There is nothing that feels as good as being vindicated on an idea. As a former stockbroker I especially like to hear that I got it right. But I realize that my vanity is only a personal joy and mining stocks are the real winners.

I have said in August and September, as well as in other points in this year, that mining stocks were one of the best values in the stock market. While the focus has been on financials the market has run to gold. And with the latest drop in the stock market, some 20% down in a week and 42% for the year at that point, there were few that believed anything was still a buy. And then the market gained nearly 1000 points in a day.

And then the Motley Fool readers jumped on the ride. The MSN Money list of institutional buying and the Motley Fool CAPS both picked as their top 2 leading buy choices:

• Compania de Minas Buenaventura
  
• Agnico-Eagle Mines
  

Is anyone surprised?

Copper ran for a huge 2-day run that was unheralded, the largest mining company in the world BPH gained 3.5%. Vedanta Resources Plc, the biggest copper miner in India, gained 14%.

On Monday Barron’s wrote about Van Eck portfolio manager Joe Foster and his call for the gold market - International Investors Gold Fund.

So it seems that all these sources are looking towards the mining stocks. That means that you can be sure that this is the time for a pause in gains for a bit. I still regard this sector as one of the best purchases in the market. Volatility is not gone, but then again the markets in general are going to experience that.

The 4th Quarter is going to be abysmal. As sales miss projections and earning look to become negative, the need for metal will become attractive again. As the financials continue to seesaw, causing turmoil in other markets, and the Presidential election places a firm vision of the next 4 years precious metals will experience a run similar to that at the end of 2007.

I may be wrong, just as at various points this year I already have been. But the overall outlook has been correct, and I think it will be in the future as well. But only time will tell.

Labels: BPH, economic forecast, global stock market, mining stocks, Motley Fool, Van Eck

There is no deal on the bailout of the U.S. financial markets as of this moment. Treasury Secretary Paulson is in the White House as I type trying to create a new plan. The Congress is busy trying to make their own plans as well.

That is the situation that the world markets will be facing tomorrow. And in the wake of this revelation I expect that the Dow Jones Index and other markets will retreat in the face of an unsure weekend. Which means that this is a great market for mining stocks.

I have already mentioned that I feel that coal mining is a great area for the future, based on the need of alternative sources of energy to crude oil. But when the markets are in turmoil, and with direct talk from the likes of Warren Buffett stating that the potential of failing to get a bailout deal done is akin to a financial Pearl Harbor, well there is just 2 place you can bet people will go – gold and oil.

Gold is the traditional hedge in worrisome times. And crude oil has gained in popularity as a hedge as demand has increased in China and other developing nations. Both of these items are limited commodities, and require mining to bring them from the earth that surrounds them.

In the immediate short-term gold will have to fluctuate to handle the demand for safety. Which means that the gold supply will diminish and mines work harder to make up the difference. In the short and long-term oil is both required for energy needs and depleting the finite supply.

And I have to say that mining stocks look great because of all these factors. Why?

There was an old saying from when I was a stockbroker

“You may or may not get rich looking for the gold vein, but if you own the picks and axes you’ll never go poor.”

Companies with proven assets in coal, gold, and oil are the picks and axes of this market and on into the future. The world needs these commodities for safety and energy. No matter the financial outcome, and perhaps because of it, these valuable commodities have to come up to the surface. And mining companies are the means to do so.

With the decreased liquidity in the capital markets, competition is reduced and weaker companies will be forced to merge with bigger and stronger companies. Thus supply will be centralized into fewer hands. With demand up, profits will increase.

Now some would say that this is a temporary blip. And were this the spring I would agree. But with winter and cold weather approaching, and the fact that a slow 4th quarter is all but guaranteed in the U.S. this small blip should last for 6 months from this point.

Plus the fact that a Democratic President has usually been met with a lower market day one. In this case, Senator Obama has yet to declare that the current bailout of $1 trillion (including AIG and Fannie Mae and Freddie Mac) will disallow his initiatives on healthcare and other social programs. So the damage, unless he changes his stance, will even be worse.

