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Bull & Bear’s
November 2009 VOL. 11 NO. 11
INSIDE...
How to Profit From
a Nation of Renters
By Joseph Shaefer
Investor’s Edge
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I see a likely continuation of
turmoil for the residential real
estate market for many years. I
see Americans becoming far more
willing, whether by circumstance or
choice, to rent rather than own.
If I am correct in my analysis,
I see five ways you might benefit
from a trend toward more renters
and fewer owners.
First, perhaps counter-intuitively, is to become a homeowner. I am
writing these words while returning
from a trip to the 51st state – The
Keys – where I’ve been on a diving
vacation. I spoke with a Key West
charter boat captain, who couldn’t
possibly have afforded the place
he and his wife just bought, until
this year. They actually looked at
it in early 2008 when the price was
slightly reduced to $479,000. It was
recently listed for $215,000. They
offered $165,000 and bought it for
$177,000 – a saving of 63%.
When you can buy your home
for 37% of what is sold for less
than two years ago, you can be
pretty sure you aren’t seriously
over-paying!
The second way you might
benefit is to assist others in buying
their home, perhaps by taking back
some of the paper yourself. If you
are selling to them. After all, it is
secured by a property you know
well. Or loan money to someone
you may knot know but after
surveying the loan believe them to
be good credit risks. Again, it will
be secured by real estate valued
realistically by the market-place.
In the case of the charter boat
captain, he and his wife, in order to
secure the best loan terms and an
affordable monthly payment, put
down 25% of the purchase price. They
had saved only $25,000 over the years
but borrowed the other $19,250,
$10,000 from his brother and $9,250
against his boat. Here’s a couple who
have given their life savings and a
lien on their livelihood in order to buy
this home. They don’t just have the
monetary skin in the game, they have
emotional skin in the game. They’re
not flippers or speculators. These are
real homeowners who are not going to
walk away from this loan willingly.
The third way is, if you have cash
to buy, buy a home or condo with
the intent to rent it to others, either
with a long-term lease or seasonal
rental in a popular resort area.
Continued on page 28
Turnaround Investing Mistakes
By George Putnam III
The Turnaround Letter
One of the keys to making
money in investing is to avoid
making mistakes. Therefore,
we though it was worthwhile to
reflect for a moment on some of
the biggest mistakes we’ve made
and we’ve seen other turnaround
investors make over the years. If
you can avoid at least most of the
following pitfalls, you will greatly
enhance your ability to make
money investing in turnaround
situations:
• Mistaking a low stock
price for being cheap. Many
stocks trade at low price for good
reason, and without some sort of a
catalyst will never rebound. Warren
Buffett once said, “Turnarounds
seldom turn.”
• Paying too much attention
to price history. This is related
to the previous point. Many
investors look at a stock and say
something like “it used to trade
at 30 and now it’s at 3 – therefore
it must be a good thing to buy.”
Unfortunately, the fact that a
stock once traded at a higher price
does not guarantee that it will
ever get back there. You must find
a fundamental reason why the
stock will rebound.
• Confusing secular and
cyclical problems. Sometimes a
company or a whole sector will be
cyclical and regularly move up and
down because of economic or other
factors. In that case it makes sense
to buy the stock when it seems
to be near the trough of a cycle.
However, sometimes the problems
are not based on short-term cycles
but rather very long-term or even
permanent trends. Often these
secular trends are related to
product obsolescence. For example,
many paging companies failed
after the cell phone gained wide
acceptance. And today, investors
are wondering whether traditional
newspapers will disappear in the
coming years.
• Being too early. This is a
problem for many value oriented
investors because they often
recognize the opportunity in a
battered stock well before the
rest of the market. However, this
problem is not so serious as long
as you avoid the next pitfall.
• Not being patient enough.
Turnarounds can take quite a long
time. And even after the company
has begun to turn, it can take the
market a while to recognize that
fact.
• Being too patient. Unfortunately, it is also quite possible
to be too patient and stick with
a stock that will never rebound.
This often happens in conjunction
with one of the other mistakes.
There is no easy way to determine
how much patience is appropriate. You just have to periodically
reevaluate the fundamentals of
each position.
• Not diversifying enough.
It is easy to get mesmerized by
the gain potential in a particular
low-priced stock and put too much
money in it. It is important to
remember that turnarounds are
inherently risky. Even if you avoid
most of the pitfalls mentioned
here, events may not work out the
way you expected. The best way
to manage this risk is through
diversification.
• Not paying enough attention to the debt. Stock comes at
the very bottom of a company’s
capital structure, and all other
creditors have to be satisfied
before any value can go to the
stockholders. Therefore, if a company has a large amount of debt,
that increases the risk that a stock
may fare poorly. You can often get
a sense of the magnitude of this
risk by looking at the price of a
company’s bonds. If the bonds are
trading at a fraction of their face
value, that can be an indicator
that the stockholders are in for
trouble.
• Buying the stock of a
company in Chapter 11. This
is closely related to the previous
point, as well as the first two we
mentioned. Very rarely will a
company in Chapter 11 be able to
generate enough value to get down
to the stockholders. Therefore,
even though a Chapter 11 stock
many be trading at a very low
price, it is most likely not a good
buy because it will probably go a
lot lower, frequently to zero.
• Putting too much faith
in insider buying. Insiders
don’t always have the best view
of what is really happening to
their company. Often they will
be blinded by their loyalty to the
company or be overconfident about
their ability to turn the company
around. It is not unusual to see top
executives add to their holdings
shortly before a company goes
bankrupt.
There are undoubtedly other
mistakes that can be made, but
these strike us as the most likely
blunders in the turnaround area.
Just by being aware of them, you
can improve your investment
performance.
Editor’s Note: George Putnam, III
is editor of The Turnaround Letter, 225
Friend St., Ste. 801, Boston, MA 02114,
1 year, 12 issues, $195.
The Turnaround Letter focuses on
distressed and turnaround investing and
is one of the longest standing and most
successful newsletters on the market today.
Mr. Putnam is one of the nation’s leading
experts on bankruptcies and turnaround
investing and his keen insight has resulted
in The Turnaround Letter being ranked
as the second best investment newsletter
over the last 20 years, according to Hulbert
Interactive’s Stock, Fund & Newsletter
Screener, a feature of MarketWatch.com
that monitors the stock recommendations
of 180 investment newsletters. With a 2009
YTD return of 51% and a 20 year rate of
return of 11.3%, you will be hard pressed to
find a newsletter that will serve you better.
For more information visit the website at
www.turnaroundletter.com.
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Stocks to Watch
THE INVESTMENT REPORTER
133 Richmond St., W., Toronto, ON M5H 3M8.
1 year, 52 issues, $327.
Keep buying Pepsico
CONTRA THE HEARD
42 Rivercrest Rd., Toronto, ON M6S 4H3.
1 year, 4 issues, $525. www.contratheheard.com.
Will Motorola’s new phone cliq?
Benj Gallander and Ben Stadelmann: “Another
big comeback in the portfolio over the past six
months, and one of the most encouraging, belongs
to Motorola (MOT). During the March washout,
the electronics giant was all but given up for dead,
sinking to a baleful low of $2.98. Since then it has
clawed its way back, proving along the way that the
company is still very much in the fight for mobile
phone stardom.
Revenues for the second quarter continued their
precipitous decline, off 32 percent compared to the
corresponding period last year. That works out to a
shocking reduction of $2.6 billion, testimony to the
depth of the global economic slowdown and the lack
of electricity generated by Motorola’s products. But
management tracked the curve, cutting expenses
radically so that a surprise profit of $24 million
emerged.
Now that MOT is pulling out of its downward
spiral, it is approaching a critical juncture that will
make the next few quarters particularly crucial. Since
its big hit with the Razr phone a few years ago, the
question has been, “What shiny new product will
stanch the bleeding of market share?” A major foray
into the smart phone arena has been talked about for
months, but details are now available on Motorola’
bold bid to give Apple a run for its title as vendor of
the world’s coolest phone.
With smart phones, it’s not just about the features,
but the interface, so that the user can actually use all
that whizzy stuff. The software that will power these
new devices goes by the odd name of Motoblur – let’s
hope they didn’t pay the brand consultants too much
for that clunker. Anyway, the idea is to give young
people who are immersed in the spider web of social
networking sites a slick way to integrate MySpace,
Facebook and Twitter onto their little handhelds.
The new Cliq model boasts an ultra-sharp screen,
auto-focus video camera, music player, email, instant
messaging, web browsing, GPS, an accelerometer,
proximity sensor, both touchscreen and hideaway
mechanical keyboards, plus a host of applications
based on Google’s Android operating system. You
can even call home from the grocery store to find out
what’s on the shopping list you left on the fridge.
These units will be in stores next month in time for
the holiday surge. Given that the company’s current
share of this niche market is virtually zero, even a
modest success should give the Motorola’s handset
division a shot in the arm. Should it be fortunate
enough to garner rave reviews from the techno
literati, Moto may be well on its way to getting back
its mojo. If not…yuck.”
“In the first nine months of 2009, U.S. Key stock
PepsiCo Inc. (NYSE: PEP; $60.75) earned $4.5
billion, or $2.87 a share. This was up by 4.7 percent
from $4.4 billion, or $2.74 a share, a year earlier.
The high U.S. dollar earlier this year held back the
earnings of its foreign operations. In 2009, PepsiCo
is expected to earn $3.75 a share. For 2010, “the
company is targeting an 11 to 13 per cent growth
rate for core constant currency (earnings per share).”
That’s $4.16 to $4.24 a share. But with the U.S.
dollar falling, earnings should exceed this range. One
source of growth in 2010 in PepsiCo’s purchase of
its two main bottlers, The Pepsi Bottling Group and
PepsiAmericas. PepsiCo expects to complete these
acquisitions in late 2009 or early 2010. Keep buying
PepsiCo for long-term gains and rising dividends.”
**************
THE MAJOR TRENDS, published monthly for clients of Sadoff Investment Management, 250 West
Coventry Ct., Ste. 109, Milwaukee, WI 53217.
Industry highlight - Financials
Ronald Sadoff: “Several months ago we purchased
four financial stocks which recently broke out of
long-term downtrends after underperforming the
market for a number of years. Financial stocks were
the epicenter of the 2008 stock market crisis with the
sector falling 82% from top to bottom.
The four purchases included discount brokerage
firm TD Ameritrade, banking giant JPMorgan
Chase, insurance company Travelers and Investment
manager Invesco.
TD Ameritrade Holding Corp. (Nasdaq: AMTD)
is a national discount brokerage firm with client assets
of over $265 billion. In 2006, Ameritrade purchased TD
Waterhouse. TD Ameritrade trades around $20 which
is 1/3rd of the levels it traded at during the day-trading
boom of 1999. The company is in a much stronger
financial position with nearly ten times the revenue
and seventy times the profit from 1999.
Invesco Ltd. (NYSE: IVZ), an investment
manager, owns AIM mutual funds, Powershares, Atlantic
Trust and recently purchased Van Kampen investments
from Morgan Stanley. Invesco has approximately $530
billion in assets under management.
JPMorgan Chase (NYSE: JPM) CEO Jamie
Dimon was able to purchase Bear Stearns and
Washington Mutual at low prices with government
backstops during the financial meltdown. The
company recently exceeded earnings estimates due to
the help of the steep yield curve (0% Federal Funds
rate and a 3.3% 10-year Treasury rate). They are one
of the strongest banks in the US.
Travelers (NYSE: TRV), which was purchased
by St. Paul Companies in 2004, is a leading insurance
company. They are the 3rd largest writer of property
insurance in the US and the 2nd largest writer of
personal insurance through insurance agents.”
HEARTLAND ADVISER
5002 Dodge St., Ste. 302, Omaha, NE 68132.
Monthly, 1 year, $150.
Raytheon and Becton Dickson
meet strict financial criteria
Meeting Russ Kaplan’s strict financial criteria this
month are Raytheon and Becton Dickinson.
“Raytheon (RTN) which joins an earlier
recommendation, General Dynamics, as a member
of the defense industry, and in this world we live in I
doubt if there will ever be a time when we don’t need
a defense industry. Unlike a lot of other companies,
Raytheon does not depend on the vagaries of the
economy.
Raytheon is a solid, blue chip company which can
withstand the impact of almost any kind of a crisis.
The company in addition has a lot of earnings growth
and an above average dividend.
The people who run the company own a lot of shares
which gives them a good long term perspective.
Becton Dickinson (BDX), a company in the
medical supplies industry. Like the rest of the health
care industry, this stock is down because of concerns
about health care legislation, and as often happens;
the worst has already been factored in. As in many
other cases I have observed in my many years in the
business, the worst rarely happens. However, even if
it does, Becton Dickinson has the financial strength
to weather this storm.
We are actually in good company as Warren
Buffett’s Berkshire Hathaway has recently take a
large position.”
***************
THE KONLIN LETTER
5 Water Rd., Rocky Point, NY 11778.
Monthly, 1 year, $95. www.konlin.com.
BioSante Pharmaceuticals developing a
robust product pipeline of hormone
replacement products for women and men
Konrad Kuhn: “BioSante Pharmaceuticals,
Inc. (Nasdaq: BPAX) is a specialty pharmaceutical
company focused on developing products for female
sexual health, menopause, contraception and male
hypogonadism. Their primary products are gel
formulations of testosterone and estradiol. BPAX is
also engaged in the development of is proprietary
calcium phosphate nanotechnology, or CaP, primarily
for aesthetic medicine, novel vaccines and drug
delivery. BPAX’s lead products include LibiGel®,
a once daily transdermal testosterone gel in Phase
III clinical development under FDA Special Protocol
Assessment (SPA) for the treatment of female
sexual dysfunction (FSD); Elestrin™, a once daily
transdermal estrodial (estrogen) gel approved by the
FDA, indicated for the treatment of moderate-tosevere vasomotor symptoms (hot flashes) associated
with menopause and marketed in the U.S.’ The
Pill-Plus (triple hormone contraceptive), a once
daily use of various combinations of estrogens,
progestogens and androgens in development for
the treatment of FSD in women using oral or
transdermal contraceptives; and Bio-T-Gel™, a once
daily transdermal testosterone gel in development
for the treatment of hypogonadism, or testosterone
deficiency, in men.
The current market in the U.S. for estrogen and
testosterone products is approx. $2.5 bil. And for oral
contraceptives about $3 bil. Under BPAX’s license
agreement with Antares Pharma, BPAX is required
to pay Antares a portion of the royalties, license and
milestone payments received for products covered by
their agreement. Heavily involved in R&D, BPAX has
not commercially introduced any products and has
derived revenue from upfront, milestone and royalty
payments earned on licensing and sublicensing
transactions and from sub contracts. In Dec. ’08,
BPAX entered into a sublicense and asset purchase
agreement with Azur Pharma Intl. II Ltd. for its
Elestrin™ (estrodial gel).
Revenue for the 1st half of ’09 was $183,591, with
a loss of (.32) per share vs. (.36) for the same period
in the prior year. BPAX entered into a definitive
merger agreement with Cell Genesys (CEGE), with
an approx. $21.5 mil. in cash and cash equivalents.
Combined with BPAX’s recent $12 mil. financing,
they are provided with the funding required for
the continued Phase III development of LibiGel®
for FSD, and offers the potential to expand their
product development portfolio with the addition of
GVAX cancer immunotherapies. Also, Phase II trials,
under a physicians investigator sponsored-INDs are
ongoing at the Sidney Kimmel Cancer Center at John
Hopkins Hospital in pancreatic cancer, Leukemia and
breast cancer.
The stock was recommended in Sept. to purchase
on dips below 1.80. It pulled back to the 1.50
area where we would Add/Buy for a 1st target of
3.50-4.00, especially since LibiGel® remains the
only pharmaceutical product in the U.S. in active
development for the treatment of hypoactive sexual
desire disorder (HSDD) in menopausal women. As
a result of the merger, there are 53.2 mil. shares
outstanding, of which 5% are held by insiders.
Also, BPAX’s vaccine adjuvant (a substance that,
when added to a vaccine, increases the vaccine’s
effectiveness by enhancing the body’s immune
response) Biovant™ increased the protective effect on
vaccines for multiple flu strains, including a potential
new vaccine against H1N1, which resulted in 100%
protection from symptoms of illness, including weight
loss and death in animal studies.
We believe LibiGel® can be first product approved
by the FDA for the common and unmet medical
need for FSD. According to the Journal of the
American Medical Assoc., 43% of American women
experience some degree of impaired sexual function.
And according to IMS Data, 2.0 mil. testosterone
prescriptions were written off-label for women by
U.S. physicians in ’07. The majority of women with
FSD are postmenopausal, experiencing FSD due to
hormonal changes following menopause, whether
natural or surgical. LibiGel® represents a compelling
near-term product opportunity with significant
upside potential. Ultimate target 5-6.”
