senior editor of the International Speculator, Casey
Investment Alert and Conversations with Casey: We certainly had
plenty of tax-loss selling, and I think most investors who know resources see
the sector as close to bottom, so, yes, I do expect healthy January buying.
I'd differentiate that by commodity, however, as bad economic news could push
oil and copper further down, while pushing gold and silver up, and the
January effect won't be enough to offset another sharp decline in industrial
commodities.
Low-cost producers are the obvious candidates for dollars
returning to the market, followed by developers with great projects with
positive economics already in hand. Grassroots exploration will have its day
in the sun again, but not on the back of January buying; I expect we'll see
that when the whole market gets frothy again.
founder of Adrian Day Asset Management and author of
"Investing in Resources": The early part of the year (not
necessarily exclusively January) is typically a seasonally strong period for
resource and resource equities. Given the very oversold nature of most
resource stocks, I would expect a bounce in the new year.
This will affect the major mining companies, including
possibly the oil stocks, though they have already bounced off their lows. In
particular, it will affect stocks that have been subject to tax-loss selling.
In the resource sector, that means pretty much everything! Given that
resource stocks are one of the few sectors in the U.S. where investors have
heavy losses, this selling has been particularly vicious this year. Even
without significant new buying volumes, the removal of tax-driven selling
will cause a bounce in these stocks.
The particular stocks affected may depend to some extent
on what happens to gold and other resources. Some companies are particularly
leveraged, and if gold falls in the first week or two, then these stocks,
even if they have been subject to heavy tax-loss selling, would not move as
much as others.
Having said that, stocks such as Vista
Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX), Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE), Eurasian Minerals Inc. (EMX:TSX.V;
EMXX:NYSE), Miranda Gold Corp. (MAD:TSX.V) and Reservoir Minerals Inc. (RMC:TSX.V)
could be beneficiaries.
One should note that year-end tax-loss selling followed
by a January bounce is so widely known that the effect has become less
pronounced, the January rally depending as much on other factors such as the
resource prices themselves.
founder of Gold Stock Trades: When stocks are
beaten down as far as they are now, it is a sign that we are at a bottom and
an uptick is coming. January—specifically the beginning of the month—is traditionally
a good time for the natural resources space. After tax-loss selling in
December, many buy back their stocks or use year-end bonuses to purchase.
This is the time smart investors look for value situations.
Small stocks tend to outperform the broader market. This
year, producers may do well as the collapse in the oil price is a good thing
for gold producers because that lower price tag for a key cost can impact the
bottom line. Producers have been warning the market about a future supply
shortfall as high grading uses up the best ore and less money has been
invested in exploration. There will come a time where producers begin
outperforming and the valuations go from bad to less bad until suddenly they
are very good. That is also when we could start seeing a lot of mergers and
acquisitions, which is a very good thing for investors.
A rebound or even a stabilization in the gold price could
surprise everyone as the dollar rally could turn into a gold rally. The
fundamentals pushing the dollar up right now—flight to a safe haven—are the
same ones that could support gold once people see that the dollar is
overbought.
One company that would do well in that kind of a January
Effect rise is Galane Gold Ltd. (GG:TSX.V) in Botswana. It is trading below cash in the bank and has a great
management team.
Another one is Canamex Resources Corp. (CSQ:TSX.V; CX6:FSE), which just announced a new gold zone at the Bruner gold project
in Nevada. The company should be publishing its maiden resource estimate soon
and I expect the valuation to go much higher once that is in hand.
I also like Goldcorp
Inc.'s (G:TSX; GG:NYSE) balance sheet. The
Canadian mines could be a big benefit for the company.
Near term, I like Pershing Gold Corp. (PGLC:OTCBB). I
like Nevada and I know management is working on getting on a better exchange.
The resource certainly merits that. This is a past producer with a state of
the art processing facility on site. It is open pit and all infrastructure is
in place. That is a rare situation.
Integra Gold Corp. (ICG:TSX.V; ICGQF:OTCQX) is another one to watch. It should be releasing an updated
preliminary economic assessment in 2015. I believe this is the best story in
Quebec and could be a takeout target. This is another company that has its
own processing facility and everything, including permits, in place. The
company keeps coming out with news. It just announced a new mineralization
zone. I believe it is deeply undervalued.