When you consider all this, I come to the conclusion that mining stocks are one of the few safe havens in this tumultuous market. If you disagree, please do let me know why.

Labels: alternative energy, coal, commodities, crude oil, Dow Jones Index, gold, mining stocks, stock market, Treasury Secretary Paulson

Oil is in the middle of the summer breather, gold has backed off the stellar highs reached in the 1st quarter. Inflation is in the background, and the mortgage housing crisis continues to hinder the financial markets. Well back on July 2nd I mentioned that

“Energy shortages, most notably in South Africa but also in North America and Chile, forced supply down artificially helping to boost prices. But that is a problem that has been in the works of being fixed since the 1st quarter. Once it is done supply will rise to meet the growing demand and be a signal for profit taking.”

It seems I was right. So what might an investor do and look forward to?

Mining stocks continue to hold one of the better risk reward scenarios for a long term outlook, I think. While many sectors of the markets are slowing there is huge potential in the mining sector for reasons most are not discussing now.

Because of the huge run on gold and precious metal prices early in the year, many of the mining companies took the opportunity to horde cash and survey the landscape. Several of these companies are taking the current indecision in the markets to use that cash to acquire some of the competition. Lonmin was recently offered a takeover valued at roughly $2.5 billion. Vale of Brazil is looking for a potential match with $12 billion in its coffers, while BHP Billiton and Rio Tinto are doing merger dances.

But a merger is only one reason why the current lull in metal demands is a buying opportunity in mining stocks. China and India are far from peak of their demand for metals. Both of their economies are in growth phases and require more raw resources.

China is not only using more metal, they require much more energy. Already China has grabbed the excess crude oil that has become available from the slowdown in the United States. Soon they will have increased their need enough to be driving up crude oil prices even if America lessens its demand via domestic drilling or increases alternative fuel sources.

And of course there is the aspect of fuel sources outside of crude oil. The world is looking for options and needs energy until a renewable alternative becomes viable. That means an increase in mining and processing of oil shale, coal, and uranium. While nuclear has its detractors it provides too much energy to be ignored, and is relatively clean. A new process for coal is in talks in America, making its use cleaner and a readily available domestic stopgap for crude oil. And oil shale has a potential that still remains unknown on the large scale.

Each and every one of the reasons above is likely to show their influence before the end of the year. With the political situation in America poised to change energy consumption trends after the Presidential election, mergers creating more efficient (and profitable) mining companies, demand pressure from China and India even a slight increase in crude oil prices (as winter approaches) or a rush to gold and other precious metals as a hedge for inflation and/or weak markets means that mining stocks are well poised to outperform virtually all other sectors by the end of 2008.

Labels: BHP Billiton, China, coal, Crude oil prices, India, Lonmin, mining stocks, nuclear power, oil shale, precious metal, presidential election, Rio Tinto, uranium

As I recall, back in December I spoke about the chance of the Dow Jones hitting 11,000. It was roughly the same time that I mentioned my targets for the price of oil (initially 110 and then upped to 125). So far one has exceeded my expectations the other is probably forthcoming to a similar degree. So what else can investors expect?

Well I think the mining sector has issues that are both positive and negative. So far there is still a huge run-up in commodity prices that is keeping many companies in the black that otherwise wouldn’t. Anglo Platinum out of South Africa is one such example though there are others. But this run up won’t last too much longer.

One of the main factors helping many mining companies has been the fact that supply has been cut. Energy shortages, most notably in South Africa but also in North America and Chile, forced supply down artificially helping to boost prices. But that is a problem that has been in the works of being fixed since the 1st quarter. Once it is done supply will rise to meet the growing demand and be a signal for profit taking.

Another factor to consider it the American economy. Mining companies eked out a mere .2 percent profit so far this year, though only one other group in the S&P 500 also held a profit. As costs for fuel continue to rise that profit margin is evaporating. Add in a decrease in demand due to cut-backs, and then an increase in supply and you have strong sell signals.