DOW THEORY FORECASTS
7412 Calumet Ave., Hammond, IN 46324.
1 year, 52 issues, $279. www.dowtheory.com.
TJX takes off-price retail to the Maxx
Richard Moroney: “One of few retailers to report
positive traffic trends over the past year, TJX ($38;
TJX) has grown same-store sales every month since
March. The market has rewarded TJX’s performance
by pushing the shares up 88% this year versus a 47%
gain for the S&P 1500 Retailing Group Index.
During the eight months ended September, a
difficult stretch for retailers, TJX increased total
sales 4% to $12.2 billion. That growth reflects both
the addition of new stores and improving profitability
at existing stores, trends that should help sustain
TJX’s operating momentum after the recession. TJX
is a Long-Term Buy.
Business breakdown
TJX operates nine retail chains with 2,719 stores.
American chains T.J. Maxx and Marshalls combined
to make up 63% of total stores and generate 66%
of sales and 74% of operating profit in the past 12
months. At T.J. Maxx and Marshalls, consumers can
find designer-label clothing at prices up to 60% below
those charged by other retailers.
The two other U.S. chains are HomeGoods (9%
of sales, 5% of profits) and A.J. Wright (4%, 1%).
TJX has a smaller presence in Europe (11%, 9%)
and Canada (11%, 12%). The company’s best growth
prospects lie in deeper penetration of Germany and
the United Kingdom. TJX believes it can ultimately
operate about 4,000 stores, indicating roughly 50%
expansion from its current size.
High quality, low prices
TJX purchases goods as close as possible to the
time of need. These off-priced buys – opportunistic
purchases made during the selling season rather than
in advance – allow TJX to apply higher mark-ups and
still underprice rivals. This strategy puts a premium
on inventory management, as the timing, quality, and
quantity of goods hitting the shelves is unpredictable.
But the purchasing strategy also allows TJX to adjust
quickly to market trends.
The tough retail environment has apparently
given TJX access to more designer clothing. Clothing
and footwear account for 62% of sales, with home
fashions generating 25% and jewelry and accessories
13%. TJX fosters a treasure-hunt mentality by filling
store aisles with an ever-changing mix of affordable
merchandise from recognizable brands.
Conclusion
After boosting October-quarter guidance twice in
as many weeks, TJX now expects per-share profits
of $0.77 to $0.79, implying growth of at least 33%.
The company projects profit growth of at least 18%
for fiscal 2010 ending January. Wall Street expects
revenue will increase 7% and 4% in the October and
January quarters, respectively. By comparison, the
National Retail Federation predicts a gloomy holiday
season, with U.S. retail sales dipping 1%.
Some bargain hunters might be dismayed that the
stock doesn’t offer investors much of a mark-down. At
14 times estimated year-ahead earnings, TJX trades
roughly in line with its five-year average forward
P/E ratio. But while TJX’s operating momentum and
growth outlook warrant a premium valuation, the
stock trades at a 19% discount to the average apparel
retailer. An annual report for The TJX Cos. Inc. is
available at 770 Cochituate Road, Framingham, MA,
01701; (508) 390-2323; www.tjx.com.”
***************
Leeb’s INCOME PERFORMANCE LETTER
P.O. Box 97, Williamsport, PA 17703.
Monthly, 1 year, $72
www.leebincomeletter.com.
Family Dollar provides good value
to consumers and investors alike
Gregory Dorsey: “The severe economic downturn
has dramatically curtailed consume spending while
making shoppers more cost-conscious. Such behavior
is typical when the economy slows. But this time
around, the trend could last for years.
What’s painful for upscale merchants is a boon
for discount retailers, particularly Family Dollar
Stores (FDO). We now recommend it for growth and
growing income.
Family Dollar operates 6,600 discount stores
in 44 states across the nation. Its customer base
traditionally has been low to lower-middle income
consumers, and now those ranks have swelled. Plus,
other bargain-hunting consumers are shopping there
in search of attractively priced branded and privatelabel staples, clothing and other items.
Family Dollar stores are relatively modest in size,
7,500-9,500 square feet, in contrast to the typical
Wal-Mart, which ranges from 42,000 square feet
for neighborhood stores to 187,000 square feet for
superstores.
The relatively small store size enables Family
Dollar to open new stores quickly in existing
shopping centers, free-standing buildings and urban
storefronts. These stores are usually sited in markets
that are underserved by retailers.
Most retailers have seen their profits contract
sharply during the recession. But Family Dollar has
barely missed a beat, with just one year-over-year
earnings dip in the first quarter of 2008.
With its latest results, management provided
strong guidance for fiscal 2010 (ending in August):
it expects sales to rise by 5-7 percent and for profits
to climb between 4 and 14 percent. Management
typically under-promises and over-delivers, however,
so we won’t be surprised if earnings exceed that
forecast. Longer term, we look for earnings to expand
at a 12-13 percent annual pace.
The stock trades at less than 13 times projected
year-ahead earnings, far below both its long-term
average valuation and its price/earnings multiple
relative to the S&P 500.
The 2 percent current dividend yield is about on par
with the broad market. However, Family Dollar has
raised the payout for 33 consecutive years, and at an
annualized rate of 17 percent over the last decade. We
expect the company to at least match that dividendgrowth pace in the coming years. Buy Family Dollar.”
PEARSON INVESTMENT LETTER
P.O. Box 3739, Apollo Beach, FL 33572.
Monthly, 1 year, $150.
www.pearsoncapitalinc.com.
Research In Motion and
Walgreens Recommended Buys
Pearson Capital’s recently recommended stocks
include Research In Motion Ltd. and Walgreens Co.
“Research In Motion Ltd. (Nasdaq: RIMM,
$58.73, Emerging Growth) is a designer, manufacturer and marketer of wireless solutions for
the worldwide mobile communications market.
Through the development of integrated hardware,
software and services that support multiple wireless network standards, RIM provides platforms
and solutions for access to information, including
e-mail, phone, short message service (SMS), Internet and intranet-based applications. RIM’s portfolio
of products, services and embedded technologies
are used by organizations worldwide and include
the BlackBerry wireless solution, the RIM Wireless Handheld product line, software development
tools and software. RIM operates offices in North
America, Europe and Asia Pacific. In January 2009,
the Company completed the acquisition of Chalk
Media Corp. In March 2009, RIM completed the
acquisition of Certicom Corp. Institutional Holdings: 596.
Walgreen Co. (NYSE: WAG, $37.83, Growth)
is engaged in retail drugstore business. As of
August 31, 2009, the Company operated 7,496
locations in 50 states, the District of Columbia,
Puerto Rico and Guam. During the fiscal year
ended August 30, 2009 (fiscal 2009), the Company
opened or acquired 691 locations. Total locations
do not include 337 convenient care clinics operated
by Take Care Health Systems, Inc. within the
Company’s drugstores. The Company’s drugstores
are engaged in the retail sale of prescription and
non-prescription drugs and general merchandise.
General merchandise includes, among other things,
household items, personal care, convenience foods,
beauty care, photofinishing, candy, and seasonal
items. Walgreens offers customers the choice to have
prescriptions filled at the drugstore counter, as well
as through the mail, by telephone and through the
Internet. Institutional Holdings: 979.
Christopher Carothers, PCI’s stock analyst:
“Companies that come up with new innovations and
ideas will be the clear winners in this market. Apple’s
iPhone and Microsoft’s new Windows 7 will be very
profitable for both companies, increasing their bottom
line. Both companies have already cut budgets and
staff, so any new products will cause their stock
prices to soar. In a deflationary environment, new
ideas can be very profitable, even when the overall
economy is sour.”
***************
LOOKING FORWARD
Published for clients of Friess Associates
and Brandywine Funds shareholders
P.O. Box 576, Jackson, WY 83001.
Mattel’s tighter cost structure
should bring strong earnings gains
Chris Aregood: “The toy business, like most others,
has been something short of fun and games in
these economic hard times. Mattel has been serious
about cost control throughout 2009, positioning the
company to see earnings rebound soundly this holiday
season and beyond.
Mattel Inc. (NYSE: MAT) is the world’s largest toy
manufacturer. Barbie, Fisher-Price, Hot Wheels and
American Girl are among the company’s best known
franchises. Mattel also enters licensing deals for
character-themed toys and games in conjunction with
makers of children’s television programs and movies
such as Disney, Sesame Street and Nickelodeon. The
company’s largest customers are Wal-Mart, Target,
and Toys ‘R Us. Revenue in the 12 months through
June was nearly $5.6 billion.
Mattel doubled June-quarter earnings to $0.06
per share, beating estimates. The consensus on
Wall Street was that the company would break
even for the quarter. Analysts underestimated the
company’s success in executing the “Global Cost
Leadership” program it launched at the start of the
year. Operating expenses fell by $91 million versus
the year-ago period in the June quarter.
The Friess Associates team spoke with Mattel
Treasurer Dianne Douglas about how controlling
costs now should benefit the company in both the
upcoming holiday season and 2010. With retailers
reluctant to hold excess product amid the economic
downturn, their inventories are lean. Given the level
of retailer caution, stores are likely to restock with
leading brands from financially sound manufacturers.
Mattel’s tighter cost structure should enable the
company to leverage new sales into strong earnings
gains.
Events likely to drive demand include the 50th
anniversary of Barbie, which generates more than
$1 billion annually and is Mattel’s most profitable
product. The company is also partnering with Disney
on products for the 2010 release of Toy Story 3, in
which Barbie will be a key character.”
FEATURING...
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TheResourceInvestor.com
BI RESEARCH
P.O. Box 133, Redding, CT 06875.
1 year, every 6 weeks, $120.
www.biresearch.com.
Why China?
Thomas Bishop recently added another Chinese
company to his portfolio, China Ritar Power
(Nasdaq CRTP) bringing his portfolio back up to 6
Chinese companies out of his stable of 16.
“China Ritar Power is one of the leading
manufacturers of lead-acid batteries in China for
telecom, UPS (uninterruptible power supplies),
light electric vehicles and the renewable energy
storage segment. Yeah, lithium is cool for computers
and such, but for big applications in the markets
this company plies, you can’t beat good old
fashioned relatively inexpensive lead-acid batteries.
There just isn’t another cost effective work-horse
alternative.”
The other five Chinese companies include:
Deer Consumer Products (Nasdaq DEER) a
Chinese manufacturer of blenders and juicers and
other small countertop appliances for the likes of
Target, Wal-Mart, Black and Decker and a host of
others.
China Green Agriculture (NYSE/A: CGA)
a producer of humic-acid based, “green” liquid
fertilizers throughout China. The Company also sells
the produce it grows in its 6 green houses and is in
the process of doubling that number.
SmartHeat (Nasdaq: HEAT) a manufacturer of
Plate Heat Exchangers in China.
Mindray (NYSE MR) a medical equipment
company located in China with a focus on patient
monitoring, diagnostic laboratory instruments and
ultrasound imaging.
AgFeed (Nasdaq: FEED) is China’s largest premix
feed company and a leading hog producer. The
Company sells premix animal feeds directly to some
660 commercial hog farms and to smaller farmers
via 1,200 retail distributor stores. AgFeed also raises
hogs in China on 30 farms with total production
capacity of 650,000 hogs. China produces half the
world’s pork.
Continental Minerals (TSX.V: KMK; OTCBB:
KMKCF) is located in China but is decidedly
Canadian. For the past few years the Company has
been developing its Xietongmen copper-gold deposit
in China/Tibet.
So why this emphasis on China? Well, I initially
shied away because China is a bit of a wild frontier,
they sometimes stumble on U.S. accounting
technicalities and China is still technically a
Communist country, though it is an interesting
blend with capitalism. However, first and foremost
it’s where the growth is. Investing in China is sort
of like jumping into a time machine and getting
a second chance to invest in the trends that
worked so well in the States years ago. As China
“emerges” and the middle class swells…surprise,
surprise…they want the same things we do- from
Internet access and cell phones, to blenders and
central heat.
GDP growth in China runs 8-10% in good
times. In the US in good times it runs 2-4%. In
the thick of the global recession/slowdown GDP
was running NEGATIVE 6% in the Us, while
China only got down to POSITIVE 4-6% growth.
Of that slowdown had them in a tizzy! Imagine
if they’d tanked like we did to -6%. Indeed their
manufacturing for export tanked hard, but the
strong internal economic growth engine kept GDP
firmly positive. Nonetheless, not used to such
“anemic” growth China was first with a stimulus
package totaling $585 billion, and that is on top of
a separate 2-year $123 billion initiative to expand
healthcare services to its population. Initiatives in
these packages regarding healthcare, infrastructure
build-out (including above ground and underground
railroads/subway systems), pollution control,
energy conservation, alternative energy, and food
and resources self sufficiency benefit all of our
companies located in China.
It is also very interesting to note that 4 of the
top 5 and 8 out of the top 20 stocks in Investor’s
Business Daily’s IBD100 are U.S. traded stocks of
Chinese based companies. These are the companies
IBD calculates are leading the pack in terms of
a Composite Rating based on a host of measures
including relative earnings performance and relative
strength. Say what you will, since May 2003 when
it was established, the IBD 100 is up 95.9% while
the S&P 500 is up 14.6%. China is leading the way
out of this recession with GDP growth back up to
8%...and we’re there. Meanwhile, the U.S. is still
drawing hope for numbers that are “growing down”
at a lower rate each month, but often you have yet
to turn positive.”
P.O. Box 917179, Longwood, FL 32791
(407) 682-6170
www.TheBullandBear.com
Publisher: The Bull & Bear Financial Report
Editor: David J. Robinson
The Monetary Digest, 1 year, 12 ­issues, $88.
© ­Copyright 2009 Monetary Digest. ­Reproduction in whole or in
part without written permission is strictly ­prohibited. The Monetary
­Digest publishes investment news and ­comments of investment
­advisory newsletters whose thoughts are deemed of interest to
subscribers. ­Neither the information, nor any opinion which may
be ­expressed ­constitute a ­solicitation for the purchase or sale of
any ­securities or investment referred herein.
INVESTMENT QUALITY TRENDS, 2888 Loker
Ave. E., Ste. 116, Carlsbad, CA 92010. 1 year, 24
issues, $310. Online, $265. www.iqtrends.com.
The Timely Ten
Kelley Wright: “Investment Quality Trends primary
purpose is to assist subscribers in growing their
capital and income base from which to derive cash for
their current and future needs. To that end we believe
that high-quality stocks purchased at historically
low-price-to-high-yield offers the best potential for
downside protection and upside appreciation.
The Timely Ten, therefore, is not just another “best
of, right now” list. It is our reasoned expectation
based on our methodology and experience for what
we believe will perform best over the next five years.
Do we believe that all 10 will go up simultaneously
or immediately? Of course not. Our four decades of
research and experience, however, leads us to believe
that these stocks, purchased at current Undervalued
levels, are well positioned for both growth of capital
and income.
The Timely Ten consists of Undervalued stocks
that generally have a S&P Dividend & Earnings
Quality rating of A- or better, a “G” designation for
exemplary long-term dividend growth, a P/E ratio
of 15 or less, a payout ratio of 50% or less (75% for
Utilities), debt of 50% or less (75% for Utilities), and
technical characteristics on the daily and weekly
charts that suggests the potential for imminent
capital appreciation.
Our current Timely Ten and their current yields
are: Coca-Cola (KO: 3.1% yield), Abbott Labs (ABT:
3.1%) Chevron (CVX: 3.6%), Johnson & Johnson
(JNJ: 3.3%), Philip Morris Int’l (PM: 4.7%), United
Technologies (UTX: 2.5%), PepsiCo, Inc. (PEP:
3.0%), Procter & Gamble (PG: 3.1%), McDonald’s
(MCD: 3.8%), and CVS Caremark (CVS: 0.8%).”
***************
COMMON CENTS, P.O. Box 126354,
Benbrook, TX 76126. 1 year, 8 issues, $72.
Aggressive Buys and
10 good dividend payers
Roland Carter’s recent selections are slightly more
aggressive than most of the past twelve months:
Medtronic, Inc., Family Dollar Stores, Qualcomm,
Inc., and Applied Materials.
“Medtronic, Inc. (MDT $36.94) is the world’s
largest maker of implantable biomedical devices, with
annual revenues approaching $15 billion. In addition
to cardiac pacemakers, they offer neurological, spinal,
ENT, and diabetes products, as well as vascular stents
and heart valves. International sales were 38% of
2008’s total. Due to the uncertainty/fears of U.S.
healthcare reform most medical device or product
makers’ stocks are selling at low valuations not seen
in 10-20 years. We believe there is opportunity here
in some great companies with wonderful future
prospects, as we will surely offer more and more
healthcare to more and more people. MDT has
had one down earnings year in the last 40. Becton
Dickinson (BDX, 69) has had but two. Baxter Int’l
(BAX 55 is back firing on all cylinders, as is C.R.
