- The market has reached a point where a correction may be inevitable, argues Victor Dergunov.
- But while that makes some stocks less attractive, the case for gold and mining stocks is still strong.
- He lays out what he likes in the sector and where he thinks it could go.
Editors' Note: This is the transcript of the video we posted last Friday. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the video as well as a podcast embedded below if you need any clarification. We hope you enjoy.
Daniel Shvartsman: I am Daniel Shvartsman, Director of Seeking Alpha Marketplace, teaming here at Roundtable series with Marketplace authors. Today I'm speaking with Victor Dergunov the Author of Albright Investment Group, a service that provides top performing growth strategies and deep value insight.
Listen and subscribe to the Marketplace Roundtable on these podcast platforms:
The conversation with Victor runs from 28:15-56:30 on the above podcast.
So, Victor, how are you doing?
Victor Dergunov: I'm doing excellent. Thank you, Daniel.
DS: So we're talking about two different segments. We had recently done a tech Roundtable. I want to start there. But then you also mentioned you have some interest in mining. So let's start with tech. And it's already June 4th where several of the last gasp of tech earnings. Zoom reported this week, Slack is due to report after about of some of the upstarts.
But you sounded concerned about Q2 and I wanted to ask, it seems like an obvious thing to be like, we know that Q2 is going to be a really bad quarter because that lockdowns primarily happened in from March to mid-May. How much do you think -- what do you think the market is expecting versus you were sort of expecting a little bit of a downturn, how are you balancing out what everybody knows versus what they don't know.
VD: So, first, I want to say that we've been bullish on mining for a long time on gold miners, the silver miners. As soon as we realized that the Fed start easing back in after the 2018 correction, we realized that mining was the place to be. And a large portion of our portfolio has been devoted to gold mining stocks and things of that nature.
As far as tech goes, we've been bullish on tech for many years, actually. And tech has done extremely well for us. And so there was a bottom recently, obviously, everybody knows about that the mid-March bottom. We called it at our Albright Investment Group, we called it within a few days. So we got into a lot of the tech stocks and a lot of stocks in general, we put out a 50 stocks by watch list at that time, right when the market was at around 2,200, 2,300. So we were right there.
And we picked up a lot of names. Some of our favorite names were Tesla, I am a long Tesla bull a lot of the readers know this. So we picked up Microsoft and many of the big names Facebook, Google, et cetera et cetera.
But as we saw the rally progress, and it was like, went up a month and then it went up six weeks, and it just kept going up, we realized that maybe it was time to take some profits, because it just felt like the market was only looking at the positive, to be frank. So right now my view on the market and I guess the tech sector, combined with the market, if we look at it that way, I would say that the market is very, very optimistic, things are going to jump back to normal relatively quickly.
So everybody knows Q2 earnings are going to be very poor or relatively poor let's call it. But the question is how bad are they going to be? But there's also a bigger question. The bigger question is what's going to happen in the second half? What's going to happen in Q3, in Q4 and then in 2021, as well? Because no one really knows. Are we going to have another wave?
I'm in the camp that thinks so that we are going to have. Is it going to be vary, is it going to be as detrimental as the first wave? Maybe not, possibly not. Nevertheless, it could impact business activity and obviously stock prices.
Right now, if we look at some tech valuations, they are I would say that they're about here right now, because there are so many different factors going on. We have the Fed, we have the QE Unlimited, I call it, some people call it. But basically it's just an unlimited amount of capital liquidity being poured into the system. So that is very beneficial to the market.
But on the other hand, we have a lot of uncertainty, because we don't know, what kind of slowdown we're looking at, in H2 and in 2021? Is ad spending going to slow substantially for companies like Google and Facebook? That's a big question. Our hardware sales going to slow down for Apple, chip makers, et cetera, et cetera. So these are kind of things that I'm looking at right now.