Of course there are still companies in the group that have room for these problems like Marathon Oil and Newmont Mining Corp. Marathon is only trading around 7.5x earnings and Newmont was the 9th best stock on the Philadelphia Stock Exchange Gold & Silver Index. Some analysts like Brian Barish of Cambiar feel they have not caught up to the surging resource prices and thus are worth owning.

So what is the net result? It’s no easy answer but since I expect a run up in heating oil and crude oil prices as the 3rd and 4th quarters hit, plus a continued bear market in the U.S. driving Gold and precious metals, my belief is that mining stocks will outperform most markets into the 2nd quarter of 2009.

Now that doesn’t mean profit, nor does it mean that other factors like who wins the U.S. Presidential race won’t affect the final results. But I think the odds are likely to favor all the mining stocks even if their books aren’t perfect. Its food for thought, take it as you will.

Labels: American economy, Anglo Platinum, Brian Barish, Dow Jones, election coverage, Marathon Oil, mining stocks, Newmont Mining Corp, Philadelphia Stock Exchange, S and P 500, South Africa

On the best day, in the best markets, investing is difficult and stressful. But the current market environment is far from the best of anything. Even so there are a few things we can definitely say about this current cycle. Most notable is that this may well be the year of raw resources, commodities, and the mining and energy companies that find them.

As many of the stockbrokers I have worked with are wont to say,

“You don’t need to be a rocket scientist to figure this out.”

[Something I stopped saying after having said that to a rocket scientist who still disagreed with my analysis of a stock position.]

Energy is a critical issue in every world market right now. Whether it comes from oil, ethanol, coal, geothermal or any other source. Considering the constant demand in the U.S., the increasing demand in China and India, and the growing desire to have cleaner energy (for whatever reason) this is not a short-term issue. Yet oil and energy companies are under political attack. And thus there is an opportunity. If you know where to look.

There are far too many speculating in the commodities markets, particularly oil, right now. The rise in oil is attributed by many to be directly tied to that speculation. Given the current political environment and election I would not be surprised to see legislation enacted to raise the margin requirements in commodity trading up to 50%. Even if it is not raised (or to that level) the mere action of talks occurring in D.C. will hit that market hard. So I suggest another old broker ideal, look where the market isn’t hottest.

Coal. It’s one area that isn’t getting a lot of conversation on cable news channels at this time. It’s a fuel that is available, abundant in the U.S., and with current and future technology cleaner than ever before. It’s also easier to improve technology to make it even more clean, and last I checked no environmentalists were seeking to block its mining to save any owls.

Gold. When economies are shaky, or perceived to be, everyone wants their hands on at least some of this yellow metal. With Lehman Brothers reporting a $6 billion bailout similar to other financials earlier this year, the economy is in question still. While gold has retreated in recent months from its run at the start of the year its way off the lows. And it would take little to spark another run, like maybe a weak dollar. Sound familiar?

The other precious metals. If gold is good, platinum is sweet. And silver is their poor cousin.

Uranium. If we aren’t using oil, and coal hasn’t been looked at, the only immediate answer left is nuclear. Short term it solves many questions, and it’s very clean. As pressure builds for politicians to investigate all energy alternatives nuclear will hit the table again. Add just one or 2 new power plants and there will be a spike in this mined resource on expectation of a growth spurt in the industry not seen since the 70’s.

Now there are other reasons to be in mining stocks for the near, mid and long term. I don’t think most need more though. No one knows which of these mined materials will be the first to run. The political environment hinges on the person elected President. The economic forecast is in shadows currently.

But probability says at least one if not all of these will have their value increase. And the best hedge may be owning the mining stocks as opposed to the particular individual material. Yet another old saying is

“don’t mine the gold, sell the picks and axes”.

The turmoil in the stock market is hardly over. The price of oil may even out. At least till winter hits. But I will guarantee that talk about energy, and therefore mined materials will not end before the Presidential election at it’s soonest. Any rocket scientists want to speak up?

Labels: economic forecast, energy alternatives, ethanol production, Lehman Brothers, mining stocks, nuclear energy, political environment, precious metals, presidential election, rocket scientists