Bard (BCR, 76) for the past 10 years. We also like
Stryker (SYK, 45) and no-dividend St. Jude Medical
(STJ, 33). We’d pick BDX, SYK, MDT, and BAX, in
that order at today’s prices. One could buy and hold
any of these names for a long time.
Family Dollar Stores (FDO $28.36) operates a
chain of over 6600 general merchandise stores in 44
states catering to lower income patrons. Most stores
are in small towns or convenient strip mall locations.
We’ve presented FDO off and on in CC for over 20
years as a 0-debt dividend increaser, and they simply
keep doing what they do well. More net cash then
debt as of 5/30/2009. 2009 dividend increase was a
healthy 8%. The news is very good at FDO, and the
share actually rose over the past year while most
others tanked. The stock is down from 2009’s high of
35. It was 44 in 2003 when “in favor”. Current EPS
(8/31 fiscal year) are a record $2.07 with about $2.25
forecast for 2010. We’d like to buy FDO near 24, but
we might just pay up to 28.
Qualcomm, Inc. (QCOM $$41.96) developed
and owns the patents for CDMA and other wireless
technologies that many of the world’s wireless
phones use. The licensing royalties are pure profit.
QCOM makes and sells integrated circuits (chips) for
phones and other devices, too. Combined net aftertax margins have been 35% in recent years. QCOM’s
2009 (9/09) EPS dropped about 25%, but new product
cycles and lean inventories should work in their favor
to push 2010 EPS toward $2.35. This stock was 56+
in 2008 when earning $2.00. QCOM’s products are at
the cutting edge of 3G, 4G, mobile Internet, Wi-Fi, HD
video, etc., etc. technologies. 0-debt and as much cash
($10 billion) as their annual revenues – an absolute
financial powerhouse.
Applied Materials (AMAT $$13.38) is by far the
world-leading player in semiconductor fabrication
equipment. Theirs is a high-tech world, full of
booms and busts correlating to new product cycles.
But make no mistake the world chip makers would
be lost without AMAT’s offerings. They’ve recently
become the leading supplier of equipment vital to the
manufacturing of solar cells. With about $2 billion
more cash than their miniscule debt, you don’t have
to worry about AMAT going away! The stock’s crash
low was 8, and it hasn’t recovered that much. This
is odd, as most other companies losing money have
seen their stocks jump 2 to 20 fold from their yearly
lows!! That’s no joke! AMAT will again have its day
in the sun, or we can trade it down here.
We will also offer this list of ten good dividend
payers across several industries we would buy even
at today’s prices. We’d expect these less-volatile
names to correct perhaps first half of what the
market might, and it would not be impossible for
some of them to rise in a down market! ATT (T, 25,
6.5%); McDonald’s (MCD, 58, 3.8%); Clorox (CLX,
58, 3.4%); Kimberly-Clark (KMB, 59, 4.1%); BP
Plc (BP, 55, 6.1%); Royal Dutch (RDS, 59, 5.7%);
Heinz (HNZ, 40, 4.2%); Genuine Parts (GPC 38,
4.2%); Waste Management (WM, 29, 4%); Lilly
(LLY, 34, 5.7%).”
10
INVESTOR ADVISORY SERVICE
711 W. 13 Mile Rd., Madison Heights, MI 48071.
Monthly, 1 year, $399. E-subscription, $299.
www.iclub.com/IAS.
100-year-old C.R. Bard has lived
through many economic cycles
Douglas Gerlach: “Medical equipment is usually
considered one of the most recession-resistant parts
of the economy since non-elective necessities are
such a large part of medical treatment. However,
it is a commentary on the severity of the recession
that hospitals and other medical facilities have been
cutting back on their inventories in the effort to
conserve finances. This has been the case even for the
equipment sold by a company like C.R. Bard, Inc.
(NYSE: BCR, $77.63) which supplies an extremely
broad range of medical products considered essential
to surgery and many other medical treatments.
For the last quarter ending in June, sales were up
only 1%, although they would have been up 6% except
for the effects of currency translation factors. In spite
of the slowing sales growth, the company was able
to achieve a 12% increase in earnings per share due
to a significant effort at controlling expenses. The
varied and essential nature of the products that CR
Bard distributes make us feel confident that whatever
sales customers are postponing at the moment will
have to be made up in the future through increased
orders when normal times reappear.
This 100-year-old company has lived through
many economic cycles in its lifetime and has always
persevered on its path of reasonable growth. The
company’s range of products includes catheters,
stents, vascular grafts, and blood oxygenators for
heart surgery. Urology products are a significant 29%
of sales include catheters, urine collection systems,
and incontinency products. Cancer-related products
include specialized catheters and ports, a range of
cancer tests, and other equipment such as pads.
Surgical specialties include hernia repair products
and laparoscopic products. While hospitals may be
able to temporarily reduce their inventory of these
kinds of products, their essential nature means that
there will have to be a make-up time at some point
down the road.
Bard’s products are almost entirely intended to
be implanted or used once and then discarded. This
results in ongoing demand for the products. R&D
expenditures were a significant $78 million for the
first six months of 2009 as the company developed
improved products. Management expects R&D
investment to increase.
C.R. Bard is a very solid, conservative company.
Value Line rates the company highest for safety,
price stability, and earnings predictability. Debt is
minimal, although there is some pension obligation
which should not be a problem for the company. The
company currently pays a small dividend of $0.68
per share, and has continued to buy back moderate
amounts of stock. The variety of medical products
the company makes does make it subject to ongoing
litigation regarding claimed damages, but there
are no claims of a significant size outstanding at
present.
In evaluating future investment results, we use an
estimated future earnings growth of 14% following
the average estimates of analysts following the
company. In estimating future high P/Es, we will lean
in the conservative direction and use an expected high
P/E of 22.8, which is the lowest level for a high P/E
reached in recent years rather than the 24.6 which
was the actual average high P/E. For the low P/E, we
will similarly use 15.7 as the lowest low P/E reached
in recent years rather than the 17.9 which is the
average low P/E. Calculations based on these levels
produce an 8-to-1 expectation of high price versus
estimated low price.
BCR is a buy up to 101.”
***************
UTILITY FORECASTER, 7600A Leesburg Pike,
West Building, Ste. 300, Falls Church, VA 22043.
Monthly, 1 year, $129.
www.UtilityForecaster.com.
Duke Energy positioned
for powerful growth
Roger Conrad: “With one of America’s largest fleets
of coal power plants, Duke Energy (NYSE: DUK,
$15.79) would seem endangered by Washington’s
plans to control carbon dioxide emissions. In reality,
Duke stands to be a major beneficiary, thanks to a
multi-year effort to shape prospective legislation.
CEO Jim Rogers’ efforts have already produced
free emission credits until 2025 under legislation out
of the US House of Representatives. The company
will win again from US Senate addition of incentives
for nuclear power development. And House Financial
Services Committee Chairman Barney Frank (DMass) has exempted it as an “end user” from his
derivatives legislation.
Duke is already prospering from state and federal
renewable energy mandates. The company has 634
megawatts (MW) of wind capacity in Pennsylvania,
Texas and Wyoming, with another 350 MW scheduled
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TheBullandBear.com
11
for startup by the end of 2010.
It’s also forged an alliance with the University of
North Carolina to expand wind power to its regulated
utility customers in the state and is ramping up
spending on solar power and the smart grid as well.
A major part of its budding relationship in China is
testing clean coal technology.
Duke’s industrial sales took a hit during the
recession, and regulatory scrutiny has increased.
A solid 4.3 percent summer dividend increase
and positive outlook from Standard & Poor ’s,
however, show clearly the company has weathered
the downturn, even as it’s positioned for powerful
growth.
Yielding more than 6 percent and selling for just
96 percent of book value, Duke Energy is a buy up
to 18.”
***************
Steven Halpern’s THESTOCKADVISORS.COM
Each day, editor Steven Halpern posts timely and
insightful commentary, market outlooks and specific
stock and fund recommendations from the nation’s
top newsletter advisors on TheStockAdvisors.com.
Here are a few recent postings.
Quanta Services:
Infrastructure power play
“I’m excited about Quanta Services (NYSE:
PWR), a contracting company that specializes
in building utility transmission and distribution
infrastructure,” says Ian Wyatt.
In his Top Stock Insights, www.topstockinsights.
com, he explains, “The current focus in the US of
projects that improve energy conservation, utilize
renewable resources, and improve air quality
make Quanta an excellent long-term growth
opportunity.”
“Its customers are in the electric power, gas, telecommunications, and cable television industries. These
are stimulus spending customers, i.e. big government
organizations and utilities companies. “Quanta’s industry is highly regulated and very
cyclical. The industry is pulling out of the cyclical
trough with a renewed focus on projects that will
improve energy conservation, utilize renewable
resources, and improve air quality. Federal stimulus
spending is also helping by spurring demand.
“Quanta Services will benefit from U.S. efforts to
increase energy independence while meeting clean
energy goals. It can build the infrastructure and
electricity distribution networks to harness energy
from diverse sources like wind, solar, and natural
gas.
“In fact, many coal fired power plants are
considering making the switch to natural gas as a
cleaner, more cost-efficient alternative fuel. “While challenging market conditions won’t
evaporate overnight, and the future of natural gas is
not set in stone, Quanta is in an very strong position
to capitalize on increasing demand for clean energy
initiatives. “Quanta has been growing both organically as well
as through acquisitions. From 2006 to 2008 revenues
increased from $2.1 billion to $3.8 billion. “Over the same period, the company reduced its
total debt from $450 million to $145 million. With
nearly $440 million in cash at the end of 2008, it’s safe
to say that Quanta Services is growing operations at
an attractive pace.
“Its latest acquisition, Price Gregory Services, just
closed in October 2009. Price Gregory is a leading
U.S. energy infrastructure company and specializes
in the construction of large diameter transmission
pipelines.
“These are the big boys that will really get natural
gas flowing around the country. I really like that
Quanta is growing its natural gas operation at a
time when the long-term outlook for the commodity
is improving. “Right now, there are more than 50 major pipeline
projects either approved or under construction in the
U.S., and Price Gregory’s leadership in the industry
will help secure business for Quanta.
“The acquisition will also bring in nearly $1
billion of revenue in 2009 and increase earnings
by $0.13 - $0.21 per share. These are the kinds of
immediate earnings increases that I love to see out
of acquisitions. “Quanta Services is going to grow earnings at a
rate around 50% over the next year, and I expect at
25% in 2011. I’m looking for the company to have 2009
EPS of $0.72 and 2010 EPS of $1.11.
“I don’t think the currents share price fully
represent the favorable industry momentum,
the competitive advantage of the Price Gregory
acquisition, and strong financial management of the
company. Quanta’s shares should trade up to $27.”
Insiders eye Novatel
Jack Adamo looks to Novatel Wireless (Nasdaq:
NVTL) as a new buy recommendation. In his
Insiders Plus newsletter, www.jackadamo.com,
he assesses the firm’s newest products and recent
insider buying.
“Novatel provides wireless broadband access
solutions for the mobile communications market
worldwide.
“The company offers third generation (3G) wireless
PC card and ExpressCard modems, embedded
modems, USB modems and other fixed-mobile
convergence solutions. It also provides many related
support services.
“Novatel recently pulled back from a huge run-up
to a near-term high of $14 after announcing a mixed
shelf-offering. The market did not like the possibility
of earnings dilution from more shares. “However, the thing that caught my attention with
Novatel lately is that, despite the big rise in price this
year, Insiders exercised more than 153,000 options
and have not cashed a single one. I pay more attention
to this sort of activity nowadays than regular Insider
buying. “The latter is very often public-relations motivated.
The exercises without sale are not watched by most
12
analysts or the public and have no PR value.
“Also, the option owners have to pay tax on the
imputed gain upon exercise; when they don’t even
sell enough stock to pay the taxes, that’s usually a
strong indication they expect the stock to continue
to rise.
“The story in a nutshell here is that the company
has come out with a battery powered device that
instantly generates an Internet hotspot almost
anywhere. The device has been extremely well
received.
“Meanwhile, the shares trade at a very pricey 33times next year’s expected earnings, but there’s a good
chance earnings will significantly beat expectations.
In any case, the projected growth rate justifies the
price, if it can keep it up for even one more year.”
Gambling in Cambodia
For sophisticated international investors, Yiannis
Mostrous, editor of The Silk Road Investor, www.
silkroadinvestor.com, finds a play on gaming in
Cambodia, which he cautions is a “truly frontier
market.”
“Naga Corporation (HK: 3918, OTC: NGCRF)
operates the only licensed casino in Phnom Penh. “The license is valid for 70 years from Jan. 2, 1995,
and is exclusive (except for slot machines) within a
designated area until 2035.
“Construction continues on NagaWorld, Cambodia’s
only integrated entertainment-casino complex. Upon
completion, the complex will include 700 hotel rooms,
300 gaming tables and a conference facility. “The casino will also have 1,000 slot machines by
2010. In December 2008, over 200 hotel rooms were in
operation along with 176 gaming tables. The project
should be completed by year-end.
“Naga is still considered the ‘poor man’s VIP’ casino
in Asia. VIPs pay a minimum check-in of only $5, 000,
versus the $50,000 or more that VIP players must
fork over in Macau.
“The company has some cost advantages versus
its competition: gambling-license fees are $100
million versus $200 million for its Macau peers; an
effective tax rate of 7% undercuts the 40% gaming
tax in Macau.
“In addition, construction costs are a tenth of those
in Macau. Also, labor costs per staff are only half, or
in some cases even a third of those found in Macau.
“Naga operates in one of the truly frontier markets
and should be viewed as a high-risk investment. It is
also a play on Cambodian tourism, as the government
has increased its efforts to publicize Phnom Penh’s
growing roster of attractions.”
Say Shalom to Israel’s Cellcom
“Founded in 1994, Cellcom (NYSE: CEL) holds
the dominant position in Israel’s wireless market; it
serves about 3.2 million customers, it enjoys around
a 34% market share,” says Carla Pasternak.
In her specialty service, High Yield International,
web.streetauthority.com, she adds, “Overall, the
shares are attractively value, and should continue
to delight investors with stable growth and a high
yield.” Here’s her review.
“Cellcom’s policy is to distribute at least 75% of
net income in quarterly dividends. As such, dividends
vary with earnings.
“Gross (before withholding tax) distributions of
$0.62 in December 2008, $0.53 in March 2009, $0.68
in June, and $0.64 in August total “The last four payments have totaled $2.47, for
a trailing yield of 8% ($2.47/$30.47). Bloomberg
estimates call for a final distribution of $0.84 in late
November, which would spike the trailing yield to
nearly 9% of today’s purchase price ($2.69/$30.47).
“Dividends are paid in U.S. dollars after being
converted from the Israeli shekel, so they are subject
to currency fluctuations.
“According to Israeli tax law, the company must
deduct 20% of the dividend amount payable to U.S.
shareholders. Investors can claim a foreign tax credit
for this amount against their federal income tax.
“The dividends should qualify for the reduced
dividend tax rate of up to 15%, making the shares
suitable for a taxable brokerage account. “Earnings have grown an average 33% annually
over the past five years as the company aggressively
grew its share of the Israeli market with enhanced
services and technological upgrades.
“Data services now account for about 15% of
revenues. To capture more of this lucrative market,
Cellcom launched the ‘Android’ smartphone by
Samsung and plans to market the popular iPhone
from Apple.
“Even with only slightly higher revenues, net
income was up solid 15% over last year to $70.7
million ($0.72 per share). The rise was aided by
stronger profit margins as operating expenses fell
from 21.9% of revenue in last year’s second quarter
to 21.3% this year.
“Cellcom does have about $1.2 billion in debt
versus $1.6 billion in equity, but the debt burden
seems quite manageable. Operating income of $113
million easily covered debt expenses of $30 million.
“Growth in the Israeli market is limited given
the country already has around a 125% cellular
penetration rate (some people have more than one
cell phone). Moreover, Cellcom does face significant
competition.
“But Israel’s relatively young population is a
demographic more open to subscribing to new
technologies and data services. And at this point,
there seems to be enough business to go around.
“While Cellcom’s dominant position and competitive
technology should allow the company to continue
churning out increasing cash flow, growth is expected
to slow going forward compared to the rapid pace of
the past five years.
“Per share earnings are expected to grow around
12% this year and another 5% next year, for a still
robust average of about 10% annually over the next
five years.
“I first flagged CEL at $26.20 as one of my ‘star’
performers in July and since then, the shares have
provided a total return of nearly 20%.
“However, the stock is still off their 2008 peak
13
levels of around $37, offers a rich yield, and carries
an extremely low forward PE of less 3 times 2010
projected earnings of $11.66 per share. I believe they
are appropriate for all but the most conservative
income investors.”
China Yuchai:
Asia expert eyes diesels
“In China, there is roughly one car for every 53
people vs. in the United States where the average
is 2.28 vehicles per household,” notes Keith FitzGerald.
