Value Investing: Going for the Gold (and Silver)

Includes: ABX, AUY, HL, LMC, PAAS, SLW
by: Andy So

The largest gripe that I’ve had with Wall Street Analysts is that they lack accountability. They flip-flop around their investment thesis and fundamental analysis of a situation. In my view, the individual investor has many reasons to completely tune out all the noise that they hear and draw their own conclusions from macro-economic events and their own due diligence of a companies released earnings.

Over the past 400+ articles, I’ve mostly posted my buys and sells, with exact prices. This is to establish accountability and to form a track record. I’ve always said, regardless of how a person finds their stock picks, all that matters is performance in B&W. It doesn’t matter if you employ throwing darts or advanced quant analysis. The best written article and in-depth analysis is worthless if it consistently loses you money in investing.

My approach has always been basic and straightforward: Buy cash-rich companies with low debt, or entire sectors that have been shorted due to unfavorable market conditions. I know that my own track record is far from perfect, however I have the same conviction and passion for each investment I make even if the last was losing.

In the market, a loss is never a loss until you sell. If you are confident you bought a stock at good value you will be able to sleep well at night and won’t be afraid to buy more at low prices. You never buy more just because the price drops, you buy more because the company continues to be a good value. If the company stops being a good value, you cut your losses and sell, regardless if the price is high or low.

I do see a crash coming and with the same accountability I am going to post my targets as I always have.

My price target for gold is $1,100 by the first quarter of 2009. My top picks continue to be Yamana Gold (NYSE:AUY) and Barrick Gold (NYSE:ABX).

My target for silver is $25 by the first quarter of 2009. My top picks continue to be Pan American Silver (NASDAQ:PAAS), Silver Wheaton (NYSE:SLW) and Hecla Mining (NYSE:HL).

My favorite base metals stock is Lundin Mining (LMC). I’ve written in detail about the stock in the past, so use the search function on my blog. Today the stock is trading in the mid $6 range. I fully expect LMC to break $10, a 50% gain, in the next 6-12 months.

I would like to remind readers that the first time I bought Yamana, Pan American Silver and Silver Wheaton, some continued to drop from my purchase price almost 30%. In retrospect, I saw the value in strong earnings and smelled a good value brewing. All of the stocks above returned 40% or greater for me in a matter of months. I see the same opportunity today in precious metals stocks. It will not be a smooth ride given the volatility in precious metals. Unusual volatility means strong swings in both directions. The farther it falls the faster it will rise as a sector. There are plenty of precious metal stocks, especially juniors and mid-tier producers that are trading as if gold were in the $600-$700 range and silver were in the $12-$14 range. In light of the strong earnings almost the entire sector is undervalued and soon Wall Street will come to realize and report about it. There is real possibility of war between Israel and Iran. There is a real possibility of economic disaster. There is strong threat of inflation. All of these are positive for precious metals.

I am going to start entering positions in July and hopefully 2008 will be another top notch year for myself and fellow Raw Greed readers. Gradual accumulation and diversification is key. A year from now those who have the conviction to buy will be happily rewarded.

Finally, I will share a thought left to me by the former CIO of General Motors Asset Management. He asked me, “is an entrepreneur risky?”. His answer was solidly no. An entrepreneur fully believes in what they are doing or they wouldn’t do it at all, so they are not risk takers. A conservative entrepreneur and those who are fully accountable should be followed carefully. Individual investors are very much mini-entrepreneurs putting their money to good use.

Disclaimer: The author currently holds a long position in Lundin Mining.

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