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XMFSinchiruna (28.52)

Top 10 Gold Stocks for New Money Now

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July 05, 2011 – Comments (27)

Well Fools, you asked for it! :) A few of you e-mailed me or posted comments in my direction over the last several weeks asking if I could revisit my top-10 list from the beginning of the year, with appropriate updates for where I would be likely to deploy capital right now within the sector.

Here is the result:

Top 10 Gold Stocks for New Money Now, Part 1

http://www.fool.com/investing/general/2011/07/05/top-10-gold-stocks-for-new-money-now-part-1.aspx

Top 10 Gold Stocks for New Money Now, Part 2

http://www.fool.com/investing/general/2011/07/05/top-10-gold-stocks-for-new-money-now-part-2.aspx

While I was at it, I opted to treat the gold stocks separately from silver (which I hope to address in a subsequent piece). Anyway, not only are these the ten stocks I feel most bullish about among all CAPS-rateable stocks above the $100m market cap threshold, but most of them are also stocks that I was busy accumulating during the recent bout of weakness for the stocks. Of course, I own all 10 selections within my personal portfolio.

It certainly was not my intention to have the series coincide with such an immensely powerful reversal of investor sentiment for the group, but I am not complaining about the coincidence. For investors who may have been waiting on the sidelines for a first indication of renewed strength from gold stocks, today could have been that signal. To the extent that is so, I hope Fools enjoy and appreciate my carefully selected list of the top picks in gold.

I would really love to have your active feedback on these. Which selections do you agree with, and which ones left you wondering why another was not selected in its stead? If you support the selections, would you have sequenced them differently, and why? If you own several of the selections yourself, perhaps you wouldn't mind listing the ones you own in a numbered list according to your own relative allocation between them. Is there another gold stock you were busy backing up the truck on in recent weeks? Please note, I am notsecond-guessing my own selections nor asking for someone to convince me another pick was justified ... I am quite certain that these are the ten stocks I am most bullish about at the moment, and if it turns out there were a few better stocks to choose from I can live with that. But I'll wager this, conservatively: by the time gold hits $2,000, the average total return from today on these 10 stocks will easily surpass 50%, and likely have a shot at 100%.

Thank you in advance for your readership, your feedback, and your recommendations here and at the source in the event you value the content.

27 Comments – Post Your Own

#1) On July 05, 2011 at 4:44 PM, tmathe85 (55.85) wrote:

ok so this is off topic but...

Whenever I think about gold stocks I always imagine Tom Bombadil from the Lord of the Rings and how at the council of Rivendale they suggested giving him the ring to keep but Elrond said he would lose it somewhere because that sort of thing didnt register with him. He was more into nature and stuff. And I imagine if someone gave him a bar of gold he wouldnt much care for it either I dont suppose.

Anyways Tom was legit and I always liked his character. *something about value of etc etc whatever....* That is all

 

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#2) On July 05, 2011 at 4:50 PM, XMFSinchiruna (28.52) wrote:

tmathe85

Not sure how that's relevant, but thanks for sharing. :)

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#3) On July 05, 2011 at 5:37 PM, awallejr (82.40) wrote:

Kind of surprised Sandstorm Gold (SNDXF) didn't make the cut.  While it isn't a miner I would still consider it a "gold stock."

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#4) On July 05, 2011 at 6:06 PM, XMFSinchiruna (28.52) wrote:

awallejr

I like Sandstorm very much, and own a bit, but at $421m for attributable M&I resources (including reserves) of 470k oz (market value $705m), I find the shares richly valued at present (mcap =50% MVM&IR). I seek the cheapest gold ounces available, and even after accounting for exploration upside at several of those fine properties, the value proposition just isn't deep enough to earn a spot in my top 10 just now.

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#5) On July 05, 2011 at 6:48 PM, XMFSinchiruna (28.52) wrote:

awallejr

By comparison, SLW attirbutable M&I (including reserves) = 1.3B ounces silver X $35 = MVM&IR $45.85. mcap of $12.2B is only 26.6% of that, so based upon resource valuation alone I view SLW as approx. twice the bargain of Sandstorm.

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#6) On July 05, 2011 at 8:16 PM, SN3165 (< 20) wrote:

Interesting point on Sandstorm. I'm still very high on the stock, mainly because of my trust in management and their proven history of creating value for shareholders. Hopefully they'll add at least 1 new stream in 2011 and 2-3 in 2012, (one of which will be their biggest to date) as they hope to do.