The advisor – who spends much of his time in Asia
gaining first-hand knowledge of potential investment
opportunities, suggests, “Desiel engine maker China
Yuchai International Ltd. (NYSE: CYD) is poised
to rocket on China’s auto market growth.” Here’s
the latest from The New China Trader, www.
newchinatrader.com.
“And as China’s economy continues to grow,
China’s demand for commercial vehicles from taxis
to buses, light duty delivery trucks and heavy duty
construction vehicles will grow as well.
“Automobiles don’t go very far if they don’t have
engines, enter China Yuchai, a Singapore-based small
cap ($368 million), founded in 1951.
“The company manufactures a wide ranging array
of light duty, medium sized, and heavy duty diesel
engines for use in everything from construction
equipment, to buses, trucks, and cars. “In 2008, CYD’s main operating subsidiary,
Guangxi Yuchai Machinery, sold 372,000 diesel
engines and was consistently ranked no.1 in units
sold by the Chinese Association of Automobile
Manufacturers.
“Net revenues increased by 17.9% from the first
quarter of 2009 to the second quarter of 2009. The
company is on pace to produce and sell over 510,000
units by year’s end, which would represent an
increase of roughly 37% over 2008.
“That should further solidify them as the leading
producer in diesel engines – again as ranked by the
Chinese Association of Automobile manufacturers.
` “In September, CYD announced phase one of
their new 120,000 sq meter diesel engine assembly
factory in Xiamen is complete and ready for
commercial production. The new factory is expected
to increase CYD’s total annual production by an
additional 100,000 units.
“The firm’s new Xiamen facility is located in the
heart of Xiamen Automobile Industry City near the
Xiamen port, a major hub for manufacturing autoparts, bus and construction equipment. This premium
location should help CYD shorten its supply chain
and lower production costs.
“Last quarter sales increased by 33% year-overyear and the 3 year average sales increase has been
a very healthy 29%.
“What that tells us is that recent sales are coming
in above the three year average – and that’s without
the huge boost they are about to experience from their
new Xiamen facility.
“Recently, management has been doing a good job
of keeping the books in order. In 2008, CYD reduced
its long term debt by 66.8% and increased their Free
Cash Flow position by over 33%. And those numbers
came in a climate of a weakened Chinese economy.
“With all the hoopla around the Chinese auto
market, you would think a small cap player like this
would have gotten priced through the ceiling – but
they haven’t. Most of Wall Street has yet to catch on.
CYD is trading at a PE ratio is only 9.99. Buy CYD
and be prepared to hold for 12 months.”
Breakout at HMS Holdings
In his Ticker Tape Digest, www.tickertapedigest.
com , technician Leo Fasciocco looks for “breakout”
stocks; his latest feature is HMS Holdings (Nasdaq:
HMSY), which coordinates benefits for government
healthcare programs.
“With annual revenues of $185 million, HMSY
helps ensure that healthcare claims are paid correctly
and by the responsible party.
“As a result of the company’s services, government
healthcare programs recover over $1 billion annually
and avoid billions of dollars more in erroneous
payments.
“The company’s clients include health and human
services programs in more than 40 states. It services
Medicaid managed care plans, the Centers for
Medicare and Medicaid Services (CMS), and Veterans
Administration facilities.
“Technically, the stock has broken out from a threemonth, cup-and-handle base. The move carried the
stock to a new all-time high. That is very bullish and
could draw in more buying by the new-high crowd.
“The stock has appreciated 90% the past 9 months.
That compares with a 10% rise in the S&P 500 index.
The performance of HMSY is outstanding considering
the stock has a low beta of 0.13 versus 1.00 for the
stock market. That means HMSY’s stock tends to be
a slow mover.
“HMSY’s long-term chart shows the stock climbing
from 5 back in 2004 to a peak of 44. It weathered the
bear market extremely well. “The company reported third quarter earrings
increased 31% to 30 cents a share from 23 cents a
year ago. The consensus estimate on the Street was
29 cents a share. It topped that. The highest estimate
was at 36 cents a share.
“This year, analysts forecast a 33% jump in net
to $1.06 a share from 80 cents a year ago. The stock
sells with a price-earnings ratio of 40. That is high
given the earrings growth rate. However, in strong
markets many institutions are willing to pay up for
the stock.
“Going out to 2010, the Street expects a 23% gain
in net to $1.31 a share from the anticipated $1.05 a
share. We see chances for that estimate to be lifted.
“Overall, HMSY is a solid growth stock making
new highs. We are targeting the stock for a move to
52 within the next few months.
“One needs to be patient with this stock. A
protective stop can be placed near 39 giving it room.
We rate HMSY an outstanding intermediate-term
play as long as earnings growth remains strong.”
14
National-Oilwell Varco: Value & growth
“The energy firms in our ‘Hot List’ aren’t the big
integrated firms; rather, they are instead mostly
smaller, more specialized oil equipment, services, or
operations firms,” notes John Reese.
In Validea, www.validea.com, he adds, ”NationalOilwell Varco (NYSE: NOV) is currently the only
stock out of the thousands in my database that gets
approval from both my strict Benjamin Graham-based
value strategy, and my James O’Shaughnessy-based
growth model.”
“Many oil services companies were hit particularly
hard right around the time that oil prices peaked in the
summer of 2008; the SPDR S&P Oil & Gas Equipment
Services exchange-traded fund plummeted about 70%
from July 11 to Nov. 20 of last year.
“The sector has surged since then. But as a group,
they remain well behind the big oil names since last
summer, and my strategies are seeing exceptional
fundamentals and a lot of value in them.
“Take National-Oilwell Varco. The company designs,
manufactures and sells equipment, components, and
services used in oil and gas drilling and production.
“More than 160 years old, the company’s products
include major mechanical components for land and
offshore drilling rigs, complete land drilling and well
servicing rigs, extensive lifting and handling equipment,
and downhole drilling motors, bits and tools.
“The stock has a market cap of about $17.3 billion,
and the company has raked in more than $13 billion
in sales in the past 12 months.
“To pass the Graham strategy, a stock needs to
have a sterling balance sheet, and Varco does. Its
current ratio is above 2.0 (it’s 2.1), a sign of strong
liquidity, and its net current assets ($5.4 billion) are
far greater than its long-term debts ($875 million).
“In addition, it has the solid valuation ratios (11.7
price/earnings and 1.22 price/book) to get approval
from the Graham model.
“At the same time, however, Varco has upped earnings
per share in each year of the past five-year period, and
it has a solid relative strength of 77, catching the eye
of the O’Shaughnessy growth approach.
“The strong interest ratings from two approaches
that are quite different means Varco is attractive on
a number of levels.”
Franco Nevada:
A core holding in gold
“We have very few buy recommendations currently;
one exception is Franco-Nevada (Toronto: FNV.
TO),” says resource expert Adrian Day.
In his The Global Analyst, www.adriandayglobalanalyst.com, the advisor explains, “Franco Nevada
is one of our all-time favorites; it has top management, a solid balance sheet, and risk-averse business
plan,” Here’s the advisor’s bullish assessment.
“The company previously merged with Newmont,
and was reborn in a spin off nearly two years ago.
Although the stock has nearly doubled since the IPO,
it still represents good value.
“Franco is a royalty company, owning royalties on
other projects, producing and exploration. Royalties are
a great business. It is a low-risk, high-margin business;
for Franco, 85% of its revenue is free cash flow.
“Though the royalty owner is subject to the
vagaries of resource prices and other risks of mining,
it is not responsible for spending time and capital to
fix problems, yet it is exposed to the upside, both from
higher prices as well as exploration success.
“Royalties can either be acquired, typically socalled ‘legacy’ royalties usually from land owners, or
created, from companies that want capital (perhaps
to put the mine into production). Franco buys both,
and its last two major gold royalty purchases are an
example of each.
“At the end of last year, it acquired a legacy royalty
of 7.29% (net smelter) on part of Barrick’s Gold
Quarry mine in Nevada.
“Then, in February, in an innovative deal, it
acquired 50% of the gold revenue stream (an effective
royalty) on Couer’s new Palmarejo silver-gold mine
in Mexico. Couer needed capital to put the mine into
production, while as a silver company, it was willing
to give up the gold. “Immediately prior to these transactions,
approximately 50% of Franco’s revenue was from
gold, but these two transactions, now generating
cash flow, have boosted the precious metals share
of revenue (primarily gold plus the Stillwater PGM
mine) to 80%. “As production ramps up, next year should see
precious metals revenues move up as a share of total
revenue by a few percentage points, even without any
new transactions.
“The balance is oil & gas and base metals. The
company wants to keep its precious metals revenue
at a minimum of 75% or so going forward.
“Today, Franco’s gold royalty revenues make it the
leading gold royalty company, with a market cap over
C$3 billion. Yet it trades at lower valuation metrics
than other royalty companies.
“To a large extent, I believe this is purely a
hangover from the lower valuation it was awarded
when so much of its revenue was oil and gas.
“The company has a superb royalty portfolio, with
over 300 royalties at all stages of development. Some
80% of its revenue is from mines in the U.S. and
Canada, with more from Australia, giving it a triple
A political risk rating.
“Indeed, now the company has brought its gold
revenues from large, low-risk mines in politically safe
jurisdictions to over 80%, it would be prepared – at
the right price – to add high-potential but less-certain
projects in less safe jurisdictions.
“It can afford to do this, with over $700 million of
available capital, including an undrawn credit facility
of $150 million.
“Franco is a core gold holding for all investors; we
want to own it. It is appropriate for all investors and
we are ranking it ‘conservative’ even though, as with
all resource investments, it can be volatile.
“Overall, Franco is a great company at a very good
valuation. There is near-term price risk if the gold
price or broad stock market falls, but if it gets cheaper,
we may buy more. So buy a position now, but keep
some powder dry.”
15
Are Traditional Stock Percentage Formulas Still Valid?
By Andrew Leckey
Successful Investing
The stock market is like an
unreliable friend.
Even if he’s affable and generous
this year, you’re wary of his
companionship if he squandered
most of your money last year.
Market volatility has a number
of investors questioning just
how much more excitement they
can accept from their personal
portfolios. The stock market
comeback has been well and good,
but it can’t erase the memories of
earlier heartache.
“Right now a lot of folks feel
they’d have a hard time accepting
the same kind of experience they
had with equities in 2008,” said
Marilyn Capelli Dimitroff, certified
financial planner and president
of Capelli Financial Services Inc.
in Bloomfield Hills, Mich. “They
came to understand just how
volatile stocks can be.”
The basic mid-range formula
for personal portfolios traditionally
has been 60 percent stocks and 40
percent bonds, based on a belief this
provides the ability to keep up with
inflation with some cushion as well.
Percentages are adjusted according
to an individual’s risk preference,
the types of stocks and bonds and
the investment time frame.
The question is whether the
trauma of last year dictates that
stock percentage should shrink
or disappear – just to be on the
safe side. Most financial experts
contend that tossing out stocks
would be a huge mistake.
“While we’ve had a wakeup call, nothing has changed
because a solid strategy takes
into account all possibilities of
market performance, including
bubbles and crashes, since
that’s what happens in stock
markets,” said Tom Jacobs, cofounder and portfolio manager for
Complete Growth Investor (www.
completegrowth.com), Marfa,
Texas. “In fact, after a crash like
we had it’s more important to stay
the course, because we’re even less
likely to have something of that
magnitude again.”
Tradition dictates that the
younger the investor, the higher
the stock percentage, with that
percentage declining as more
money is switched into bonds on
the way to retirement. But that
belief has lost some steam.
“Age is probably the least
relevant factor in considering how
much an individual should have
in stocks,” said Harold Evensky,
certified financial planner and
president of Evensky & Katz,
Coral Gables, Fla. “Even someone
65 years old could have another 20
years to go.”
Two 65-year-old couples might
have the same size portfolios but
completely different allocations
based on whether they have
pensions, how much they spend
and their risk tolerance, Evensky
explained.
“To base everything in a portfolio
on a person’s age is just ridiculous,”
said Dimitroff, who agrees that
overall situations matter more
than age. “Older people have a
shorter time for their portfolios
to recover, but young people have
such high cash needs that a higher
equity allocation might not be so
smart for them.”
There is danger in believing
a strong shift into bonds means
you’re absolutely safe, warned
Dimitroff. Bonds can have considerable risk, especially when
you’re starting with historically
low interest rates and increased
inflation could well be ahead. For
existing 30-year bonds, a 1 percent
rise in interest rates could lower
their value by as much as 15 percent, she said.
In addition, high-yield bonds
perform more like stocks than
bonds, Dimitroff said, and are
quite different from traditional
Treasurys, corporates or municipals.
“Our basic belief is the domestic
and world economies will continue
to grow and stocks will earn more
than bonds,” said Evensky. “You
need to start with a philosophy or
belief, but if you need a 5 percent
real rate of return, you’re not
going to get it in bonds and will
in stocks.”
The stock portion could be either
stocks, stock mutual funds or
exchange-traded funds. Evensky
admires ETFs because they are
cost-efficient and tax-efficient, which
makes a big difference in long-term
results. The bulk of your money for
stocks should be used to buy the
stock market as cheaply and taxefficiently as you can, he said.
Some examples of inexpensive
basic ETFs worth considering
are:
• SPDRS (SPY) that tracks the
popular Standard & Poor’s 500,
a diversified large- and mid-cap
index of U.S. companies on major
U.S. stock exchanges. It is the
oldest and most actively traded
ETF by dollar volume, and its 0.09
percent expense ratio is one of the
cheapest.
• iShares Russell 3000 Index
(IWV), which tracks the 3,000
largest companies in the U.S. by
market capitalization, represents
about 98 percent of the total U.S.
stock market. Its 0.20 percent
expense ratio is lower than even
most index mutual funds.
Within the stock portion of an
individual’s portfolio should be
some “defensive value” stocks,
advised Jacobs. In that group
he’d include stocks such as
ConocoPhillips (COP) because it
is the largest natural gas producer
in the U.S. and ExxonMobil
Corp. (XOM) because it has the
largest energy reserves and a
pristine balance sheet.
He’d also include Johnson &
Johnson (JNJ) because it will
always be “moving its money
around” effectively between health
care and consumer drugs and
PepsiCo Inc. (PEP) because its
diversification beyond beverages
into snack foods gives full exposure
to the consumer.
“You’re not going to light the
world on fire with these names,
but you’re not going to get hurt
either,” said Jacobs.
The aggressiveness of your
portfolio is entirely up to you, but
the consensus is that stocks still
deserve a place in the mix.
Editor’s Note: Andrew Leckey’s
column, “Successful Investing,”
appears regularly in The Bull &
Bear Financial Report – both in
print and online.
16
Gold Producer Aurizon Mines Is Utilizing
Cash Resources to Grow Production Profile
Strong Cash Flow, Excellent Exploration Potential Gives Company Stability and Security
With gold touching the US$1000 mark, and
Aurizon being a producer of over 150,000 ounces
of gold annually, this Company is poised to take
advantage, as it generates a healthy $50-70-million
in annual cash flow, and operates in the Abitibi Gold
Belt region of northwest Quebec, one of the richest
gold and base metal regions of the world. Add to
that an impressive list of advanced properties with
tremendous upside potential for further exploration.
All these advantages enable Aurizon (NYSE AMEX:
AZK; TSX: ARZ) to not only weather the current
economic storm, but to leverage its strong financial
position to both advance its projects and acquire
promising properties from the less well endowed
players in the mining sector.
The one clear reason for Aurizon’s envious position
is its insightful and deliberative management team
which built the company’s property portfolio through
systematic exploration and skillful development. The
result is an operating gold mine – Casa Berardi – that
is presently producing 150,000 – 155,000 ounces of
gold a year, as well as other properties that have
the clear potential to become producers in their own
right.
“Aurizon delivered a strong financial performance
in 2008, enabling us to significantly reduce our
debt and exit the year in
a healthy financial position. We increased mineral
reserves and upgraded
mineral resources at our
Casa Berardi mine, and
also upgraded our mineral
resources at our Joanna
property,” says Aurizon
Mines President and CEO
David P. Hall.
Casa Berardi
Production
Builds Strong
Cash Flow
In 2008, gold production
totaled 158,830 ounces
from the processing of
654,397 tonnes at an average grade of 8.2 grams
of gold per tonne. In the
second quarter of 2009,
the company sold 42,042
ounces of gold at an average price of US$897 an
ounce. Total cash costs in
Q2 2009 were US$386 per
ounce providing Aurizon a
comfortable margin against any continuing volatility in gold prices. Mill recoveries were 92.8% and
operating profit margins increased 18% in Q2 2009
to US$511 an ounce compared to US$433 an ounce
in the same quarter 2008. Cash flow from operating
activities in Q2 2009, increased 19% to $22.5 million
compared to Q2 2008.