Another company with a near-term catalyst on the horizon
is Red Eagle Mining Corp. (RD:TSX.V). It
has one of the most economic, high-grade, low-cost mines out there. It is
deeply discounted because it is in Colombia, but I think it has a good chance
of getting the last permit and developing the San Ramon mine.
Finally, keep an eye on Corvus Gold Inc. (KOR:TSX) and its North
Bullfrog gold property. It has one of the top geologists in the sector and
just hit the best drill results in Nevada in the last year.
A lot of exciting names can be picked up right now for
almost nothing because the market is irrational and our job is to stay
rational and stay the course. This is the craziest time I can remember when
it comes to valuations, but that all could change this month.
author of the Mexico Mike column in Investor's Digest
of Canada: I am expecting the same uptick in stocks and metals in 2015 as
we saw in 2014. Things have gotten so oversold that the price of gold and
silver is below the price of production. That has to push it higher. Plus,
the dollar rise does not seem in line with fundamentals for such strength.
When it corrects, that will help silver and gold. In fact, I expect silver to
outperform gold this year.
If you are sitting on a pile of money right now, that is
a good place to be. The large, established producers are at historic lows
right now and have a very low risk level.
I particularly like Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ). The company has been around a long time and management knows how
to survive downturns. It is more leveraged to the silver price than any other
company in terms of defined silver resources in the ground and its two
operating mines are very low cost producers. Plus it has a healthy pipeline
in production.
Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) is another one that has been around and knows how to survive. It
is highly diversified with production on several continents. This is a
company that knows how to develop new mines efficiently and is positioned to
acquire promising companies in 2015.
Junior explorers are also at historic low prices right now and, because of
the low trading volumes, it doesn't take much new buying to move the pieces
up. The junior I like is Garibaldi Resources Corp. (GGI:TSX.V). It is currently
drilling a high-grade discovery in Mexico. It is well funded and positioned
to survive the downturn. The share price is trading at very low multiples and
it could bounce off these lows strongly.
Gold, itself is in a trading range. To really break out, it will have to
get past $1,450 an ounce ($1,450/oz). Silver may not go above $20/oz until
the fall. When that happens, the seniors will be the first group to take off.
Companies like Goldcorp and Hecla Mining Co. (HL:NYSE) will move because the funds
will buy into those. The juniors will take longer, but those days will come. I
would look for ones with reserves in the ground and operating capital to
cover a couple of years, particularly ones sitting next to big operations
that may be in a position to buy them out. When stocks have been knocked down
this low, the step back can be stunning.
In recent years, the so-called January Effect that supposedly lifts small
company stocks made brief appearances, then disappeared. When I say small, I
mean very small, as in companies with market caps worth below $500 million.
The new face of January is now lacking a pronounced lift for small stocks.
The main culprit is probably because everyone in North America, in Europe and
in the UK, among other jurisdictions, are trading or managing the bulk of
their money in retirement accounts. Thus, no reason to recapture the equities
investors might have sold in November or December to capture tax-loss
advantages.
Probably the one potential beneficiary of any fresh sweep into a sector in
January is biomedical and healthcare stocks. That is one face of January that
continues in recent years. The biomedicals are getting more approvals per
capita in North America than ever before, regarding FDA-approved
pharmaceuticals.
As for resource equities, I see little evidence that January is kinder than
other months of the year—in recent years, definitely since 2011. Maybe with
the decline of resource stocks since 2011, January can be argued to have a
less devastating effect on the metals equities than during other months.
If there is one thing that bears watching this January, it is the
tremendous rise of the dollar—the U.S. dollar is sending all currencies to 7-
and, in some cases, 10-year lows. Gold's buying power is keeping pace, as
bullion is holding its ground. That means dollar-denominated gold holds a lot
of buying power versus other currencies.
The decline of most currencies against the dollar also helps miners and
prospectors that report their expenses in other currencies. That is good.
Plus, as investors with dollars, we get more buying power when we purchase
Canada, U.S., Japan and other listed resource stocks.
My faves right now are Angkor Gold Corp. (ANK:TSX.V), which is showing
remarkable strength and soon will be receiving a 7 % royalty on a Cambodian
gold mine, and, in biomedical, BioCryst
Pharmaceuticals Inc. (BCRX:NASDAQ).
Find out what experts are saying about the January Effect on other
commodities in The Mining Report.