DS: So, let me just -- you kind of gave the market outlook there, which was cohesive and clear. But my question to you is, we get to Q2 earnings season and Q3. I guess what you're suggesting is that the real focus is, what is guidance looking like? What as that uncertainty turns into certainty. What is that picture looking like? Right now…
VD: I'm sorry. Look, the bottom line is that I believe we're going to have another correction of some. I believe this. So the market ran up, 40 some odd points in about what like, under six weeks. That is a lot, that is a whole lot given the uncertainty that we have. I expect that -- I mean, it's a basic thing to understand that the market can go up forever just like trees cannot go to the sky the market cannot keep on going up without a correction.
Now, a logical time the market is not always logical, but I'm trying to look ahead here. So, I will go out on the limb and I will say that this summer there will be a correction. It could be starting today. It could come two weeks from now, it could come in July. But sometime the summer in my view, we're going to have a correction into Q2 earnings.
And then once Q2 earnings start coming in and investors see that they're okay, they're bad. But stocks are down, stocks have corrected. Earnings are poor, we knew that we're going to be relatively poor, they could be worse than expected. But there's this kind of optimism in the air that I'm sure we'll catch on again and we're going to have another wave higher after that.
DS: So you're saying actually it's not Q2 earnings, that's going to be the issue. You just think the market will naturally correct going into that and that will reset the table for….
VD: Absolutely, absolutely. The market is a living breathing animal, not just numbers.
DS: Well, it's just so interesting because this whole five month period or four month period has been a game of what do you think that I think that you think that I think in the market where we didn't care about coronavirus, then it became clear that it was going to affect the Western world more strongly.
We started caring really fast. Then the Fed stepped in and all of a sudden the worst seemed out the door. But you know what I mean like we know Q2 will be bad, but it's this sort of game of what's priced in what's not. And so it's really a challenge.
VD: Right. And it's really all about looking ahead at the market because in early February, I was still bullish. I wrote an article about stocks going up because I really thought that this Coronavirus debacle thing, catastrophe, whatever you want to call it, I thought it was going to be contained.
But when I realize that it was not to be contained, in late February, I changed my position. And right around the top, I put out an article to my group members. I also put out another article on a public article as well, saying that there's going to be a correction.
Now I did not realize that it was going to be a 30% correction bull market or 35% bear market I'm sorry. But I was betting on a correction of up to 20% in the beginning of February -- I'm sorry, towards the end of February.
Now as the market progressed going down, and I realized the veracity and the violence and the volatility of it all, I realized that we are actually entering a bear market. So, obviously, the price targets went lower. And then we all know that the Fed came in with stimulus 123 QE unlimited. And here we are today.
But once again, it's just looking ahead at the market. So I'm trying to look ahead now, what's going to happen before Q2 earnings, because I believe it's going to go down and then we should have another leg up after that.
DS: Yes, I mean, things have varied quite a lot. And so when you're trying to verify where we're going, you have to stay nimble in the market right now.
VD: Absolutely. This is a time for being very nimble in the market and we've been nimble. Our portfolio shows that we're up 30%. Our portfolio is very diverse. We have various assets. We have GSM, as I call them gold and silver mining companies so GSMs. We also hold some physical gold and silver. We have probably around 40-50 different stocks, different split up amongst different sectors. And we also have cryptocurrency.
DS: You say 30% in what timeframe?
VD: 30%. We're up 30% this quarter.
DS: This quarter. Okay. Great.
VD: And we're up 32% for the year.
DS: So you were up in Q1.
VD: We were up by 2%. We've squeezed out a 2% gain in Q1. Thanks to debt. Thanks to hedging and put options. We did squeeze out a very small gain in Q1.
DS: So what did that look like? Your hedging and put options, are you taking your writing puts against the broader market or how did you do that?
VD: Yeah. Major market averages DIA, Q-to-Q taking out puts against some positions that we have in our portfolio. We also -- we were also implementing a sell call buy put strategy at this time with some names. And we also want long big futures up. And in some cases, we also shorted some major market index futures as well. So we did quite a bit of hedging, which is why we were a bit positive in Q1.