“With cash balances of $118.7 million and working
capital of $84.1 million, the Company is in a strong
financial position to pursue its growth strategy to
increase its reserve base and production profile” said
David P. Hall, President and Chief Executive Officer.
“Strong profit margins and operating cash flows from
Casa Berardi should further strengthen Aurizon’s
balance sheet, enabling the Company to fund its
planned exploration and development programs and
pursue opportunities that are attractive and accretive
to Aurizon’s stakeholders.”
The Casa Berardi Mine covers 11,594 hectares
along a 37-km section of the Casa Berardi fault.
Incredibly, only about 1.5 km has been explored to a
vertical depth of 1,000 meters to date.
Aurizon had a renewal of gold reserves to 956,000
ounces and an upgrade of gold resources to 936,000
in the measured and indicated category and 920,000
ounces in the inferred category as at December 31,
2008.
In 2009, the company
will evaluate open pit
mining opportunities in
the area of the Principal
Zone.
In the first half of 2009,
exploration activities at
Casa Berardi focused
on the completion of an
exploration drift at the
810 metre level, east of
Zones 113 and south of
AURIZON MINES LTD.
the Casa Berardi fault.
NYSE AMEX: AZK • TSX: ARZ
From the 810 metre level
drift, recent exploration
Contact: David Hall, President and CEO
drilling on five holes have
Suite 3120, 666 Burrard Street
been completed and results
Vancouver, BC Canada V6C 2X8
from two of the five holes
Toll Free: 888-411-GOLD (4653)
have returned high grade
Phone: 604-687-6600 • Fax: 604-687-3932
intersections in quartz
E-Mail: [email protected]
veins such as 16.8 grams
of gold per tonne over 5.3
Web Site: www.aurizon.com
metres (true thickness)
Shares Outstanding: 166,477,707
and 18.9 grams of gold
Active Float: 158,787,732
per tonne over 4.0 metres.
52 Week Trading Range:
Assays are pending on the
additional three holes.
NYSE.AMEX: Hi: $5.10 Low: $1.05
The exploration drift will
TSX: Hi: C$6.24 Low: C$1.21
provide drill access to test
17
the depth extension of Zone 113 and to test the
continuity and extension of Zones 118 to 122 and
123-South. Drilling in the vicinity of Zone 113 has
confirmed the previous geological interpretation of
the Zone and has extended the favourable gold trend
100 metres deeper to the 950 metre level. Nine drill
rigs are currently active on site.
For the remainder of 2009, $10.5 million will be
invested at Casa Berardi for exploration activities,
including $4.2 million on underground development
and infrastructure.
An underground and surface drilling program
has recently commenced to explore along the west
extension of the Lower Inter Zone, along the Principal
Zone and along the dip extension of the East Mine
with the objective of delineating mineral resources.
At the Casa Berardi East Mine, the Company has
decided to defer mining, by open pit, the crown pillar
until closer to the end of the mine life and focus on the
opportunity to re-commence underground operations.
The technical assessment study on mining the upper
portion of the Principal Zones by open pit is in progress
and is expected to be completed in the fourth quarter
of 2009. The study will be completed in accordance
with the Company’s global development principles
supporting technical, economic, environmental and
social considerations.
Joanna Gold Project
a Potential Open Pit Mine
Exploration activities in the first half of 2009
at Joanna resulted in the discovery of two new
mineralized trends which were identified north and
south of the main Heva-Hosco gold bearing trend at
Joanna. Both discoveries remain open on strike and
down dip. High grade gold mineralization has been
identified on surface on the Alexandria Block, east of
the Joanna project. One grab sample returned a grade
of 11.8 grams of gold per tonne. The mineralization
was found 1.2 kilometres East and 200 metres South
of the Hosco deposit.
The Joanna project, which is located in
northwestern Quebec just 20 km from RouynNoranda, is potentially feasible as a stand-alone,
open pit mining operation with an estimated sevenyear mine life. A preliminary assessment report
called for additional work to advance the project to
the pre-feasibility stage.
A pre-feasibility study is currently in progress on
the Hosco deposit incorporating the new measured
and indicated resource estimate of approximately
1.27 million ounces, together with the results of the
ongoing metallurgical tests. The pre-feasibility study
will be completed in accordance with the Company’s
global development principles supporting technical,
economic, environmental and social considerations.
It is anticipated that the study will be completed in
the fourth quarter, 2009.
Overall, measured and indicated mineral resources
at Aurizon’s Joanna gold project are currently estimated at 33.8 million tonnes averaging 1.4 g/t gold
(1,530,000 oz. of gold), and additional inferred mineral
resources of 28.4 million tonnes averaging 1.4 g/t gold
(1.26 million oz. of gold).
Exploring Kipawa for
Gold, Rare Earth Elements
Aurizon’s third major property in Quebec is its
Kipawa gold-rare earth elements project, located
some 100 km south of Rouyn-Noranda.
Initial exploration tested previously defined gold
and rare earth targets in the southern portion of the
property.
Exploration activity at Kipawa in the second
quarter was focused primarily on the initiation of
soil sampling in areas of interest contiguous to gold
showings identified in 2008, with the objective of
extending the known gold structures. This work
follows the analysis and interpretation of results from
the surface programs performed in 2008.
Investment Considerations
Aurizon Mines is well on its way to becoming an
intermediate gold producer. Aurizon management’s
impressive efforts in bringing the company to successful commercial gold production garnered the
prestigious Québec Exploration 2007 “Company of
the Year” award from the Association de L’Exploration
Miniere du Québec and the Québec Ministry of
Natural Resources. The company also was recognized
for the discovery of a new gold zone along the Casa
Berardi South fault, for acquiring and establishing
a significant mineral resource at the Joanna Gold
Project, and for discovering gold and rare earth elements at its Kipawa Project. More recently, Aurizon
received an award from the Val-d’Or Chamber of
Commerce for sustainable development. Québec is
ranked by The Fraser Institute as first in the world
for its favorable mining environment, based on its
mining policies and mineral potential.
Aurizon Mines is well positioned to prosper in a
difficult economic climate. Gold investment sentiment
will be “fairly positive, but selective”, according to Hall,
offering opportunities for production companies like
Aurizon that are politically stable and secure financially,
with good cash flow and strong balance sheets.
“We are always looking for opportunities to add to our
asset base,” says. Hall, adding that Aurizon will focus
on acquisition projects in Canada, U.S. and Mexico.
“We will use our cash flow as we always intended – as
a foundation to build a larger company.”
Disclaimer: This material is for distribution only under such circumstances
as may be permitted by applicable law. It has no regard to the specific
investment objectives, financial situation or particular needs of any recipient.
It is published solely for informational purposes and is not to be construed
as a solicitation or an offer to buy or sell any securities or related financial
instruments. References made to third parties are based on information
obtained from sources believed to be reliable but are not ­guaranteed as being
accurate. Recipients should not regard it as a substitute for the exercise of
their own judgement. The opinions and recommendations are those of the
writers and are not necessary endorsed by The Bull & Bear Financial Report.
Any opinions expressed in this material are subject to change without notice
and The Bull and Bear Financial Report is not under any ­obligation to update
or keep current the information contained herein. All information is correct at
the time of publication, additional ­information may be available upon request.
The company featured has paid The Bull & Bear Financial Report a fee for
their investor awareness program. The directors and employees of The Bull
& Bear ­ Financial Report do not own any stock in the securities referred to
in this report. The Bull & Bear Financial Report is not affiliated with any
brokerage or financial company.
18
Aurizon Mines Ltd. Reports Two
Consecutive Quarters of Record Revenue
VANCOUVER, BC, November 5, 2009 - Aurizon
Mines Ltd. (TSX: ARZ; NYSE/A: AZK) Aurizon
reports financial results for the third quarter of
2009, which have been prepared on the basis of
available information up to November 2, 2009. (To
review the complete interim unaudited financial
statements and associated Management Discussion
and Analysis, which should be read in conjunction
with the Company’s most recent audited annual
financial statements, please visit the Company’s
website at www.aurizon.com or view the Company’s
SEDAR filings at www.sedar.com).
The third quarter was highlighted by the following
activities:
• Project debt of $21 million repaid in full and $28
million released from restricted accounts.
• Revenues of $44.2 million, matching second
quarter’s record revenues.
• Cash flow from operating activities of $17.6
million, up 24% compared to same quarter of 2008.
• Earnings of $8.2 million, or $0.05 per share,
and adjusted earnings of $7.7 million, or $0.05 per
share.
• Gold production of 43,962 ounces, 10% higher
than plan and 6% higher than the same quarter of
2008.
• Total cash costs of US$392 per ounce, 3% lower
than same quarter of 2008.
At September 30, 2009, Aurizon had cash balances
of $108 million, working capital of $95.4 million, and
no bank debt.
“Aurizon produced another strong quarter of
excellent operational performance and significant
cash flow. This is due to the commitment of our
strong Quebec team, which has experienced minimal
turnover during the past year.” said David P. Hall,
President and Chief Executive Officer. “As a result we
are now debt free and are in a strong financial position
to pursue internal and external growth initiatives.”
Financial Results
Third Quarter 2009
Earnings of $8.2 million, or $0.05 per share, were
achieved in the third quarter of 2009, compared to
earnings of $7.1 million, or $0.05 per share, in the
same period of 2008. Results were positively impacted
by non-cash derivative gains of $0.6 million on an after
tax basis. After adjusting for this item, earnings for the
quarter were $7.7 million, or $0.05 per share, compared
to adjusted earnings in the third quarter of 2008 of $4.3
million or $0.03 per share. In 2008, operating results
were positively impacted by non-cash derivative gains
of $2.8 million, on an after tax basis.
Revenue from Casa Berardi operations increased
to $44.2 million in the third quarter of 2009 from the
sale of 43,650 ounces of gold, compared to $35.5 million
from t he sale of 40,228 ounces of gold in the same
quarter of 2008, as a result of more gold ounces sold,
a weaker Canadian dollar and higher realized gold
prices. The average realized gold price was US$929
per ounce and the average Cad/US exchange rate
was 1.084, compared to realized prices of US$845 per
ounce at an average exchange rate of 1.04 in the same
quarter of 2008. The 2009 average realized gold price
includes the sale of 20,026 ounces of gold at an average
price of US$886 per ounce from the exercise of call
options, compared to 11,525 ounces of gold sold at an
average price of US$832 per ounce from the exercise
of call options in the third quarter of 2008. Actual gold
production in the quarter was 43,962 ounces, compared
to 41,522 ounces in the same quarter of 2008.
Operating costs in the third quarter of 2009
totalled $19.0 million, while depletion, depreciation
and accretion (“DD&A”) totalled $10.1 million. On a
unit cost basis, total cash costs per ounce of gold sold
were US$392 and DD&A was US$212 per ounce, for
a total production cost of US$604 per ounce.
In the third quarter of 2009, the Company effectively
reduced its exposure to the gold call options sold by
purchasing 16,614 ounces of call options expiring in
2010 with an exercise price of US$863 per ounce. This
purchase effectively reduces by 25% the Company’s
ounces that are subject to call options in 2010 and raises
the average call price in 2010 from US$908 per ounce to
US$923 per ounce. The cost of the purchase, totalling
$2.6 million, has been reflected on the balance sheet as
a derivative instrument asset and changes in the fair
value of the call options are reflected in earnings.
In the third quarter of 2009, a stronger Canadian
dollar; the expiry of gold call options and foreign
exchange contracts; and the purchase of call options
to allow the participation in higher gold prices,
partially mitigated by rising gold prices; resulted in
a non-cash derivative gain of $0.7 million. Including
the fair value of the gold call options purchased, the
net unrealized derivative liabilities at September 30,
2009, totalled $9.1 million compared to net unrealized
derivative liabilities of $25.4 million at December 31,
2008. In the same quarter of 2008, the non-cash gain
was $3.5 million. There are no margin requirements
with respect to these derivative positions.
Administrative and general costs in the third
quarter of 2009 were higher than the same period
of 2008 at $2.3 million, compared to $1.9 million.
Excluding non-cash stock based compensation
charges, general and administrative costs were $1.7
million in 2009 compared to $1.5 million in the same
quarter of 2008.
Exploration and pre-feasibility expenditures of
$0.7 million incurred in respect of Joanna and Kipawa
were charged to operations during the third quarter
of 2009, compared to $3.1 mil lion in the same period
of 2008.
Income and resource taxes totalled $4.7 million,
of which $2.1 million are current Quebec mining
taxes and $2.6 million are future income taxes.
The future income taxes are a result of temporary
differences between the tax and accounting bases of
Continued on next page
19
Continued from previous page
the Company’s assets and liabilities.
Foreign exchange gains totalling $0.4 million were
realized in the third quarter of 2009, compared to a
gain of $0.8 million in the same quarter of 2008. The
primary cause for the exchange gains in the third
quarter of 2009 was the delivery of US$15.0 million
dollars into foreign exchange contracts at rates more
favourable than the prevailing market rates.
Cash flow from operating activities increased 24%
to $17.6 million in the third quarter of 2009, compared
to cash flow of $14.2 million in the same period of
2008. A weaker Canadian dollar and higher realized
US dollar gold prices resulted in a 14% increase in
realized Canadian dollar gold prices and a wider
operating profit margin in the third quarter of 2009,
compared to the same period last year.
Capital expenditures totalled $8.3 million in the
third quarter, of which $4.0 million was on sustaining
capital and $4.3 million was on exploration activity
at Casa Berardi.
A decision to repay the project debt in full in the
third quarter resulted in the release of restricted
cash of $30.2 million which had been maintained in
accordance with the terms of the debt facility.
The Company received $3.3 million of Quebec
refundable mining credits during the third quarter
of 2009.
Aggregate investing activities resulted in cash
inflows of $22.6 million during the third quarter of
2009, compared to outflows of $6.1 million in the same
period of 2008.
The project debt totalling $21.0 million was repaid
in full on September 30, 2009. The exercise of incentive
stock options provided $0.4 million, resulting in a net
cash outflow of $20.6 million from financing activities
during the third quarter of 2009. In the same period of
2008, financing activities resulted in net cash outflows
of $12.8 million. Nine Months 2009
Earnings for the nine months ended September 30,
2009, were $26.8 million or $0.17 per share, compared
to earnings of $9.0 million or $0.06 per share in the
same period of 2008. Results were impacted by noncash derivative gains of $10.1 million on an after tax
basis. After adjusting for this item, earnings for the
first nine months were $16.8 million, or $0.11 per
share, compared to adjusted earnings in the same
period of 2008 of $9.6 million or $0.07 per share, which
included the impact of the recovery of defense costs
of $3.2 million, on an after tax basis.
Cash flow from operating activities in the first
nine months of 2009 totalled $59.8 million, compared
to cash flow of $48.7 million for the same period of
2008. Operating profit margin per ounce increased
13% to US$521 per ounce for the nine months ended
September 30, 2009, compared to US$462 per ounce
in the same period of 2008.
Investing activities in the first nine months of
2009 resulted in a net cash outflow of $7.1 million,
of which $29.0 million was incurred on capital
and exploration expenditures, $2.6 million spent
purchasing gold call options, whilst cash inflows were
generated from the release of the restricted cash
balances totalling $21.2 million and $3.3 million from
refundable mining credits. In the same period of 2008,
investing activities resulted in a net cash outflow of
$21.1 million of which $19.1 million was incurred on
capital expenditures, $3.7 million was transferred
to restricted cash accounts, and $1.6 million was
received from refundable mining credits.
Financing activities during the first nine months of
2009 resulted in a net cash inflow of $20.9 million due
to the $ 47.3 million public equity financing and $3.4
million from the exercise of incentive stock options,
reduced by principal debt repayments of $29.2
million and repayment of a $0.6 million government
assistance obligation. In the same period of 2008,
financing activities resulted in a net cash outflow
of $37.4 million due to principal debt repayments of
$39.9 million, reduced by the exercise of incentive
stock options totalling $2.5 million.
Cash Resources and Liquidity
As at September 30, 2009, cash balances increased
to $108 million, compared to $55.6 million at the
beginning of the year. Included in the December 31,
2008 cash balances are restricted cash amounts in
respect of the Casa Berardi debt facility totalling
$21.2 million.
In order to release the restricted cash balances and
eliminate further annual administrative fees associated
with the project debt, the Company decided to repay
the project debt in full in September 2009 in advance
of the final scheduled payment in March 2010. The
final principal payment of $21 million was made in
September thereby allowing the release of $28 million to
the Company’s general account in the third quarter.
Aurizon had working capital of $95.4 million as
at September 30, 2009, compared to $24.1 million at
the end of 2008. Reflected in working capital are net
derivative liabilities totalling $9.1 million compared
to $13.3 million at the end of 2008.
Long-term debt related to refundable government
assistance and capital leases totalled $0.7 million
at September 30, 2009, compared to long-term debt
of $9.4 million at the beginning of the year, which
included project debt of $8.25 million.