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#7) On July 05, 2011 at 9:35 PM, SN3165 (< 20) wrote:

Sinch, also, what do you think about New Gold warrants (expire in 2017) strike price of $15, and warrants in general. Warrants are very interesting investment vehicles. Especially in this PM bull market. But they are very misunderstood and unknown by the majority of the investment community. Do you think this topic is something that could warrant a new sinch article? :-)

 im personally long wts on sandstorm and also on Franco '12 (a good call by Speedy on the dips). 

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#8) On July 05, 2011 at 10:53 PM, Gonzhouse (70.09) wrote:

As usual, there are more enticing recommendations than I have money : (  but I have the top 3 - AuRico, Primero, and Brigus - in my portfolio.  I agree with SN3165 that your point that Sandstorm is not a screaming bargain is interesting; my guess is people do pay attention to the Management and saw so much SLW alumni they bid it up.

Very happy to see Primero still on the list as I've held on while the market sleepwalks past it's value.  Getting a US listing will help, hopefully as much as Great Panther skyrocketed after listing.  Got to admit that Chesapeake Gold is new to me;  now I have research to do. Agree that Rubicon still looks good but it doesn't stack up as undervalued compared to the others. 

Sincerely appreciate the in-depth analysis provided regularly.  I also have 6 micros (like Caza, ECU Silver, etc.) for the high risk/high reward portfolio.  As some of these micros break big news I'd love to get your perspective as well.

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#9) On July 06, 2011 at 8:43 AM, XMFSinchiruna (28.52) wrote:

Gonzhouse

Glad you enjoyed it. I just posted more comments on Primero beneath Part 2. I'm not sure I would expect a GPR-like effect, but the U.S. listing will certainly help.

There is no way my time will allow me to consistently cover all the micros, but if you ever have a question about a specific micro or a news item, just come ask me on the blogs. :)

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#10) On July 06, 2011 at 8:48 AM, Jbay76 (< 20) wrote:

Sinch, don't get me wrong I love your articles and have learnt so much from you, but you're killing me.  With so little capital to allocate, I feel like a starving man walking by a restauant that pumps its aroma out by the front door....I'm frothing here.  I will be getting BRD later this month, but paying off student loans has been a priority so I can only set aisde a little investing money at a time.

As for SNDXF, I have come to the conclusion (which is based on the idea that I can't buy shares in every company I would like to) that the miner would be the better investment then the streaming company for the sole purpose that the miner can pay off its royalties/debt to the streaming company and still succeed. I think of Aurcanna and how they paid back SLW and now own 100% of their silver mine.  Anyways, as my argument goes, the streaming royalty and the miner have a symbiotic relationship orginally, but once the miner gets its feet underneath itself, it pays off the royalty company and heads higher while the royalty company has to find/create a new contract with a different miner. Without new contracts, the royalty company isn't really doing anything, and as more miners pay off their obligations to the royalty company and earn 100% of the mining rights, the royalty company is left with less and less to generate income. If miners no longer need their assistance, they have to change their biz model or go extinct.

So, between the two, it seems like the streaming royalty has a longer dependence on the miner than the miner on the streaming royalty.  Now if I had the money to buy shares in both, I wouldn't have had to spend the time to rationalize one investment over the other.  But since my funds are limited for the next 25 months, this is the stance I've concluded seems the most logical.

On a side note, Sinch whats your take of Impact Silver?

As always, many thanks Sinch for all the information!

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#11) On July 06, 2011 at 9:06 AM, XMFSinchiruna (28.52) wrote:

Jbay76

Impact Silver would figure pretty prominently on a similar top-ten list for silver. It's a top-ten holding of mine out of 125.

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#12) On July 06, 2011 at 9:11 AM, Jbay76 (< 20) wrote:

TMFSinchiruna

Holy bat wings...125!  Sinch, how do you manage a portfolio of 125 stocks?  This could possibly be a really good blog posting as well.  And I forgot the original two threads were based on gold holdings...sorry.  How about a companion top ten silver holdings article as well?  But man, I'm still wrapped around the 125 holdings thing, that seems like an enormous amount of companies to keep a tab on...

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#13) On July 06, 2011 at 9:33 AM, kdakota630 (31.95) wrote:

Jbay76

I'm with you regarding being excited about a bunch of stocks but not the capital at the moment to take advantage of them, but I always love the information.

Currently I own Aurico, and the next two gold producers I wanted were Brigus and Primero, and that's not including the silver producers high on my list as well.

Equally frustrating is that my wife just started training for a job at a bank.  When benefits kick in they have a stock purchasing program where they match 100% for the first $250 invested, and then 50% of the next roughly $2,000.  We can withdraw our contribution whenever we want but the bank's contribution has to stay invested for at least 2 years. 

