GDX is now only $0.80 away from 2008 lows.
If you recall last year around this time, gold and gold miners were getting hit really hard. This is when I acquired a bunch of Goldgroup shares. Well, Thanksgiving is coming so what do you do? Trash the miners some more. As you can see, GDX is about $2 away from 2008 lows. Unbelievable, isn’t it?
I would not be surprised at all if GDX reaches the 2008 low by the end of the week. Can you imagine what the sellers are capable of doing by Thanksgiving? No price is too low for any miner.
Good conference call with Rick Rule.
Investment Opportunity 1 – Could it Double by the End of the Year?
If you have followed me for several years, then you know that I have written extensively about Company 1. If you are new to the story, then I suggest you read the old newsletter issues (March 2012, June 2012) where I talked about the company because I am not going to be repeating the same things here.
I am writing about it again because something major is about to happen which I believe might have a big impact on the stock price. And, I have to write about in the October Issue because by November, the stock might be more expensive.
Investment Opportunity 2 – Frustration, Euphoria, and Reality
Company 2 is an investment opportunity that frustrated investors for five years. The management was unable to make the business profitable even though the products were great and the clientele was impressive. Things got so bad that the company needed a new capital injection and a turnaround CEO.
At first, investors did not care and sent the stock price 50 percent lower right after the arrival of the new CEO. However, after seeing positive financial results caused by his actions, they quickly bid up the stock price 500 percent in a short period of time. Then, when the momentum cooled off, they quickly rushed to place sell orders sending the stock price down 50 percent.
This sell-off offers long-term investors an opportunity to buy into this company at a much better price than was available just a few months ago.
Investment Opportunity 3 – Wish It Was Cheaper
I have had this company on my watch list for almost two years. I didn’t want to write about it because of two reasons: 1) it wasn’t cheap and 2) investors were way too happy owning the stock. As a result, I had to watch the stock price increase more than 50 percent from the time I refused to write about it. Now, two years later, the stock is still not cheap enough, but at least investors have gotten smacked a bit recently by disappointing quarterly results. Consequently, the stock price is down almost 50 percent from where it was a few months ago.
I want to make one thing crystal clear right from the beginning. I am not excited about this investment opportunity. For my taste, it is not cheap enough. With that being said, the stock definitely has lots of potential (6-bagger or more), but this is dependent on a binary event. I believe that if we were in a half-normal environment, more risk would have been priced into this stock, but considering that everybody else thinks that there are no risks in owning stocks, risk is not properly priced.
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I received several emails about Goldgroup and more particularly why the stock has been so week last week and now so strong this week. Considering that the price of gold is getting pounded almost every single day over the last three weeks, it appears weird that Goldgroup is so strong, especially today.
It is obvious that there is a sizable buyer and by sizable I mean in relation to the daily volume. Someone is trying to accumulate shares. The other day, a buyer was bidding 500,000 shares at $0.17 per share and as I am writing this post, someone is bidding 200,000 shares at $0.20 per share. To be clear, this buyer is not me. I have all the shares that I want for now. So you might be asking “Why is someone buying an unknown gold miner when gold is crashing and there are no bids on other miners?:” If you look at the last press release, you will see that something major might be going on behind the scenes. It could involved a large debt financing or sale/acquisition of an asset. I don’t know for sure what is going on because this is non-public information but anything is possible.
If you look at Caballo Blanco, there are many options to monetize it. For example, the company could borrow against it, do a joint venture with another company, or outright sell it. Right now the market is assigning Caballo Blanco absolutely no value. However, it has 1,000,000 ounces in the ground. Yes, it has no permit, but mining companies take these kinds of risks all the time. Caballo Blanco could be monetized and it is just a matter of price. I would say that this project could easily be sold for more than the current market cap of the company which would put a valuation on it at $20 per ounce in the ground.
Again, I don’t know exactly what is going on and why the stock is so strong, but it looks like something major is taking place and some sizable buyer is willing to bet money on it.
Disclosure: Long Goldgroup
Everyone believes the U.S. stock market has reached a permanently high plateau. Everyone, that is, but the bears.
Last week’s Investors Intelligence survey showed bearish sentiment at its lowest since 1987 (13.3%). In fact, short-sellers have nearly disappeared along with the few remaining bears. In addition, the VIX VIX, +3.32% is at historic lows (near 12), which reflects investor complacency.
