Looking for Growth — the Two Best Places to Be

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

There isn’t likely to be a lot of growth in the Main Street domestic economy for the next few years. Accordingly, investors will have to turn to where there is some decent expansion taking place — China and the global mining industry.

We all know about China’s story. The latest news from this burgeoning tiger is that its January exports grew just over 20% compared to the same month last year. That’s a good sign of recovery. But, the more important news is that imports skyrocketed over 85%. Now, some of this comparable growth had to do with holiday timing for the week-long Lunar New Year holiday, but this surge in imports far exceeded forecasts from economists and is a real sign that China is relying less on global demand for its products.

The only other area where investors will be able to find financial growth over the next several years is the mining industry. Specifically, this has to do with fairly strong precious metal pricing and a lot of upcoming production growth. For a lot of gold miners, all commodity prices have to do is stay relatively constant and they’ll be making great money.

There are some attractive senior gold producers in the marketplace and you can find them up in any index or sub-sector. What’s more difficult to discover are the junior mining companies with good prospects. For these smaller, development-stage companies, you want to see that the business has a great property (or properties), has well-known, experienced management and is well financed. These are more difficult to find, but they are out there.

I think there is going to be a lot of consolidation in the precious metals industry over the next few years. This should be good for investment bankers and investors. Like I say, there isn’t a lot of real economic growth out there if you’re an investor looking for opportunities. Given the current state of things, I’d rather invest in a junior gold mining operation than a high-tech start-up. The fundamentals are right for the mining industry to flourish this decade.

A lot of investors don’t have much experience with this sector of the economy and it’s wise to talk to a few firms that have track records in financing the industry. As is always the case, timing is everything in the investment business and so it goes for mining stocks. There’s also a lot of bandwagon investing and hype in this market sector, so you have to approach opportunities with a trader’s mentality. This is especially the case with junior mining companies.

China and gold. It’s not ideal, but it’s where the growth is. The two go hand in hand.