initially. But the sharp recovery in gold proves thestrength of demand for precious metals; demand that is only growing.Look at the credit crunch like the ultimate test of a bull market. Ifan asset made it through that, it clearly has the staying power.
With gold back at $1,000, it’s fairly obvious it has passed the test.
If you’re not already in, get in gold now. Understand though,we’re in a bull market and there will be plenty of winners. As youknow, a rising tide lifts all boats.
The really big gains, the kind that can createfinancial-independence, will be had by those investors willing to lookfor and demand exceptional value in their gold and precious metalsstocks. Just take a look at our Free Gold Report that has returned 516% in three months. Just because the bull market is in gold doesn’t mean there are different rules.
It’s never different this time.