What a nasty stock market swoon! It’s been painful to watch hard-won share price gains drift downward.
It compounds the pain when I watch the downward share price drift, while I KNOW that great things are happening with the companies I have recommended in my investment service, Energy & Scarcity Investor. Heck, just in the past six weeks, I have traveled to Alaska, Manitoba and Quebec with my eyes wide open, looking for what needs to go on to build great companies.
Earlier this year, I travelled to Russia, Kyrgyzstan, Serbia, New Mexico, Texas, South Africa, Namibia and other locales to check out the goods.
During my travels, I saw real ore deposits, real hydro, real geothermal, real drilling sites, real cores, real ore assays. I saw real people — geologists, engineers, scientists and more — working their butts off, working to design projects, drill holes, create mines and to generate primary wealth from the Earth.
Meanwhile, all summer, the markets just seemed to sell off and sell some more. What’s the excuse? Macroeconomic problems in Europe, Asia and North America. The out-of-control banks. A potential bubble popping in China.
Don’t forget that the US budget is hemorrhaging. And then there’s that bizarre US tax and regulatory monster system that’s wrecking creativity and risk taking in the world’s largest economy. All of which leads to…a generally negative sentiment across the broad investing landscape.
Within the wide range of different resource sectors, there are more-specific issues. For example, in the rare earth space, the share prices for pretty much all the companies are down.
Over the past couple of months, former ESI holding Molycorp has been gyrating within the $50-60 range — as if awaiting its Waterloo. Well, last week, Molycorp’s deal with Japanese giant Sumitomo fell through…and the stock tanked. As of this morning, the stock was trading for $33 and change. Looking back, we sold Molycorp out of the Energy & Scarcity Investor portfolio at the right time and booked a nice gain. I don’t know where Molycorp will go from here, but my hunch is that there’s more downside than upside.
Or look at former ESI holding Rare Element Resources. It’s been as high at $16 per share this year and now is hovering near $8. Rare Element has a good ore deposit at Bear Lodge, Wyo., but in general, it’s tougher to get things done (like metallurgy) than a lot of people thought earlier this year. And with Rare Element, people have been selling.
Then there is Australian hot-runner Alkane. Alkane was a rare earths darling for a while, with a share price over $2.60. Now it’s down in the $1.30 range, and likely lower with a recent announcement of higher costs and more delays for its entire business plan.
Shares in the Canadian firm Arafura have been up over $1.60 in the past year. Now the share price is below 60 cents. It’s the same old story of difficult metallurgy, high costs and delays in getting things done.
The market goes up and down over days, weeks and even the months. But I’m looking for investment ideas that will work out over a longer term, more like a two-three-year time frame. The idea is to buy into these companies along the way and stick it out through the market upheavals. Let management do its thing — as long as management shows that it’s on “our” side.
Eventually, these kinds of companies — with the great assets and strong management — will arrive at a share price that truly reflects the inherent worth of the organization. No, not every company will, say, smack the ball out of the park. But we want the winners to more than pay for any losers.
If a company is good, it doesn’t really matter what the share price does in the short term. Up? Down? Sideways? The market is going to do what it’s going to do. But with good, well-run companies, just hang on and let the business plan evolve. Don’t panic out of your position.
On behalf of my subscribers, I travel to places like Quebec, northern Manitoba and Prince of Wales Island — not to mention Moscow, Belgrade and Windhoek — to see what’s going on. I go there, look around, meet the players and then tell you what the companies are doing, and whether they’re doing it well and doing it right…
We’re in a tough market, with all sorts of unpleasant things happening at the global macro levels, as well as with issues within the different investment sectors. But I’ve looked hard to find you good companies with excellent assets and strong management. We need to ride out the short-term market scares and keep focused on what the companies are doing.
As I said above, a year from now, we ought to look back and smile. I expect more and better things — great things, to be frank — from the companies I have recommended. They’re all the real deal. I’ve seen things up close, and I’ve got the dust on my boots to prove it.
Looking ahead, we’re going to see rare earth deals and positive developments with the gold, silver, oil, uranium and potash fertilizer plays. We’re watching valuable companies develop even greater value as they supply important things that the world needs and wants.
Byron Kingfor The Daily Reckoning
Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
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