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Those interested in the oil business will know that smaller stocks in the sector have mostly been doing very well, even as the spot price of the commodity dropped below $100.00 a barrel.
The run-up has been pronounced in a number of companies, likely in anticipation of third-quarter earnings. Oil stocks advancing on declining spot prices is a very unusual development in the resource sector. But there is definitely an appetite out there among institutional investors for junior oil and natural gas producers.
One company we looked at previously is Kodiak Oil & Gas Corp. (KOG). This Bakken oil play reports tomorrow, and expectations are high.
Wall Street consensus is for Kodiak to generate sales growth of around 150% in its upcoming quarter. Earnings have the potential to double over the third quarter of 2012.
Company management recently announced its full-year 2013 average daily production will be approximately 30,000 barrels of oil equivalent per day (boepd). This compares to an average of 14,000 boepd in 2012. This year’s exit production rate is currently estimated at 42,000 boepd.
So, there’s definitely economic growth in the domestic oil and gas business due to new technology and the willingness of investors to finance junior companies.
Kodiak is trading right at its all-time record high after experiencing a meaningful consolidation throughout 2012 and the first half of this year. The stock is fully priced, which is no surprise. If oil prices were to reaccelerate, this position would be even higher.
Also reporting tomorrow is ConocoPhillips (COP), which is outperforming other big oil companies on the stock market.
ConocoPhillips spun off Phillips 66 (PSX) last … Read More
While the financial media tends to prefer doom and gloom, genuine opportunity in the stock market is rarely in the headlines. The focus needn’t be on what is wrong with the world; we already know that. What’s lacking is how you can profit from it.
Precious metals stocks are becoming more and more attractive these days, but I don’t think we’ve seen a bottom yet in gold and silver stocks.
Currently, some of the best risk-capital opportunities in the stock market are U.S.-listed Chinese stocks. It’s a sector that’s pretty much been abandoned by the marketplace.
The reasons why the marketplace is no longer interested in Chinese stocks are obvious, but at the height of disinterest comes the best prices. By the time interest hits and the story is in the newspapers, most of the money has already been made.
One company that’s experiencing a genuine stock market turnaround is China Ceramics Co., Ltd. (CCCL). And it’s doing so ahead of its financial turnaround, which indicates that investor sentiment is warming to the story.
China Ceramics manufactures and sells ceramic tiles to both residential and commercial customers in China. The company stumbled both operationally and on the stock market due to China’s planned real estate restraint. The position then met the same fate as virtually all other U.S.-listed Chinese stocks that imploded on the stock market because of the plethora of accounting frauds.
But the tide is slowly turning for many of these … Read More
If there ever was an environment illustrating how risky and tough resource investing can be, the current conditions for gold stocks are the textbook example.
Resource investing is a risk-capital only endeavor. When it comes to equities, resource-related stocks should never make up the core of a long-term investment portfolio. In almost all cases, even the fastest-growing, best-managed gold stocks still perform commensurately with the underlying spot price.
One of the best junior gold mining companies I know of is Argonaut Gold Inc. (TSX/AR). The company has growing production, but the stock is way down and can’t generate any momentum.
One of the best silver companies I know of is Endeavour Silver Corp. (EXK). In the second quarter of 2013, the company’s revenues grew to $71.1 million, compared to $40.4 million. Total silver production was up 48% to 1.5 million ounces in the most recent quarter, with gold production up 159% to 19,914 ounces.
Like Argonaut, Endeavour Silver is trading near a multiyear low on the stock market. It’s followed the spot price of silver almost exactly, falling consistently in value since the beginning of 2012.
While both companies don’t seem to be doing so well on the charts, they are both good mining companies. They have growing production, are keeping cash costs below industry growth rates, and their stocks are very reasonably priced.
The problem is they will stay reasonably priced so long as the spot price of yellow precious metal either remains flat or goes down. That’s the way it works in the gold mining business. The entire industry comes down to one financial metric—the spot price.
In … Read More
Major cities across the U.S. economy are struggling. Yes, we saw great cities like Detroit go bankrupt. But don’t for a second believe it’s all over. The reality is we will have more situations like Detroit.
Take the City of Los Angeles, for example. In his budget proposal to the city council, the mayor of the city, Antonio Villaraigosa, said Los Angeles will have a budget deficit of $216 million in the current fiscal year. (Source: City of Los Angeles, April 20, 2013.)
But Los Angeles isn’t the only problem city in California. When I look at San Francisco, it shows even more trouble for the municipal bonds market. The city’s controller says the budget deficit will increase from $283 million last year to $829 million by fiscal 2015/2016. (Source: City of San Francisco, Office of the Controller web site, last accessed September 16, 2013.)
Minneapolis, Minnesota was downgraded by Moody’s Investors Service recently. This puts the city’s $679 million worth of general obligation municipal bonds on the line. (Source: Moody’s Investors Service, July 29, 2013.) A couple of the reasons for the downgrade by Moody’s were that property values in the city have declined and it has a pension liability of 4.3 times the operating revenue it received in fiscal 2012!
Risks are growing in the municipal bonds market. Let’s not forget: in Detroit, over 100,000 municipal bond investors were told, “Sorry, we can’t pay you.”
What we are seeing with U.S. cities sinking in debt should alarm us, but just like other crisis situations, like auto loans and student debt, no one wants to talk about it.
Municipal … Read More
Last week, I attended the Toronto Resource Investment Conference, which is organized by Cambridge House International. This annual conference features companies involved in the resources sector, mainly gold bullion and silver explorers and producers.
To say the very least, the sentiment at the conference was dismal, and the “hope factor” just wasn’t there. After attending this annual conference for a few years, you tend to get an idea about what you will see and what kinds of opinions you will hear. This time was different. Attendance was way down, as were the number of gold companies exhibiting.
Those who pitched gold explorers, and gave their tips, were saying, “But you have to be really careful.” The “feeling” was gold bullion producing companies, be they senior miners or junior miners, face an anemic future ahead. And for those companies that explore for the precious metal, the “feeling” was that they will have trouble raising money.
But one thing all the speakers did agree on was that demand for the precious metal is increasing. I heard China is buying gold bullion; demand for the precious metal in India is robust; production at mints around the world is in overdrive mode; and so on. This is what I have already been writing about in these pages.
It was unusual to see the regular gold bugs actually being cautious on where the gold prices are going next. They were very clear that the damage that took place in the most recent sell-off would take some time to recover. They were concerned the price of gold bullion is being manipulated.
To me, all of this … Read More
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|Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)||$988.36|
|Trailing 12-month Price/earnings multiple (Most Recent Quarter)|
|Dow Jones Industrial Average Dividend Yield||2.39%|
|10-year U.S. Treasury Yield||2.72%|
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. The opinions in this e-newsletter are just that, opinions of the authors. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose.
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