Put another way, almost no one believes this market will go down.
Investment Opportunity 1
It is truly stunning just how short-term oriented investors are when it comes to stock market investments. You don’t see this type of thinking anywhere but in public equities where very few people are true owners of the underlying businesses.
In the private ownership of businesses, owners/investors act completely different. If they own a factory or a cleaning service business, they know that during some years business is better and during other years, it is worse. But this doesn’t mean that they are going to sell the business to someone else when business is soft and buy it back when things are humming along.
This company that operates in a very cyclical industry of oil and gas exploration services. Over the past 10 years, the company has done nothing but build shareholders’ value. However, because at the present time, the business is in a downward part of the cycle, investors are treating the stock as if it had some kind of disease. Why don’t they ever learn that the up-cycle follows the down-cycle like day follows night?
Investment Opportunity 2
When publicly traded companies are not growing revenues and profits, they are completely ignored by analysts and investors. This is understandable because there is no excitement, and therefore, no easy money to be made. However, just because there is no growth showing up in the financials does not mean that there won’t be any in the future. Growth does not happen out of nothing. Companies grow when they successfully satisfy the needs and wants of their clients by providing them with desirable products or services. People on Wall Street like to forget that, especially when stock prices are going up all the time.
Investment opportunity 2 was ignored by investors for many years. The company even hired a new CEO, but still, nobody cared. However, after two years of hard work, the results of his turnaround plan started to show in the financial results, and investors suddenly got excited and bid up the stock price by 200 percent. Then, the company reported a quarter that was not as good as investors had hoped for, and the turnaround CEO resigned to take another employment opportunity. Consequently, the stock price collapsed almost 50 percent from its high.
Right now, if the company were to be sold to a strategic buyer, investors would more than double their money from the current levels. However, stock market investors are not assigning it a higher valuation because as an independent entity, the company is not worth the price that a strategic buyer would pay, and also, with the CEO leaving, there is uncertainty.
Investment Opportunity 3
In the money management business, you can become an investment legend after having several years of great performance, but then you can go down the toilet if your investment performance suffers.
This is exactly the story of Investment Opportunity 3, and most specifically its founder. From 2000 to 2011, he was the investing legend. His company generated excellent results and everybody wanted to throw money in his direction. Then, came a few years of terrible performance and he wasn’t so such a hero after all.
We see this movie being played out over and over again. But, what is amazing is that very few recognize that this is the same movie with a different actor, and consequently, they can’t ever predict the ending. Well, the ending is always the same – if the investment thesis is sound, it will play out no matter what the others are saying.
Investment Opportunity 1 – Decent Return Possibility with Little Risk
Company 1 is an investment idea that at first does not look appealing. However, after you look at it closely, you realize that it gives you an opportunity to earn a decent return in a relatively short period of time without taking on too much risk.
The bad thing is that this idea is not something that will give you multi-bagger returns, but in this market multi-baggers are pretty much nonexistent.
Investment Opportunity 2 – Major Shareholders Said Enough is Enough
When you earn your own money, you can do whatever you want with it. You can invest it, you can save it, or you can spend it in whatever way you want. There is no one that is in control of it but you. However, when you take someone else’s money, then that money always comes with strings attached.
This is especially true with publicly traded companies that are owned by various shareholders. When these individuals invest their capital, they expect results. Consequently, the managers of publicly traded companies cannot spend money the same way they would if it belonged to them personally. If they ignore the shareholders, one day, they may wake up and have the rug pulled out from underneath them.
This is exactly what happened with the management of Company 2. For years, shareholders kept watching the company’s cash being wasted by the management. Finally, they said, enough is enough. We want control.
Investment Opportunity 3 – The Founder Took the Reins
Usually when change is needed, it is an activist hedge fund that shakes things up through a proxy fight. In the case of Company 3, change was definitely needed because too many promises were broken. However, instead of a hedge fund, it was the founder himself that removed the board of directors and forced the CEO to step down so that he could execute on a strategy that would unlock shareholders’ value.
The reason why change was needed was because the company was not reaching its potential. It was providing successful products to a wonderful client base, but this was not enough to be profitable.
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