DS: Yeah, that's impressive.
VD: And Q2 has been good. Even though we've been cautious. We've had, we've held like a cash position of around 20% throughout the quarter. We're still doing quite well. Our stock part of the portfolio was up about 40% this quarter. So I mean that's pretty good, I would say. So we're doing all right.
DS: Absolutely. So let's just go into mining. What do you like about mining?
VD: Gold mining.
DS: What about it do you like? There's the obvious I guess, inflationary. The Fed is -- Fed and central banks around the world are stimulating, et cetera. But why you get a setup.
VD: Right. So I mean, you say it's obvious. But, I think that people are underestimating what is going to happen in the future. So I mean, people say that it's obvious. But, a year ago no one bit, almost no one was in mining. We were in mining because, we were looking ahead.
So people say that it's obvious that there's going to be inflation that that is spending. But the fact is, if you look at the numbers, the monetary base has appreciated by almost exact -- by almost an exact percentage as gold price, since the decoupling from the gold standard in early 1970s.
So, I mean, we can see a very clear correlation here. So now we're looking at a monetary base that is about $5 trillion. Now we know that the Fed is planning to greatly increase its balance sheet blow it up to around $10 trillion, I think it's going to be $12 trillion. So we can objectively say that the monetary base, maybe around $10 trillion, maybe in a year from now.
So if we look at it from this perspective than gold has quite a bit of catching up to do. If the monetary base increases by 100%, why shouldn't the price of gold increase 100%? Most people right now are not expecting $3000-$3500 gold prices next year -- by this time next year. I am.
I think that we're going to see at least $2500 to $3000 by this time next year. I think we could see $3500 but by this time next year. Now, I like mining companies obviously because they make money from deriving gold from the ground and from other operations. But basically, that's not to oversimplify things, but that's basically how they make their money.
They have their -- they're all in stable, sustainable costs. And it's something like $1000 for most companies. It can be a little bit lower for some, it will be a little bit higher for some. But it's around $1000.
Now right now gold is at $1700. Obviously they're making they're making a lot of money. Now when gold is going to be at $2500, and I'm quite confident is going to be there next year. They're going to be making a great deal of money.
So we're looking at, I would say, conservatively speaking, maybe 100% moves from here in gold miners, maybe 200% move moves in gold miners, maybe 300% moves in gold miners within one year or two years. I don't think you're going to find that in tech, or in oil and utilities or just about anywhere else in the market. So I mean, that is our thesis, we're sticking to it. And that is why we love gold miners.
DS: Let me ask a couple. Before we get into any names. Let me ask you couple sort of drilling questions there. Pardon the pun. But the one point that another author made on one of these videos, I think was Laurence Ford, but I could be wrong was that a lot of the buying for gold has been siphoned away by crypto. And I know you're into cryptocurrencies as well. But do you buy that's a competitor for this?
VD: A little bit, a little bit, but not much.
DS: So you don't think that there's going to be a major factor here?
VD: No, I don't at all. I think the crypto market is extremely small right now. The whole market, the whole market, the market cap of the whole cryptocurrency market is something like $260 billion. So I mean, that's minuscule. That's minuscule. That's like none.
DS: Do you -- so the next question is where -- how does this what are you looking at is the potential risks or is the potential something goes? You're making a pretty bold stick call for the sector where. As you're from now, it doesn't play out what's happened.
VD: I mean, the only real risks that I see is the risk of deflation. That is honestly the only risk for gold prices and for prices in general. If we see deflation and the only reason we would see deflation is if we have an incredibly deep recession where just consumption dries up and prices, all asset prices start to decline.
But I mean, the Fed is doing everything to prevent that. So the probability of that occurring is maybe to 2% 1%, something like that. I mean, there's about a 98% chance that that's not going to happen. I mean, I'll take those out.