Casa Berardi
Casa Berardi produced 43,962 ounces of gold in
the third quarter of 2009, and 43,650 ounces were
sold at an average price US$929 per ounce. Since
commissioning the mill in November 2006, Casa
Berardi has produced 458,832 ounces of gold.
About Aurizon Mines Ltd.
Aurizon Mines Ltd. is a gold producer with a growth
strategy focused on developing its existing projects
in the Abitibi region of north-western Quebec, one of
the world’s most prolific gold and base metal regions,
and by increasing its asset base through accretive
transactions. Aurizon shares trade on the Toronto
Stock Exchange under the symbol “ARZ” and on the
NYSE Amex under the symbol “AZK”.
For additional information on Aurizon Mines Ltd.
and its properties contact David Hall, President and
CEO at 604-687-6600 or Toll Free: 1-888-411-GOLD,
Fax: 604-687-3932. E-mail: [email protected] or visit
the website at www.aurizon.com.
20
Resource Stocks
THE ADEN FORECAST
P.O. Box 790260, St. Louis, MO.
Monthly, 1 year, $250. E-Weekly Updates
www.adenforecast.com.
Gold at new record high
Mary Anne and Pamela Aden: “Gold recently hit
another new record high (Nov. 5th), quickly closing in
on the $1100 level. This followed yesterday’s $31 jump,
which clearly propelled gold well above its previous high.
The news that India bought 200 tons of the IMF’s gold
(half of what it’s planning to sell) at these high prices, and
in one fell swoop, was incredibly bullish. It was viewed
as a strong sign that gold is not too expensive and the
Indians, who have a long gold history, obviously believe
it’s going high. Interestingly, our leading indicators
continue reinforcing this as well. Despite gold’s ongoing C
rise, its key indicator has not yet reached the temporarily
too high area, which coincided with the previous A and
C intermediate highs in the gold price. In other words,
gold is not yet overbought and the current rise is likely
headed higher. As long as this continues and gold stays
above $1000 our next target for gold at $1200 is looking
more realistic.
Hold onto your gold, silver and gold shares. Gold is
now stronger than silver and gold shares, therefore,
buy new positions in gold only (GLD).
We’ll probably lighten up on some of our gold
shares once this C rise is over, but for now, silver
and gold shares will remain very strong above $16
and 154, respectively.
The oil price is also rising and it’s near a new bull
market high. Oil is very strong above $76 and it’s
solid above $72. Copper is holding firm above $2.80.
Keep your energy and resource stocks.
The U.S. dollar index turned down again today
(Nov. 5th). Rising gold and the Fed’s pledge to keep
interest rates near zero, probably into next year,
was the main reason why. This will keep downward
pressure on the dollar in the months ahead, especially
combined with the dollar’s bearish fundamentals. The
dollar index will now remain weak below 76 and a
further decline would be underway below 75.”
21
INVESTMENT TRACKER
4805 Courageous Ln., Carlsbad, CA 92008.
Monthly, 1 year, $139.
www.theinvestmenttracker.com.
China Threatens to Buy
Crude With Other Currencies
Kenneth Coleman: “China and other industrial
nations are threatening to replace the dollar as the
currency they use to buy crude oil. They would instead
use a basket of currencies to purchase crude oil. But,
is this a profitable move for China?
As of May, China had more than $800 billion in
U.S. Treasuries. By now, that has probably grown
close to $1 trillion. It’s been rumored that money
advisors to the Obama administration believe China
actually favors Obama’s current fiscal policy because
the Chinese continue to buy our debt.
However, if China follows through with its threat,
it would cut deeply into its own wealth buy pushing
the cost of is imports up and devaluing its Treasury
portfolio.
The Chinese may be using the threat of switching
out of dollars to buy crude to send our government a
message – stop the irresponsible spending or we will
be forced to resort to draconian reprisals.
It was this threat that caused gold to rally. If the
gold rally starts to falter, and gold buyers start to take
profits, it would be a sign that the Chinese were not
sincere in their demand for a dollar replacement for
crude oil purchases. But, if they do replace the dollar,
gold could break $1,200 by the end of the first quarter
of 2010. The dollar will have dropped at least another
5 to 10 percent by that time.
For years, gold had only two known enemies
– central bank gold sales into precious metal rallies
and the rally of a major currency taking value away
from the dollar (potential gold buyers would move
into the rallying currency). Gold sales by central
banks caused sharp buyers to quickly take profits. A
currency gaining value against the dollar provided
investors another venue other than gold.
Some analysts believe gold has a third enemy – gold
exchange traded funds (ETFs). Some gold ETFs invest
only in paper, and no physical purchase of gold. In this
case, a gold rally would receive no benefit from the
money going into these funds. The investor receives a
profit or loss but the gold companies receive nothing.
Consequently, money in gold ETFs do not push the price
of the metal up or down. Since buying gold ETFs are so
convenient, huge sums of money wound up there.
There is one aspect of the rise in gold’s price that
is often left unnoticed – the relationship between
gold’s price and that of silver. Despite the massive
differences in their prices, the two metals move in
tandem with regard to price and volatility. There is
one notable exception: during many of gold’s rallies,
silver winds up topping gold on a ratio basis (in many
rallies) or tying it on most others.
If history repeats, it means silver is currently
headed higher. On a ratio basis, it could outperform
gold. Worst case, it will be close to gold’s top price on
a ratio basis.”
INSIGHT
500 Morris Ave., Springfield, NJ 07081.
Monthly, 1 year, $275. www.agaryshilling.com.
North American Energy
(favorable in long run)
A. Gary Shilling: “High energy costs and political
and military unrest in such major producers as
Russia, Iran, Iraq, Venezuela and Nigeria has focused
energy producers, Washington and investors on safe,
although relatively expensive North American energy.
That includes petroleum, coal and coal liquification,
nuclear, Canadian oil sands and shale. Still, the
Obama administration prefers renewable energy, but
that area requires huge and unpredictable subsidies,
and ethanol is blamed for pushing up food prices. The
global credit crunch, excess capacity, lower oil prices
and delayed government regulation are proving to be
bad now for biodiesel and fuel derived from nonedible
feedstocks like switchgrass. Technology has made
natural gas from shale abundant and cheap, and
it’s much more environmentally acceptable than
coal and oil.
Many of the needed energy investments are longterm in nature and have long gestation periods. The
risk is that the deepening global recession is reducing
demand and keeping prices so low that many North
American projects are no longer profitable and will
be postponed or abandoned. But if oil prices stabilize
in the $60 per barrel range or higher, many North
American energy investments may be convincingly
profitable and a wave of capital spending and investor
interest could probably be unleashed when the
economy recovers.”
***************
DELIBERATIONS on World Markets, P.O. Box
182, Adelaide St. Station, Toronto, ON M5C 2J1.
1 year, 18 issues, $225.
The World of Gold
Ian McAvity: “The upside breakout by Gold is
hugely significant in my view, and will become more
so if it continues to rise against Euro & Yen.
I believe the Gold breakout above $1,000, and
developing strength against Euro & Yen puts a
realistic target of $1,200 within reach in this period
of seasonal strength running through Jan/Mar
2010. I’m perhaps over-emphasizing this to rebut
the mantra blurted out by virtually every talking
head that a Dollar Rally is bad for gold. Yes it is,
much of the time. But when they move together it
can be highly significant, and bullish for gold. The
most dramatic example being the Dollar basing after
a long decline in late 1978, and trading sideways,
making a large base into 1980, while gold ran from
$160 to $850.
It’s not likely to be clear sailing as the momentum
oscillators are very overbought, and the major gold
mining shares have not been acting well. Their
purchase does create the image of $1045 becoming
a new floor.
Given the perverse nature of markets with some
22
speculative froth, I’d expect to see at least one
shakeout below that obvious new ‘floor.” But I believe
the downside risk has probably been raised from a
possible test of the $870 April lows, to the September
breakout level around $960.
Any shakeout of that magnitude would likely
coincide with some serious damage to the stock market
to set off a scramble for liquidity. I’d emphasize this
is a risk factor, not a forecast. The higher gold can
get above the $1000 area on the current rush; the
subsequent correction floor is likely to rise as well.
Bear in mind that frequent corrections make the
underlying trend stronger more sustainable. The
last thing I want to see is another moon shot like
1979…I wouldn’t want to wait another 30 years for
the next one!”
***************
LONG AND SHORT ADVISORY, 505 East New
York Ave., Ste. 9, DeLand, FL 32724. 1 year, 17
issues, $499. www.LongandShortAdvisor.com.
ASA: Diversified portfolio of mining stocks
Silver Wheaton: Unique situation
Sy Harding’s “ASA Ltd. (ASA: $79.40) is a closedend investment company that by its prospectus must
keep at least 80% of its holdings invested in mining
stocks. As of its last report on holdings (August 31)
it was 75% in gold-mining stocks, with the rest in
the stock of companies mining platinum, silver or
diamonds.
Street Smart Report is following its buy signal on
gold with a holding in the gold bullion ETF GLD, and
not investing in the gold stocks. That is because while
there is a long-term pattern of gold bullion moving
opposite to the stock market, the gold stocks more
often move with the rest of the stock market rather
than with underlying bullion. And Street Smart
Report is still expecting a stock market correction.
However, on the positive side, the gold mining
stocks did move higher, and proved to be a safe haven
in January and February when the stock market
was plunging sharply to its bear market low in early
March. And perhaps more importantly, the mining
stocks tend to move two or three times as much as
the gold bullion when they are moving in the same
direction. For instance, while gold bullion is up 49%
since its low of last October, ASA is up 145% over
the same period.
ASA provides an opportunity to be invested
in a diversified portfolio of mining stocks, rather
than individual mining stocks. And it provides
diversification into silver, platinum and diamond
mining. Currently 16% of its assets are in platinum
miners Anglo Platinum Ltd., and Impala Platinum.
Its largest holdings as of the end of August
were Randgold Resources Ltd., Newcrest Mining:
Goldcorp; Anglo Platinum Ltd; Compania de Minas
BuenaVentura; Barrick Gold; Impala Platinum;
Agnico-Eagle Mines; and Gold Fields Ltd.
Since then ASA has added U.S.-based Royal Gold,
Canadian Miners IAMGOLD Corp., GoldenStar
Resources, and Yamana Gold, to its holdings.
At the present time ASA is selling at a 6% discount
to the net asset value of its combined holdings.
With gold bullion having broken out above its
precious peak, and currently about 5% above $1,000
an ounce, a reasonable preliminary target for ASA
should be 5% or 10% above its 2008 peak of $92, which
would be $96 to $101 a share.
We suggest a ‘mental’ protective stop at $69, as
usual based on closing prices, with the exit to be made
the following day if the stop is hit. And as usual, to
lock in profits it is a trailing stop that would be moved
up as ASA moves in our direction to keep the stop
about 15% below the highest price achieved.
Silver Wheaton: Unique Situation
For those who prefer to take considerably more
risk to go after the potential gains of a non-diversified
single precious metals stock, Silver Wheaton (NYSE
SLW $14.37) is a unique situation.
Silver Wheaton does not own or operate mines.
Instead it negotiates long-term contracts with gold
and silver mining companies to purchase all or part
of their future silver output at favorable prices that
allow the company to re-sell the silver at a profit to
third-party users as it is produced.
Currently, SLW has contracts to buy 100% of
the silver produced by Goldcorp’s Luismin Mines
in Mexico, Zinkgnuvan’s Lundin mine in Sweden,
Glencore’s Yauliyacu mine in Peru, and Europena
Goldfield’s Startoni mine in Greece.
Wheaton recently sold additional shares of stock
from which it raised $287 million, part of which was
used to buy rights to 25% of the silver production from
Barrick Gold’s Pascua-Lama mining project, and all
the silver production from several others of Barrick
Gold’s gold mines, with the balance being held for
operational purposes.
With this approach Silver Wheaton has become one
of the fastest growing precious metals companies.
The company expects to control the sale of 17 to 19
million ounces of silver in fiscal 2009, with continuing
growth into future years. Value Line estimates Silver
Wheaton’s revenues will grow 46% to $245 million in
2010, from $167 million in 2009.
Morningstar’s fair-value estimate for the stock
is $21 a share.
Morningstar analysts say, “Although Silver
Wheaton is not a traditional mining company its
fortunes are still tied to the vagaries of the commodity
nature of silver. However, the company does have an
implicit margin of safety built into its long-term silver
purchase contracts. Its purchase cost is subject to
inflationary adjustment and compares quite favorably
with the current price of silver.”
Value Line also rates Silver Wheaton as high risk,
due to its pure exposure to the volatility of commodity
markets, and in particular the price of silver.
On the positive side, commodities do seem to be
breaking out to the upside again if the breakout of
crude oil and gold is any guide.
We will use Morningstar’s fair value estimate
of $21 as or upside target, and suggest a ‘mental’
protective stop at 12.20 (as always, based on closing
prices, with exit to take place the following day if the
stop should be hit).”
23
THE COMPLETE INVESTOR
P.O. Box 248, Williamsport, PA 17703.
Monthly, 1 year, $72. www.completeinvestor.com.
Anglo Platinum top
precious metals play
Kuen Chan: “The outlook is strong for Anglo
Platinum (ACPPY), the world’s largest platinum
producer, which in 2008 accounted for some 40 percent
of global production. Platinum prices fell sharply late
last year but have since rallied more than 40 percent
as of early October. Experts expect demand will begin
to outstrip supply for years to come, given platinum’s
tight supply – only 5 million ounces or so are produced
in a year – and its many essential uses.
Anglo’s sales and earnings took a hit during the
recession as platinum demand dropped and prices fell.
But the company has undertaken major restructuring
to cut costs and should emerge from the recession in
sound shape.
Demand from China will be a big factor in pushing
platinum prices higher. Platinum sales in China for
use as jewelry rose by 400,000 ounces in the first
half of 2009 vs. year-earlier figures and continue to
outpace 2008 sales. China already constitutes the
world’s larges platinum jewelry market, accounting
for more than two-thirds of world demand last
year. And with China’s huge population ever more
embracing a consumerist ethic, demand for platinum
for jewelry should continue to grow. China’s booming
car industry will further increase its call on the
metal. Passenger car sales in China were up nearly
40 percent year-over-year in 2009’s first eight months
and should grow by at least 10 percent next year.
Finally, if inflation picks up as we expect, platinum
like gold, will be ever more desirable as inflation
protection.”
***************
ECONOMIC ADVICE
3910 N.E. 26th Ave., Lighthouse Point, FL 33064.
Monthly, 1 year, $149. www.economicadviceinc.com.
A little stock with a
great big story to tell
James Rapholz: “Uranium Star Corp’s., (OTCBB:
URST or Frankfurt - FWB: YE5) Green Giant Project
could be the world’s largest, low-cost, single source
of vanadium:
Uranium Star controls a 194 square kilometer
property in an area where international mining
companies are investing billions of dollars. The
Company has all the land and environmental
permitting and a preliminary metallurgical study in
hand, and has positioned an exploration team armed
with the latest exploration technologies on-site. Over
the next 18-24 months, Uranium Star plans to spend
$10 million to conduct environmental, geotechnical,
metallurgical and marketing studies, and complete
a pre-feasibility study.
Exploration over the past year has shown clear
evidence that the Company’s Green Giant Project in
southern Madagascar contains a massive vanadium
deposit that easily could be valued in the multibillions
of dollars. Based on very conservative estimates,
a 225 million ton deposit with average widths of
50 meters, grades of 0.5%, at a price of $4/lb, this
vanadium deposit would be worth more than $11
billion. Incredibly, the Green Giant deposit appears
to be much larger than the example outlined above.
Vanadium is the element that could change the
world:
It has been around for decades. While each of us
comes in contact with products or structures that
contain vanadium almost everyday, most of us have
likely never heard of it.
With an infrastructure building boom underway,
coupled with an unprecedented global focus by
governments and corporations to develop alternative
and renewable energy sources to address climate
change and our dependency on fossil fuels – that may
be about to change.
Why is Vanadium So Special?
Vanadium is a strategic metal that is already
irreplaceable for engineering in aerospace, aviation,
automotive, shipping, and construction. This is
because vanadium has a remarkable ability to
make steel alloys both stronger and lighter. In fact,
vanadium-titanium alloys have the best strengthto-weight ratio of any engineered material. These
ultra high-strength and super-light steels are often
called the plastics of the 21st century, and demand
for them is strong and growing. But while vanadium
is most often associated with steel, it has recently
been discovered that vanadium also makes highly
powerful and efficient batteries – batteries that have
the potential for large-scale, power grid storage.
Steroids for Steel
It is primarily used today to produce metal alloys.
Vanadium is mostly produced in the form of vanadium
pent oxide, which can then be reduced to a ferro alloy
known as ferrovanadium. Vanadium added to crude
steel creates a product that is lightweight but extremely
high in tensile strength and wear resistance.
