,
founder, Ahead of the Herd:
There has been a general long-term downward trend in the resource sector.
Junior resource companies have had the stuffing knocked out of them; many are
oversold and ripe for a bounce.
The
January Effect is a calendar or seasonal-caused increase in the relative
strength of small-cap stocks over large caps in late December and early
January. This seasonal effect is mostly over by the end of the first full
trading week in January and is not to be confused with the "January
Barometer," an old market saw saying, "As goes the full month of
January so goes the market for the year."
The
January Effect, as it pertains to the junior resource sector, is caused by
both large and small individual investors (and institutional investors window
dressing—dumping laggards so they won't show up in year-end reports) selling
their stocks/rebalancing their portfolios starting in November and well into
December to create a tax loss to offset capital gains.
Smart
investors and traders buy select stocks, starting as early as late November,
through to the last day, or even a day or two beyond, of eligible tax-loss
selling for the year.
An
excellent example of a consistent short-term January Effect trade would be Copper Fox
Metals Inc. (CUU:TSX.V) recently trading as low as $0.095 and hitting a
high of $0.15.
Discovery
is reaping shareholders rewards so worth watching is a uranium junior, Lakeland
Resources Inc. (LK:TSX.V), exploring in the Athabasca Basin. A great way
to leverage any uptick in the uranium price is Uranerz
Energy Corp. (URZ:TSX; URZ:NYSE.MKT). [Editor's Note: This interview was
conducted on Friday, Jan. 2, 2015. On Monday, Jan. 5, Uranerz announced an
all-share buyout by Energy Fuels Inc. (EFR:TSX; EFRFF:OTCQX; UUUU:NYSE.MKT)].
Great Panther
Silver Ltd. (GPR:TSX; GPL:NYSE.MKT) is on top of the list of producers
that are well positioned to take advantage of an uptick in gold and silver
prices. Kootenay Silver Inc. (KTN:TSX.V) discovered and is developing the
Promontorio project into an open-pit mine in Sonora, Mexico. The company
recently drilled one of many prospects on its immense project and discovered
another significant high-grade silver deposit, La Negra.
New Carolin
Gold Corp. (LAD:TSX) is an exciting gold project. The company is working
old mines in an underexplored area in southwestern British Columbia. Success
here could open up a lot of people's minds about junior mining overall.
Diamonds
are exciting and could certainly lift the Toronto Stock Exchange out of its
funk. Two to watch in the new North Saskatchewan Craton Diamond Play are Strike Diamond
Corp. (SRK:TSX.V) and Athabasca Nuclear Corp. (ASC:TSX.V).
Nickel
is definitely a metal to have on your radar screen. Today nickel sulfide
discoveries are as rare as chicken teeth, but North American
Nickel Inc. (NAN:TSX.V) has found an incredible amount of smoke in
Greenland and should find fire soon. Meanwhile in Canada, Equitas
Resources Corp. (EQT:TSX.V; T6U1:FSE) is just getting going. It has a
large prospective for nickel property in the right type of rock in the right
place.
In the
copper space the low-hanging fruit has been picked but VMS Ventures
Inc. (VMS:TSX.V) is a junior producer that owns 30% of the now producing
high-grade Reed copper mine. Carmax Mining Corp. (CXM:TSX.V) has an exciting
copper-gold project, the Eaglehead, in northwest British Columbia.
Cobalt
is a critical metal with no production in North America. Global Cobalt
Corp. (GCO:TSX.V) is working on a project in northwestern Ontario and has
recently acquired a project in the U.S. Global Cobalt could be instrumental
in meeting a growing demand.
I
believe in commodities. If you do as well, then all these companies are worth
putting on your radar screen.
founding
partner, president and chief investment officer of AlphaNorth Asset
Management: December, January and February are historically the best
performing months of the year. There is no reason to believe the current
situation will be any different. The TSX Venture index has been under severe
pressure over the past few months, which has taken it down 30+% since August.
It has recently been below the lows of the 2008 financial crisis despite an
economic environment that is far better. I believe the current risk/reward is
highly skewed to the upside for the TSX.V.
Several
resource names that could rally nicely are Blackbird
Energy Inc. (BBI:TSX.V), Sintana
Energy Inc. (SNN:TSX.V), Talon Metals Corp. (TLO:TSX), and U3O8 Corp.
(UWE:TSX; UWEFF:OTCQX).
founder
and CEO of Sector Investment Managers Ltd.: We generally do not trade
short-term technical volatility in markets but prefer to focus on fundamental
value that is likely to be rerated over the medium term. Nevertheless, given
the extreme selling conditions we have experienced in the last four months of
2014 in the energy space, there is a higher probability of a sharp rebound
early in 2015. Historical review of previous corrections before the year-end
in oil-related shares shows a seasonal pattern of recovery in the first
quarter of the following year: The winter double-bottom pattern was observed
in 2008–2009, 2006–2007, 2001–2002, 1998–1999, and 1993–1994.
We,
therefore, advise our clients to increase their allocations to mid-cap oil producers
for three reasons:
1.
Extreme adversity against oil shares has led to solid companies trading at
Price/Cash Flow and Price/Net Asset Value multiples last seen in the 2008
meltdown;
2.
Bearish calls for the oil price dropping below $50/barrel ($50/bbl) are
widespread; a contrarian investment view would support a rebound to above
$60/bbl. Fundamentally, it is widely accepted that oil prices at $60/bbl are
extremely damaging to supply from marginal fields and prolonged trading at
this level would result in a lot of supply shut-ins, thus removing any supply
overhang within 6–12 months; markets are likely to discount such change in
supply with a 3–6 month lead;
3.
Large short-selling interest built up in the months of November and December
that may be closed on first signs of rebound—mid-cap shares are likely to
respond first, followed by small caps after a sustained rally.
We
believe, nevertheless, that investments should be focused on companies with
strong production growth even at lower oil prices based on sustainable
capital expenditure programs (primarily funded out of organic cash flow),
lower average cost of production contributing to profits at current prices
and strong balance sheets with low debt and fixed obligations. Examples of
such companies include RMP Energy Inc. (RMP:TSX), Advantage
Oil and Gas Ltd. (AAV:TSX; AAV:NYSE) and Parex
Resources Inc. (PXT:TSX.V).
We are
generally cautious/bearish on the overall markets as we feel global economic
growth is likely to slow, impacting earnings expectations. Central banks of
both developed and emerging economies may raise interest rates, thus further
slowing growth and negatively impacting equity valuations. Resources sectors
have been sold off hard, so it is unlikely they would suffer further in
correlation to a general market correction.
Look for an article about the January Effect on precious
metals in The Gold
Report on Wednesday, Jan. 7.