DS: There's a fair. I mean, I'm not -- I'm having studied it up, but there is a fair bit of discussion out there about are we going into an inflationary period or deflationary. Obviously, we've sucked out a lot of consumption and a lot of production out of the market in the economy in the last two to three months.
So there's going to be some scars from that. So it will be interesting to see whether the monetary base is increasing but does that play out in price inflation does that play out and asset price inflation?
VD: Right, right. Yeah, I think it will. I mean, there's just so much money being poured into the system. And I mean, we see it in stocks right now and later on it's going to filter into the real economy. We're going to see prices rise across the board and I think we're going to see prices rise across the board like we've never seen before.
And people are going to -- are really going to -- I think they're going to panic to be honest, because wages are not going to rise in proportion with the rise -- with the rising prices of goods like milk and just basic necessities. I'm not talking about computers or washing machines, I'm talking more about food prices, even energy prices perhaps.
So I mean, it's going to be bad. It's basically going to lower people's standard of living, but there's going to be inflation in some.
DS: As if we need more attention in the world with that. So my last question, what mining makes you like? How are you playing this?
VD: So we have quite a -- we have quite a few of mining positions in our portfolio right now. We have -- personally I like ETFs a lot. So I mean, obviously we all know the benefits of ETFs you don't need to pick and choose companies you get a basket of companies. When it comes to gold and silver miners, there's the best ones typically make up maybe 40%-50% of the weight like the top 10 companies 40% 50% 60% maybe 70% of the weight.
So if we're talking about ETFs, I like GDX, I like GDXJ which is a gold miners the juniors ETF. It's for smaller cap gold miners. GDX is for large cap or bigger cap gold miners. We also like SLVP. This is a gold and silver mining ETF a very interesting combination. And then there's the SIL, which is a silver mining ETF. So we own all four of these. We like all four of these names a lot.
And what I feel they do? The ETFs is that they add a lot of or they add some -- they definitely add something very important to your portfolio, to your, to my, to our GSM basket or GSM segment of the portfolio.
So they're basically complimentary to the gold mining names that we own. Our core positions are in Kirkland Lake Gold (KL), we like a lot. This is an excellent company, makes a lot of money, trades at a PE of like 12 supposed to go revenues double digits. I mean, it's just extremely cheap. I can't believe it sits as cheap.
Newmont Mining (NEM) is a great name. Obviously, it's a -- I believe it's the biggest gold miner in the world. Also not expensive it's trading at after the recent correction. It's trading at around 20 times forward earnings. Growth rate is also double digit.
We like -- probably our favorite name one of our favorite names is a smaller cap gold miners has a market cap of like $5 billion or $6 billion. It's called Kinross Gold (KGC). This is an excellent company it's trading at around -- it was trading at under 10 times 2021 projected consensus earnings, which is just incredibly cheap.
And it has a growth rate, double digit growth rate revenue growth rate. So it's supposed to grow revenues by, I think 15% next year. I believe these numbers are also underappreciated right now. I believe that analysts are projecting their future EPS and revenue figures based on maybe $1700-$1800 gold prices maybe there.
May be some analysts are projecting $1500 or $1600 gold prices. But I'm pretty confident that if they were basing their analysis on $2000 or $2500 gold, they would have much higher EPS and much higher revenue growth estimates for 2021.
So a few other names that we like is First Majestic (AG) is a silver company. Our favorite silver miner is Pan American Silver (PAAS). We have a big position in that one. And we also like for Fortuna Silver (FSM).
And let's see, aside from that we also like Alamos Gold AGI is a symbol. And that is about all we own in the gold mining sector. Right now we have this company this we recently bought this Russian company, Norilsk Nickel has the symbol OTC:NILSY. This is a very big company. It's a $50 billion company.