Eighty seven percent of vanadium is used in the
steel industry for high-strength-low alloy steels in
pipelines, shipbuilding, machinery, and automotive
and rail parts. It is also used in titanium alloys for
aircraft frames, engines and components. Thirteen
percent is used for batteries and glass products.
The world’s future will be battery powered. The
best battery will win. Vanadium makes the best
batteries.
But, while it is most often associated with steel
products, it is poised to play a pivotal role in helping
renewable energy achieve success. This is because
vanadium also makes highly powerful and efficient
batteries – batteries that have the potential for large
scale, power grid storage. Storage is the biggest, most
significant issue we are facing this century. All of the
great ways we have to generate electricity – wind,
solar, geothermal – are limited without an efficient
way to store it.
The problem is that a power grid requires really
big batteries – and current battery technology can’t
scale up that big. And so the future of renewable
Continued on page 24
24
Continued from page 23
energy – and thus the future of climate change, and
the planet – may rest on a little known element that
goes by the name of Vanadium!
Vanadium batteries are chemically and structurally
different from any other type battery. The vanadium
battery has a marvelous advantage over lithium-ion
and most other types of batteries. It can absorb and
discharge huge amounts of electricity instantly and do
so over and over, making it the only battery technology
today capable of connecting to power grids to help
smooth out the unpredictable flow of energy stored
from wind turbines and solar cells. Vanadium may
therefore hold the key to scaling renewable energy
to national levels, helping reduce our dependence on
fossil fuels. Beyond these large scale uses, vanadium
has also proven to be effective at combining with
lithium-ion batteries to significantly improve their
performance – so the next generation of hybrid and
electric car batteries may also feature vanadium.
What is the Global Demand for Vanadium?
Since almost 90% of vanadium is consumed by the
steel industry, the demand for vanadium is closely
associated to global steel production. According to
CRU Strategies, global steel production is estimated
to grow at 5.5 annually through 2011. I have also
read that more steel will be consumed in the first 20
years of the 21st century than was consumed in the
entire 20th century!
CPM Group statistics (July 2008) estimated that
the demand for vanadium would grow at a compound
annual growth rate (CAGR) of 4.9% over the decade
ending in 2018. What is the current and forecast
global vanadium supply? Based on CPM Group
statistics (July 2008), global vanadium production
was estimated to be about 68,000 tons annually.
The future will be battery powered. The best battery
will win. Vanadium makes the best batteries:
The life span is 10 times longer for Vanadium.
A Vanadium battery that is once charged, stays
charged.
Vanadium batteries contain no non-toxic
materials.
Vanadium batteries are highly expandable.
Vanadium batteries generate low levels of heat.
Vanadium batteries charge and discharge simultaneously.
Vanadium batteries can release energy instantaneously.
Vanadium batteries are suitable for connection to
power grids.
Lithium Batteries leave a small footprint compared
to Vanadium batteries.
Fifty six percent of Vanadium comes as a byproduct of slag from steel production (vertically
integrated in steel plants so it is almost solely used
to make ferrovanadium). Fifteen percent of vanadium
comes from coal fly ash and the oil that is extracted
from oil tar sands.
As the demand for vanadium increases, new
capacity is typically sourced from co-producers (slag
processing operations) since they generally have
the lowest apparent production costs because of the
higher VO content of vanadiferous slags.
Since the global vanadium market is still quite
small, only the most cost effective sources of
production are brought on stream to fill the supplydemand gap. Only significant growth in demand will
enable low-cost primary producers to flourish.
Growth in Demand From Steel and Batteries:
The increasing demand for vanadium from both
high-strength steels and the new battery applications
is growing total world demand.
Future growth for vanadium looks strong on the
steel side. In addition to the $1.5 trillion of global
stimulus recovery packages already pledged for
infrastructure, CIBC World Markets estimates
that total global infrastructure spending will tally
to US $35 trillion over the next 20 years. Global
infrastructure projects will be focused on rail,
highway bridges, subways, pipelines and airports
that all will require vanadium.
Explosive growth in the energy storage industry
is predicted and vanadium is poised to play a pivotal
role in this new arena.
The future has already arrived. Subaru recently
revealed its G4E concept car. The vehicle is powered
by a high-capacity vanadium-lithium battery, capable
of storing two or three times more energy than
standard lithium-ion batteries. Subaru expects the
car to be able to travel 200 kilometers on a single
battery charge.
I have read that every company in the world that
is now manufacturing fossil fuel powered automobiles
plans to have an electric battery powered version ready
to sell to the public within the next two years.
For more information on Uranium Star Corp.
contact Brent Nykoliation Toll Free 1 (800) 818-5442,
E-Mail: [email protected], or visit the
website at www.uraniumstarcorp.com.
Commodities
HACKETT AG MONEY FLOW REPORT
9259 Equus Cir., Boynton Beach, FL 33472.
Weekly, 1 year, $300. Email only.
Commodities: Havest pressure
Shawn Hackett: “I still expect some harvest pressure
to come into the Corn and Bean markets over the short
term as the current harvest window remains open. If
you need to sell Corn/Soybeans that you cannot store
or if you need near term cash flow, this would be a
good time to make some cash sales. Having said that,
I remain very bullish the Grains intermediate term
as yields will likely come in very disappointing. The
bull futures spreads on Corn, Soybeans and Wheat
seem very attractive to me for investment. I would
aggressively be buying back into the Corn futures
spreads. Milk, Rice and Lumber are due for a short
term correction from an overbought RSI condition after
very spirited near term rallies. This would be a time to
hold off on new purchases and take some profits.”
25
COMMODITY TRADER’S ALMANAC 2010
published annually by John Wiley & Sons, Inc.
$39.95.
Gold Bugs Get a
Treat for the Holidays
Jeffrey Hirsch & John Person, writing in the
Commodity Trader’s Almanac 2010 (Wiley;
November 2009, $39.95, 978-0-470-42217-5,
Hardcover):
“Gold prices tend to move up prior to the holidays,
especially over the last nine years. Seasonally
speaking, it is best for traders to go long on or about
November 17 and hold until about December 2. Over
the last 34 years, this trade has worked 18 times for
a success rate of 52.9%. The cumulative profit tallies
up to $25,960. What is interesting is that this trade
has had an 8-year win streak, starting from 2000. The
longer-term record of this trade is not eye-popping,
but with growing inflation concerns and a declining
dollar forecast for the near future, we would look for
the current winning streak to continue in 2010 and
beyond.
Softs. Enter a long March cocoa position on
or about November 4 and hold until on or about
December 23. This trade has worked 20 of 37
years, for a success rate of 54.1%, and has had
a cumulative profit of $18,680. Coffee prices
continue to stabilize, as cold weather increases
consumption, but November rarely sees significant
price moves. Sugar prices tend to peak out, and
we look to sell the March futures contract on or
about November 23 and hold to about February 4.
This trade has worked 21 times over the last 37
years, for a success rate of 56.8% and a cumulative
profit of $6,597.
Coffee prices tend to rise through year-end, as cold
northern winters help increase consumption. Sugar
prices tend to decline by mid-December. Continue
holding a short March contract from November
through February 4.
Grains. The end-of-year marketing for
soybeans is winding down and farmers are
reluctant to sell in front of end-of-year tax
liabilities. December can see modest declines in
the wheat market, which continues its seasonal
downtrend. The corn market is in its seasonal
period of strength, but much like soybeans,
prices tend to consolidate due to year-end tax
liabilities, as farmers tend to defer sales until
after the New Year.”
Editor’s Note: The Commodity Trader’s
Almanac 2010 is your annual guide to
commodities trading. Whether you’re a seasoned
investor or just getting started in commodities
this vital desk reference is packed with critical
commodity trading seasonality trends, strategies
a n d d a t a f o r e v e r y a c t i v e t r a d e r. Yo u g e t
actionable information on specific stocks, ETFs
and more!
The Commodity Trader’s Almanac 2010 is
available at all major book stores or it can be ordered
online at amazon.com or wiley.com.
Mutual Funds
MONEYLETTER.com, 479 Washington St., P.O.
Box 6020, Holliston, MA 01746. 1 year, 24 issues,
$180.
New ETFs share same base index
Walter Frank: “Our two featured ETFs include one
in Morningstar’s mid-cap blend category and one in
mid-cap value. First Trust Mid Cap Core AlphaDEX
(mid-cap blend) has moved from the middle of its
peer group in 2008 total return (-36.5%) to about the
top quarter in 2009 year-to-date performance, with
a total return of 42.5%. The second fund may sound
familiar as we profiled two of its siblings in the last
issue. Rydex S&P MidCap 400 Pure Value was in its
category’s cellar in 2008, with a -42.9% return, but
is now within the top 10% (up 52.3%).
First Trust Mid Cap Core AlphaDEX (FNX).
What is an AlphaDEX? Launched in May 2007,
First Trust’s series of AlphaDEX ETFs followed
the Powershares Intellidex ETFs as another line
of quantitative, or “active” index funds. Based on
established indexes, in this case the S&P Midcap 400,
the AlphaDEX method aims to create indexes that
emphasize the best value, growth, and core stocks.
The methodology is complicated. Each stock in the
base index is ranked on growth factors (including
three- six-, and 12-month price appreciation, salesto-price ratio, and one-year sales growth) and value
factors (such as book value-to-price, cashflow-to-price,
and return on assets). Stocks which are classified
as solely growth or value receive a score using the
growth or value factors, and stocks which are inbetween are measured on both the growth and value
sectors, and given the higher of the two scores. Stocks
are then ranked by score, and the top 75% are selected
for the Defined Mid Cap Core Index, on which this
ETF is based. The selected stocks are divided into
quintiles based on their rankings, and are equally
weighted within each quintile, with the highest
segments receiving the highest weighting. This is
called a modified equal dollar-weighted index. The
index is reconstituted and rebalanced quarterly.
The fund contains 299 stocks, with only 7% of assets
in the top ten holdings. Compared to its peers, the fund
is slightly overweight in consumer, health care, and
utilities. It has its share of triple-digit winners thus
far in 2009, among them Patriot Coal and Community
Health Systems within the top five. Retail holdings in
general are performing well for the fund, including the
sixth largest, Dick’s Sporting Goods, which declined
with other retailers but is experiencing better sales
momentum and new store growth, as well as Chico’s
FAS, Priceline.com, J. Crew Group, and Coldwater
Creek, all of which have more than doubled this year.
Recently, we introduced Rydex S&P 500 Pure Value
and S&P SmallCap 600 Pure Value. Rounding out
the three traditional capitalization ranges, here is
Rydex S&P Midcap 400 Pure Value (RFV). Briefly
26
reiterating – each component stock in the base S&P
MidCap 400 is ranked on seven different factors
for growth and value characteristics. Growth and
value scores are calculated for each stock, stocks are
ranked, and approximately one-third of the stocks are
classified as pure value. While the parent indexes are
market capitalization weighted, the Pure Value and
Pure Growth indexes are weighted by the stock’s style
scores. The portfolio contains 84 issues, with nearly
40% of assets in the top ten holdings.
As with its siblings, many of the hardest hit sectors
in 2008 are the most heavily weighted in this portfolio.
Relative to the S&P 500 and the category average,
the fund is most heavily overweight in the consumer
sectors. Also, like its siblings, the fund’s top holdings
were deeply discounted, and trading in the under $10
(most often close to $1 than $10) range at the market’s
bottom in March. Gains in the fund’s four top holdings
range between 270% to more than 340% for the year
to date. Oshkosh Truck, which manufactures specialty
vehicles, has an improved outlook thanks to two new
government contracts; diversified chemical producer
Ashland’s prospects are enhanced by a November
2008 acquisition; and building products manufacturer
Louisiana-Pacific has appreciated on an improved
housing outlook. Many of the fund’s smaller holdings
are sporting triple-digit gains as well.”
**************
CANADIAN MUTUAL FUND ADVISER
133 Richmond St., W., Toronto, ON M5H 3M8.
1 year, 26 issues, $157.
A diversified approach
to investing in Europe
“While profits are on the rise, European stocks are
trading at attractive levels compared to Canada and the
U.S. This is true on the basis of price-to-earnings and
price-to-book-value ratios, as well as other valuation
metrics. We, therefore, regard the European market
as a relatively cheap place to invest right now.
Our favorite fund for European exposure continues
to be AGF European Equity Class. The fund is
suitable for investors seeking geographic diversification
in a developed market outside of Canada, the U.S.
and Japan. With its value approach to investing and
its focus on large to mid-cap companies, it would
complement a large-cap growth fund, or more broadly
diversified global equity fund.
AGF European Equity got its start in early 1994,
and has a compound annual growth rate of 8.4 per
cent since then. Over the last 10 years, the fund has
produced an annualized 4.5 per cent. That ranks a
stellar first among 36 European equity funds.
The portfolio is 42.5 per cent invested in France, 30.7
per cent in the U.K., 11.0 per cent in Italy, 10.6 per cent
in Spain and 2.6 per cent in Germany. The rest of the
portfolio is invested in The Netherlands, Belgium and
cash. The fund has considerable sector risk, as 56.6 per
cent of its assets are invested in financials. It’s a buy for
the aggressive component of your portfolio.
In early October, we recommended AGF
International Stock Class Fund as a lower-risk
way to seek European exposure. Managed by the same
people who manage AGF European Equity Class, this
fund is 75 per cent invested in Europe. It also holds 24
per cent of its portfolio in Pacific Rim investments.
Buy AGF European Equity Class and International
Stock Class for their high European exposure, worldwide expertise, strong value-oriented management
style and superior track record.”
**************
THE INTELLIGENT FUND INVESTOR
26106 Tallwood Dr., N. Olmstead, OH 44070.
Monthly, 1 year, $279. www.harloffcapital.com.
Bull is still running
Dr. Gary Harloff: “Our analysis indicates that:
Internet, basic material, and technology are promising.
Oil and gold are good. Promising region/country funds
are: Emerging Markets, England, US, and Germany.
These funds and indexes suggest that the Emerging
Markets, as producers of commodities, are thriving to
feed growth in China and India. The US dollar continues
to be a sell as the US pays its debt in fiat dollars.
Our absolute momentum (HVI) comparison indicates
that large cap beats small cap stocks. This is reversed
from last month and may indicate that the large mutual
funds are finally beginning to invest in the 7 month old
bull market. There is discussion on financial TV stations
that the recession is over. Our sector line up this month,
from best to worst, is oil, gold, finance, utilities, and
semiconductor. We would consider adding new positions
only in the first two of these five sectors.
We continue to have buys on S&P500, NDX, gold/
precious metals. We have a new buy on bond yields
(i.e. we are short bonds).”
Market Outlook
THE PERSONAL CAPITALIST, 6911 S 66TH
East Ave., Ste 301, Tulsa, OK 74133. 1 year,
24 issues, $195.
Dow 12,000 early 2011
Sean Christian: “It seemed pretty obvious to us
that a market rebound was inevitable. History proves
that every major bear market of the past 70 years has
regained about 80% or more of its loss in about two
years. We saw no reason for this time to be different.
Our expectations were strengthened by all of the
sideline cash as well as the massive government
stimulus. We expected a rebound in stock prices to lead
the general economy by approximately 6-9 months.
Interestingly, the market bottomed on March 9th and
has increased about 50% since then. If the historical
average holds, we could see the Dow above 12,000 by
early 2011. That may have seemed preposterous six
months ago. But, it seems to be quite possible.
Of course, we remain concerned about a rebound
in inflation and serious dollar weakness. But that’s a
little bit down the road. Regardless, we are positioning
for the change.”
27
THE GRANVILLE MARKET LETTER
P.O. Drawer 413006, Kansas City, MO 64141.
1 year, 46 issues, $250. www.GranvilleLetter.com.
Higher market for the next two years
Joseph Granville: I am convinced that CNBC-TV had
me interviewed on August 31st because they though I
was going to be wrong. Once again we are at a point of
a very positive rise which will take the market to a new
dimension, just a hint of what is coming in 2010. The
bears, who thought they had this market all figured out,
missed the great March 9th Dow bottom and fell on their
faces when CNBC was interviewing all those CEOs in
Sun Valley, ID in July. They didn’t learn a thing. Every
one of them was bearish just before the Dow took off.
Then in my CNBC-TV interview with Erin Burnett
on August 31st right in the face of many forecasts of a
September-October stock market crash I told her both
those months would see a strong market and that we
will see a higher market for the next two years.
Most of the bears keep singing the same song. They
are expecting the dollar to collapse, hyperinflation,
and the price of gold to rise sharply. They have been
singing it all the while the Dow rose from 6500 to
10,000 and even longer. I read the market correctly
all the way up and it has much further to go.
As for gold, the stocks are not confirming the
price of gold and are still short of their March 17th
highs. Gold bugs are all caught on one side of the
field thinking that the big play ahead will be in gold.
