The greater risk — in or out of the stock market?
It won’t all be full speed ahead, says this Canadian expert, but it’s better to be in the market buying stocks on pullbacks — like these two.
Is it better to be in the stock market or out of it?
Let’s face it. The market is not going straight up — it is bound to go in fits and starts.
The global economic recovery is not going straight ahead, either. And while credit is flowing more smoothly these days, it would be rash to suppose there won’t be any more nasty surprises in store.
Still, one expert in the business is emphatic. “The key risk for investors now is being out of the market,” says Ms. Jennifer Dowty in Investor's Digest of Canada.
Despite the rather spectacular rise of stock markets since March, there is still a lot of money waiting on the sidelines, says this portfolio manager.
And if there are a few hiccups and pullbacks along the way, so much the better, she adds. You can accumulate good stocks at lower prices.
The two stocks she examines in this article have already done very well this year. They’re just the kind of fast-moving stocks that are worth buying if and when the share prices take a dip, she reckons.
And they’re likely to do so — these are mining stocks that are on the exploration and development side of the business.
So which is the greater risk? Jumping in with stocks like these, or staying out altogether?
Phenomenal returns
“The market wants to move higher,” Ms. Dowty states. And the news is more good than bad.
“Risks have declined, the threat of financial collapse has receded, the possibility of a depression or prolonged recession has been removed and governments around the world have made a strong commitment to reinforce global economic growth.”
Under the circumstances, you might want to consider two stocks that have had “phenomenal” returns so far this year, she says. Both should now be on investors’ radar screens.
Trending gradually higher
The first of these phenomenal performers is Copper Mountain Mining Corp. (TSX-CUM). It has a 75 per cent interest in the Copper Mountain Project near Princeton, B.C. Mitsubishi Minerals owns the other 25 per cent.
This is an exploration and development stock — the mine is not now in production. But the necessary infrastructure is in place. The mine closed in 1996 and will not be difficult to re-open. All the permits are ready.
In addition, so-called “off-take” agreements have been signed. Mitsubishi will take all the copper concentrates during the life of the mine.
Management has the financing it needs to go ahead and expects to be producing copper by mid-2011. Cash costs are estimated at $1.50 per pound. Copper is trading now at $3.21 a pound, a 14-month high. (During the most recent commodity boom, it exceeded $4 a pound.)
There are estimated to be 5 billion pounds in the mine, which will deliver 100 million pounds a year.
The one drawback — the mine has low copper grades. But that hasn’t prevented the company from attracting more outside interest. In September, Taseko Mines (TSX-TKO) made a share exchange offer for an 88 per cent interest in the firm. Copper Mountain rejected the offer.
The stock trades at a discount to its net asset value and to its peers in the industry. Although it has risen over 175 per cent this year, it had been floating in a trading range of about $1.20 to $1.60 since July.
It has popped out of that range now, sitting at $1.72 today.
Concludes the analyst: “Copper Mountain is an upcoming producer that would be a good core holding for a diversified portfolio.” Although it will surely slide back when the market does, it will likely “continue to trend gradually higher, especially as the mine nears production.” She recommends buying when the shares pull back.
Known to the big boys
Gold is next, in the form of Victoria Gold Corp. (TSX/V-VIT). It is pursuing two core developments — the Cove Project in Nevada and the Eagle Gold Project in the Yukon.
Although Victoria may not be well known to many investors, Ms. Dowty comments, it is well known to the big boys in the field.
Kinross Gold Corp. (TSX-K), the third-biggest producer in North America, has a 19 per cent interest in Victoria. And Newmont Mining Corp. of Canada (TSX-NMC), the second-largest producer in the world, is a joint-venture partner with Victoria.
Three things could push this junior gold stock. First, further drilling and exploration results. Second, there will be an economic pre-feasibility study for the Eagle project, which should be in by the end of the year, and an economic assessment for the Cove project, which will come in 2010.
Third, it could be a takeover candidate.
Like Copper Mountain, this stock remains undervalued, despite its meteoric rise this year — over 200 per cent. It trades today at $0.68. This analyst offers her Investor's Digest of Canada readers the same advice for this stock – buy it when the share price pulls back.
Some investors will feel there are less risky ways to be in the market than with two junior mining stocks. But there’s an even bigger risk as far as this analyst is concerned — not being in the market at all.
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