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Some people may have got the impression that I hate natural resource stocks..?!

Not true at all! In fact, natural resources in the ground are maybe one of the few things in our history that politicians and central banks have not been able to debase. You should definitely grab some (more) for your portfolio, especially now the Fed seems hellbent on reflating the US, and the entire world. (I recommend you watch this quantitative easing primer – v precise, and hilarious too!).

But if you stray from the industry giants, buying into the oil & gas/mining sectors is like entering the lion’s den. Be wary! The old quote ‘A mine is just a hole in the ground with a liar on top‘ still holds true far too often, except now the miners have such cushy numbers they actually believe their own hype…

And the other problem is valuation – I don’t hate them, I just find that 9 out of 10 resource stocks are absurdly over-valued, and I wouldn’t touch them with a barge-pole! Expressing this can be problematic – there is an awe-inspiring asymmetry between people’s pleasure and displeasure when you venture that ‘their’ stock is undervalued or overvalued… I guess I just don’t have enough faith (let’s look it up: ‘Faith: Belief that does not rest on logical proof or material evidence.‘). My grandmother will be disappointed…yet again.

But I was on the road to Damascus the other day, and I tripped over a little stock… Yes, a natural resource stock!

No, not quite a (complete) revelation to me…I came across this stock years ago, was intrigued and thought: Good story, good company (maybe), bad price! I’ve patiently kept an eye on the stock (plus God knows how many others) for the past 7 years or so, and finally reached the point: Good story, good company, good price! These are the three fundamental building blocks of any successful investment.

It is a producer, with increasing production (and available capacity). It’s bringing online/evaluating new projects. It has been profitable nearly every year of its existence. It’s currently on a 5.7 P/E ratio, and a 1.8 P/E ratio versus its peak earnings. Of course, earnings and P/E ratios would mean v little if a company exhausts its resource in a few years time… So I’ve taken my best shot at estimating the total value of the company’s assets, and I’m reassured to see the same level of under-valuation. A potential acquirer does exist. And, forgetting the fundamentals for a minute, its share price is trading close to a major break-out level, which could offer a fast/significant move to the upside. Oh, and by the way, did I mention this stock is down 97% from its high?

I will be writing in detail about this stock asap – meanwhile, major kudos to any reader who thinks they can name this stock?!

 

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