Dead wrong. I am following the gold stocks and not
the price of gold.”
***************
THE DINES LETTER
P.O. Box 22, Belvedere, CA 94920.
1 year, 14 issues, $295. www.DinesLetter.com.
TDL’s Seasonalities for November
James Dines: “According to DINPIVOT (Dinesism
#29) the market direction of Octobers is usually
reversed in Novembers. This fact is one of our “little
secrets” that we share with our TDLrs annually.
The DJI will likely finish higher this October, so
percentages favor a shift to a November decline, into
the start of the traditional year-end rally. For the
record, October rallies in 1963, 1964, 1965, 1966,
1969, 1973, 1974, 1982, 1984, 1988, 1991, 1993, 1994,
2000, 2003, 2007, and 2008, were followed by fulcral
declines in Novembers. October declines were followed
by November pivots to the upside in 1967, 1970, 1971,
1977, 1979, 1980, 1981, 1983, 1989, 1990, 1992, 1995,
1997, 2004 and 2005. 1998, 1999, 2001, and 2002
sported no pivots since both Octobers and Novembers
went up. As for 2006, while an up November followed
the strong October, November was nonetheless marred
by 148 and 288 point declines in its first and third
week respectively. All in all, since 1960, there were a
total of 32 correct DINPIVOT reversals out of 49, so this
Seasonality worked two-thirds of the time (65%).
Decades ago we baptized October “The Bear-Killer
Month.” For the record, 1993 was the first time October’s
Seasonality was widely disseminated outside TDL by
the press and media to The Hive, but they nonetheless
still erroneously concluded that Octobers were bearish
months rather than a time for reversals.
Novembers generally have an upside bias: over
two-thirds of the time since 1950 there have been 39
rising Novembers and 20 downers. Novembers in fact
rank as the best performing month for the S&P 500,
and third best for the DJI.
Gold: November’s Seasonalities reveal no useful
percentage for the Dine’s Gold Stock Average (DIGSA)
but are bearish for the Dines Silver Stock Average
(DISSA), in preparation for their traditional Jan-Feb
upturns, according to Dinesism #9, the Dines Rule of
Gold Seasonality (DIRGS). In the last 41 Novembers
DIGSA rose 24 times and fell 17 – a bullish (59%).
DISSA rose 18 times, and declined 21 times, with 2
neutral years – somewhat bearish (54%). But golds
and silvers are ignoring Overbought readings typical
of new bull markets, in any event, percentages are
bullish for early 2010.”
***************
The Peter Dag PORTFOLIO STRATEGY &
MANAGEMENT, 65 Lakefront Dr., Akron, OH 44319.
1 year, 24 issues, $389. www.peterdag.com.
Market momentum solidly up
George Dagnino: “The long-term outlook (next
12 months) of the fundamental indicators remains
bullish.
Our technical indicators are close to oversold
levels, suggesting the market is setting the stage
for the next leg up. It is more profitable to buy when
they start rising from oversold levels. We are not yet
at this stage.
Our Trend Indicator, meanwhile, remains in an
uptrend, indicating the market momentum is solidly
up.
Seasonality is positive. The end of the year rally
is a tradition, as investors look for performance.
Sentiment data reflect caution, which is bullish, of
course, from a contrarian viewpoint.
We recommend you remain focused and invest in the
sectors that have proven to show superior performance
in this phase of the business cycle: banks, insurance,
brokerage, private equity, REITs, and retail.”
Continued on page 29
Create a New Strategy for Growth and Wealth.
Invest in Physical Gold and Silver Bullion.
Physical Delivery, Allocated and Pool Accounts,
Leverage up to 5x Initial Principal.
www.CacheMetals.com
1-877-916-6670
28
Profiting From Renters
Continued from page 1
There will be plenty of second-home owners this
year and next who are willing to sell those second
homes in desirable vacation areas for far less than
they paid for them. You may not get rich but you will
give others the joy of staying in a beautiful place
while at least defraying your carrying costs for you.
The three approaches above involve direct participation and research specific to each deal. For those
willing to pay someone else to deal with those details,
you might consider the remaining two methods:
1. Buy shares of publicly-traded REITs that
specialize in quality apartments. People owning their
own homes may be resigned to selling them to get
money to live on, but I believe they will be unwilling to
move down in quality unless their circumstances force
them to. If their illusory “paper wealth” was $400,000
in “equity” and it’s now reduced to just $175,000, they
will sell to get that $175,000 in real investable cash,
but the pain of doing so will be lessened if they moved
to an even nicer place than they left behind.
In addition to the points I’ve previously made, there
are a few other reasons why I believe certain apartment
REITs will do particularly well in the next couple years.
If the REIT avoided the temptation to stray from their
normal, boring, business in the region they understood
the best in order to rush, late in the game, into Las
Vegas, Phoenix, Miami and other “hot” sectors – buying
at the top and getting no bargain in the capital markets
– you can buy quality firms selling at fair stock prices
with strong cash flow from properties that have not
plummeted like those in the hot markets did.
Demand for these units will increase even if
current homeowners don’t convert to renting in
numbers as great as I expect. We are still a nation
of immigrants and legal immigration is expected to
continue unabated during these hard times at an
average rate of 1.7-2 million annually. Next, we are
likely somewhere near the zenith of unemployment.
As employment increases in 2010 and 2011, demand
will increase from people moving out of relatives’
homes and shelters, as well as move-up renters
renting better places.
Many currently unemployed and those underemployed or anxious to change jobs as the times get
better will prefer renting to owning simply because
they need to stay mobile and unencumbered in order
to follow their employment goals and dreams.
When it comes to the supply side of the equation,
I see new construction of multi-family rental housing
as severely limited by lack of financing. Local banks,
the source of most such financing, are less willing
to loan to real estate firms after losing so much in
foreclosures and builder bankruptcies.
The combination of all these events as well as the
short-term nature of apartment leases which allows
owners to raise rents at the conclusion of the lease
if needed means the recovery in rental prices and
occupancy levels may be unparalleled.
So which firms do I think are most worthy of
your attention? Those with low leverage (low debt
levels) and those with less exposure to preciously-hot
overbuilt markets like Phoenix, Miami, Las Vegas,
Orlando and Tampa. Both Mid America Apartment
Communities (MAA) and Avalon Bay (AVB) qualify
in these categories.
Neither chased growth, neither overpaid for
properties at the top, and neither are over-leveraged,
Essex Property Trust (ESS), BRE Properties
(BRE), and Equity Residential (EQR) all do well in
terms of their capital ratios but I don’t like their high
exposure to some California and Florida markets I
consider still ripe for further problems. Of these, ESS
is the best. Since their California portfolio is small,
Post Properties (PPS) might qualify for a top slot
– except their exposure to Atlanta, DC, Tampa and
other formerly hot markets puts me off.
2. Buy shares in real estate “vulture funds” that buy
properties in bulk from banks and brokers for resale or
rental. These funds buy properties that have already
had the excesses wrung out of them, but sometimes
bring their own problems in terms of having been
abused or neglected. That’s why I prefer to buy these
in a basket via publicly-traded funds like Colony
Financial (CLNY) and Crexus Investment (CXS).
These firms typically seek apartment buildings
where the developer has over-extended and is in need
of immediate capital or is facing foreclosure on the
entire project. These funds ride to the rescue and take
the liability off the developers’ hands, albeit at a price
the developer would not normally take.
These funds have always existed in the past
but they found little opportunity to buy at fire-sale
prices during the Greenspan real estate bubble. The
subsequent subprime mortgage fiasco, exposure of the
extent of liar loans, the tightening of underwriting
standards in the mortgage loan business, and the
massive drop in prices in many markets have once
again created opportunities for vulture funds where
for years such opportunities were slim or none.
Those companies that bought properties at the top of
the housing cycle for investment purposes, and in the
most overheated markets, are among those now most
desperate to get out. I expect to see some of the REITs I
have chosen not to buy selling some of their properties
for a quarter or fifty cents on the dollar to these vulture
funds. Rather than buy the REIT now, hoping to see
them turn their properties around, I’d rather buy the
vulture fund and see the same properties turn up in
those portfolios – at rather significantly better prices.
Given my premise that more Americans will be
renting in the future out of necessity, that employment
will (slowly) pick up, that many workers will want to
live in apartments for greater job-seeking flexibility,
that apartment rental rates and prices will be rising,
and that there will be a paucity of new construction
financing, I can think of no finer opportunities than
those I’ve discussed here.
Editor’s Note: Joseph Shaefer is Chief Investment Officer
for Stanford Wealth Management, LLC which specializes in
personalized wealth and risk management for clients with portfolios
from $500,000. Mr. Shaefer is also editor of Investor’s Edge, 774
Mays Blvd., Ste. 10, Incline Village, NV 89451, 1 year, 12 issues,
$149. For more information Stanford Wealth Managagement or
Investor’s Edge visit www.stanfordwealth.com.
29
Continued from page 27
SPECIAL CHARTER OFFER
THE CONTRARIANS VIEW, 1 year, 11 issues, free
on the Internet, http://contrariansview.org.
Market very overvalued
Nick Chase: “Sentiment indicators, being driven
by printed-money syndrome, remain bullish. Warning
indicators, being driven by historical precedent, tell
us that the continuation of the rally is bubblicious
and the market is very overvalued.
If this were a typical postwar recession-recovery,
then consumer-driven economic growth would follow
the stock market upward. That could happen, but I
don’t think so.
Because we’re in a soft depression, a more likely
outcome is that, in the not too distant future,
another aspect of the asset deflation will erupt
and send stocks downward again, as happened
here in the 1930s and in Japan during the last two
decades.
The underlying financial-system rot is still there;
credit conditions continue to deteriorate; consumers
continue to retrench. As the market further diverges
from reality, the risk of another systemic accident
increases. I have sold all of my domestic large-bank
stocks, and I further trimmed my holdings to bring
them closer to “free” status, either with planned sales
or with tight trailing stops.
I continue to recommend a high degree of caution
toward stocks.”
**************
S t o c k Tr a d e r ’s A L M A N A C I N V E S T O R
NEWSLETTER, John Wiley & Sons, 111 River
St., Hoboken, NJ 07030. Monthly, 1 year, $299.
www.stocktradersalmanac.com.
Bullish season
is now upon us
Jeffrey Hirsch: “Bullish season is now upon us.
October has become the best month to go long stocks
in recent years and November kicks off the Best Six
Months for the Dow and S&P 500 and the Best Eight
for Nasdaq, as well as the best consecutive threemonth span of the year, November-January.
Seasonality has struggled and been questioned
the last two years, but even when is not working we
have effectively used it to avoid market debacles as
we did in 2008.
The first trading day of November has lost its
bullish luster with the dow down the last four years.
There is only one clearly bullish day during the first
two weeks on November 5. After a negative Monday
before expiration, the week before Thanksgiving has
been especially bullish with the Dow up 13 of the
last 16 years and the Dow has been up 6 of the last
7 years on expiration day.
Thanksgiving trends have changed the past
21 years as well. The Wednesday before, and
the Friday after Thanksgiving, have the bullish
bias now, with Dow up 6 of the last 7 years on
Wednesday.”
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Gold Producer Utilizing Cash
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Atna Resources Ltd.
Growing Rapidly as a U.S.-Based
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Aura Silver Resources Inc.
Exploring for Silver in Proven
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Fortune Minerals Limited
World Class Anthracite
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Proceeding Toward Production
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International
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Fast-Tracking Potential Billion-Ton
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Ireland Inc.
Company Successfully Completes
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Lucas Energy Inc.
Building a Different Kind of
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www.LucasEnergy.com
Minefinders
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Producing Gold and Silver
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www.minefinders.com
Minera Andes Inc.
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Paramount
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A New District-Scale
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Rocher Deboule
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Potentially Massive
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www.rdminerals.ca
Romios Gold Resources Inc.
Huge Land Positions in
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Rye Patch Gold Corp.
Dominates Newly Discovered
Oreana Gold/Silver Trend In Nevada www.ryepatchgold.com
San Gold Corporation
Canada's Newest Gold Producer
Spectacular Exploration Success
www.sangoldcorp.com
Strategic Resources Inc.
Developing the Uranium potential
of the Red Basin/deBaca trend
in New Mexico, USA www.strategicresourcesinc.ca
Uranium Bay Resources Inc.
Focused on Delineating
Large Scale Uranium Deposits www.uraniumbay.com
Uranium Star Inc.
Green Giant Project Could Be
the World’s Largest, Low-Cost,
Single Source of Vanadium www.uraniumstar.com
Ur-Energy Inc.
Exploration and Development
of Uranium Properties
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www.ur-energy.com
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Advancing Significant
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British Columbia
www.velocityminerals.com
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31
Atna Resources Growing Rapidly as a U.S.-Based Gold Producer
ATNA RESOURCES LTD.
Atna Resources Ltd. is quickly establishing itself as TSX: ATN • US OTC: ATNAF
a boutique gold producer focused on developing
Contact: James Hesketh,
promising advanced properties in the western U.S. and
President and CEO
appears well on its way to achieving its goal of becoming
Valerie
Kimball,
Investor Relations
a mid-tier gold producer. The company expects to
14142
Denver
West
Parkway, Ste 250
produce approximately 213,000 ounces of gold with
Golden, Colorado USA 80401
an annual average full year production rate that ranges
Toll Free: (877) 692-8182
from 40,000 to 50,000 ounces per year during the years
Phone: (303) 278-8464
2010 to 2013 with residual gold recovery in 2014. The company's 1-million acre
Fax: (303) 279-3772
portfolio includes four advanced gold projects – the Briggs Mine in California, the
Reward Project in Nevada, the Pinson joint venture with Barrick, also in Nevada,
E-Mail: [email protected]
and the Columbia Project in Montana, as well as other promising advanced-stage
Web Site: www.atna.com
and exploration projects.
Rye Patch Dominates Oreana Gold/Silver Trend In Nevada
Rye Patch Gold is exploring more than 78
sq. km in key mineral districts of Nevada,
the world's fourth-richest gold region. The
company's primary asset is the advancedstage Wilco project, where drilling continues
to upgrade an expanding gold/silver inventory.
Rye Patch has acquired advanced assets and
explored aggressively towards its goal of a 10-million ounce gold inventory
within 36 months. New discoveries at Lincoln Hill/Gold Ridge and Jessup are
also expected to add to a growing gold inventory. Rye Patch management has
extensive major and mid-tier experience worldwide. This outstanding group has
developed and operated major mines and managed large exploration budgets
on five continents.
San Gold Bulk Sample Confirms High Grade/Low Cost Gold
San Gold Corporation is an aggressive and
successful gold mining and exploration company
with mine and mill operations in the Rice Lake
Belt of Manitoba, as well as a number of new
high grade gold discoveries. San Gold has also
accumulated a strategic portfolio of properties in
the Timmins, Ontario gold camp. The company's
Rice Lake Gold Project includes two mines: the
deep underground, high-grade Rice Lake mine and the nearby near-surface,
ramp-accessed San Gold #1 (SG-1) deposit. Results of bulk samples taken at
Rice Lake's high-grade Hinge Zone indicate an operating cost of $158 an ounce
of gold produced with an overall mill recovery rate of 96%.
Uranium Star's Green Giant Project Could Be the
World’s Largest, Low-Cost, Single Source of Vanadium
Uranium Star Corp. is a rapidly emerging
mineral exploration company whose prime
focus is the exploration and development
of it's Green Giant Vanadium Property in
Madagascar - potentially the world’s largest
low-cost vanadium discovery. The company
recognizes the need for vanadium in the world steel market and looks to become
a low cost, steady supplier of V205 to meet this demand and future demand from a
number of new green technologies. Uranium Star has commenced its first-phase
resource definition drill program on it’s 100% owned Green Giant Vanadium
Project. The Company’s goal is to drill 35,000 metres, targeting a minimum of
200 million tonnes of mineable vanadium mineralization.
RYE PATCH GOLD CORP.
TSX.V: RPM
OTC BB: RPMGF
Contact: Karen Robb, Manager,
Investor Relations
1740 - 1177 West Hastings St.
Vancouver, BC Canada V6E 2K3
Phone: 604-638-1588
Fax: 604-638-1589
[email protected]
www.ryepatchgold.com
SAN GOLD CORPORATION
OTC: SGRCF • TSX: SGR
Contact: Dale Ginn, CEO
Box 1000, Bissett,
Manitoba Canada R0E 0J0
Toll Free: 800-321-8564
Fax: 403-243-9517
[email protected]
www.sangoldcorp.com
URANIUM STAR CORP.
OTC BB: URST
Frankfurt - FWB: YE5
Contact: Brent Nykoliation,
VP of Business Development
141 Adelaide St. W., Suite 520
Toronto, Ontario, Canada M5H 3L5
Toll Free: 800-818-5442
Phone: 416-364-4911
Fax: 416-364-2753
[email protected]
www.uraniumstar.com
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