skyrocketing earnings > deeply undervalued assetsBecause of my gullible nature, I'm often over-paying for stocks. Just the other day, I tripled my position at the ridiculously high price of $3.25 (cdn). I figured these two giant mines owned by Nevsun are worth at least 3 or 4 times the current market cap of Nevsun.
Sadly, todays market places ZERO value on assets located in Eritrea. They are considered the North Korea of Africa. We even get lawsuits and charges of slave labour. Earnings from Timok are years away. In another place and time just the Timok assets would have the stock price at double what it is now. A pure DEVELOPMENT company with that kind of asset goes for much more than we see now if the participants in the market have patience.
Investing in mining companies is just a BIT less risky than trying to make your fortune at the roulette wheel. You are the whim of volatile commodities prices, greedy and corrupt governments, labour disruptions, wars and acts of god. These companies also tend to have managements that are not fit to run a dairy queen ice cream stand. They tend to be among the most lazy, incompetent and greedy and corrupt managers in the world of business.
In order for me to invest more than a token sum of money in such a risky venture as a mining company, I have to believe there's the potential to make multi-bagger returns. I'm not sticking around for a mere 40 or 50% premium offered by some multi-national that will steal the assets from under us with the market at an extreme low. For some of you that's barely a break-even proposition right now.
It's ok for me to keep a small position in this mining company. I'm going to redeploy the bulk of my capital on companies with skyrocketing earnings. Just today one of my stocks announced 117% earnings growth from the same quarter last year. To hell with value that will be stolen from us or tapped years in the future (maybe). There's one thing everybody understands: My earnings are skyrocketing RIGHT NOW. People pay up for that. They also pay up for brands. A mere commodity play is just not going to command the kind of multiples and premiums that a branded or patented product commands. Shrewd investors want a moat (patents, brands, etc) to protect themselves from price pressure and competition. When you sell a commodity you do not have that going for you. We're investing in mining companies and the risks are far greater than the rewards. Sad.
Nevertheless, this particular situation is so outrageously under-valued, that I'm still keeping a small position just to see how it plays out. If I cash out due to a take-over at twice today's price, I will consider myself an idiot for holding on. Afterall, it's not returns that matter, it's RISK ADJUSTED returns. For the risks we are taking, we better get a very handsome return. A double from the 52 week low when the 52 week high is a ridiculously low price is no victory.