I believe it's -- I'm sure it's one of the biggest miners in the world. But they don't only derive gold, they're into copper and nickel. And they're basically into all metals. But this is a great company very cheap trades at a 7 Trailing PE, and it pays a very nice over 5% dividend.. Great company to look at going forward?
DS: Okay, it's quite the list. So it sounds to me like it's really, you have a basket of names, you have the ETFs. And so you really think about it the asset allocation level and you're allocating a lot to this sector because--
VD: Absolutely. This sector right now makes up about 22% of our portfolio.
DS: Okay. Quite a quite a sizable chunk.
VD: Absolutely. Because we believe in it. And we believe and we invest in and that is why we usually beat the market.
DS: All right. Well I can tell you are the Victor Dergunov who is the author of Albright Investment Group. You've just heard his case for the gold sector. Victor, I presume positions in all of those mining names you mentioned. Any other disclosures that you need to make, you mentioned Tesla earlier or any other names?
VD: We're out of Tesla. We actually sold that like right around the top, like 850. And I know it's trading a bit higher right now. But we just -- I'm just looking at it right now. I don't want to chase it up here.
I love Tesla. I've owned it for years. I've owned it since 2013. But up here, I know the stock is going higher. I mean if you get me talking about Tesla, we’re going to talk another half hour. But I'll make it brief. I'll make it very brief. I'm a big believer in Tesla. All right.
I love the company. They're doing amazing things. And I do have a very high price target on Tesla in about three to five years from now. So it's in the thousands. So we're talking about $3000-$4000 price target within a three to five year time frame.
However, once again Q2 is going to be horrible. We're going to have a sell off into Q2 earnings in my view. And we're going to pick up some Tesla shares on their way down, near the lows. Not at $880. We're going to buy some at $550 or maybe lower.
DS: Okay, so we've got a timestamp on that. So we'll see how Tesla of course. I've managed to avoid talking about Tesla on these videos and on the podcasts I've run. And I'm generally proud of that
VD: Hey, look, Daniel. Well, let me just bring this up. My first ever article about Tesla on Seeking Alpha was I believe in 2017. It was titled Will Tesla Become A Trillion Dollar Company? Now in this article first when I wrote it, I got. It was just the comments section was ridiculous. But anyways. One of the things I mentioned in the article was by around 2020 to 2021. We're going to see the stock at $1000. And obviously, I got a lot of laughs for then.
But I mean, here we are in -- I mean, people can call it look at the article. It's my first Tesla article that I've ever wrote for the site. We can go back to that article. And I mean, here we are in 2020. Tesla is or was it had $1000?
DS: I see an article from October. Well, I probably -- my screen is blocking your first article. I do see an article titled Tesla's Trillion Dollar Future. Looks like it was probably a video interview you did with--
VD: That was later. My first article on Tesla was before that. That's called -- well I believe it's called Will Tesla Become a Trillion Dollar Company?
DS: All right. All right.
VD: And I believe that it will in time.
DS: Okay. All right, I should disclose. I actually have small positions in GLD and in Newmont, and a position in Google, which you brought up earlier in the title.
VD: I like Google.
DS: So all right, Victor, best of luck. Very congrats on an impressive start to the year. And I hope it continues to play out well for you.
VD: Thank you, Daniel. I appreciate it.
DS: All right.
VD: It's great speaking with you.
DS: Yeah, absolutely. Yeah. Well, hopefully we'll get to do it again.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Daniel Shvartsman is long NEM, GLD, and GOOG. Victor Dergunov is long GDX, GDXJ, SIL, SLVP, AGI, AG, KGC, PAAS, NEM, NILSY, KL, and FSM. Nothing on this video should be taken as investing advice.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given that any particular security, portfolio, transaction or investment strategy is suitable for any specific person. The author is not advising you personally concerning the nature, potential, value or suitability of any particular security or other matter. You alone are solely responsible for determining whether any investment, security or strategy, or any product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. The author is an employee of Seeking Alpha. Any views or opinions expressed herein may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.