So, while I see all these great opportunities for mining stock purchases, we simply can't pass on a guaranteed 50% gain in banking stock, not to mention the dividend it pays.  I'm going to continue doing my best to contribute to the mining stocks myself, but the bank thing is something of a mixed blessing.

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#14) On July 06, 2011 at 2:57 PM, Jbay76 (< 20) wrote:

kdakota630

Mixed blessings are better then no blessings, especially if its a good bank.  And hey, your wife has a job, that's got to count for something as well, though I feel your frustration.  Our time will come, every dog has its day afterall, we'll just be that much more knowledgable thanks to Sinch and Fooldom

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#15) On July 06, 2011 at 3:11 PM, silverminer (41.24) wrote:

Jbay76

It keeps me busy ... that's for sure. :)

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#16) On July 06, 2011 at 3:20 PM, kdakota630 (31.95) wrote:

Jbay76

I don't want to give the impression that I'm complaining at all, just that the stock restriction is frustrating, at least at this point in time.

I'm thrilled she's got a job (although she already was employed, just trading a part-time job for a better full-time one), plus benefits and pretty good pay.

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#17) On July 06, 2011 at 3:31 PM, catoismymotor (73.08) wrote:

Sinch,

I would lose my mind if I had to keep my eye on 125 companies. The very few I have keep me busy as it is.

 

Jbay,

Congratulations on your wife's new job. The stock option sounds excellent. Keep investing when you can. It is important to attack retirement from as many angles as possible. I've been Jonesing pretty bad since I had to suspend my regular investing last fall. Hopefully this January I'll be able to resume.

 

-Cato

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#18) On July 06, 2011 at 4:21 PM, Jbay76 (< 20) wrote:

catoismymotor

Chief, I'll take the conrats but its  kdakota630 and his wife that deserve the congrats as his wife just got the full-time job.

What I want to know is how you'll manage what stocks you own and a newborn?  More importantly, how will you handle all that and still sleep?

  kdakota630

I guess this goes down as one of the ways e-communication can be misleading as I misread you....many apologizes and congrats.   I still feel your frustration in not being able to buy miners, or anyone for that matter, when you want to

 

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#19) On July 06, 2011 at 4:28 PM, catoismymotor (73.08) wrote:

D'oh!

 

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#20) On July 06, 2011 at 4:42 PM, catoismymotor (73.08) wrote:

Jbay76,

I don't know how I'll do it but I am sure I'll share my experiences as I walk the path with a new baby girl in hand. I like to keep things simple with my investing (boring as heck, long-term focus, good management). Hopefully that will help keep an even keel as I find myself awash in baby stuff.

 

kdakota,

Congratulations to YOU and your wife on her new position with the bank. See #17 for more details. :)

 

- Cato, The Dense

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#21) On July 06, 2011 at 5:02 PM, silverminer (41.24) wrote:

catoismymotor

So we'll have to find a replacement to stand in for you in the annual Foolanthropy $0.10 click-a-thon?  :P  Congrats on your new addition!

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#22) On July 06, 2011 at 5:31 PM, kdakota630 (31.95) wrote:

Jbay76

No worries on the miscommunication as it probably originated with me.

catoismymotor

Thanks!  I hear you about the retirement but at the moment our main focus is getting into a house, although the wife's new income and favourable mortgage rate (bank perk) will definitely help.

Also, your wife had her baby?  I knew she was pregnant with a baby girl, but this is the first I've heard of a birth.  Is this correct?

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#23) On July 06, 2011 at 7:08 PM, Mozartamedeo (< 20) wrote:

I'm always surprized at the fact that people believe the price of gold increases because gold increases in value...  This is all backward, The value of gold NEVER changes, it is currencies that devalue therefore it takes MORE currency to buy gold.  Gold is CONSTANT because it is NOT an industrial metal whereas silver is an industrial metal and its price fluctuates.

Comment by Ron Favarger, Email ron@favarger.ca.  Nom de plume  AmedeoMozart 

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#24) On July 06, 2011 at 7:09 PM, catoismymotor (73.08) wrote:

kdakota,

She and the baby are well. The little one is scheduled to make her appearance in the next three to four weeks. Until then my wife is on partial bed rest. 

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#25) On July 07, 2011 at 10:10 AM, kdakota630 (31.95) wrote:

catoismymotor

Glad to hear everyone appears to be happy and healthy.  Trying to think of some good advice to offer and the best I can come up with is to warn you that she'll have you wrapped around her little finger long before you've realized it's happened, and you largely won't care because she's your baby girl.

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#26) On July 13, 2011 at 6:12 PM, adprofessor (97.19) wrote:

New topic: CPFXF is dropping even with what reads as a nice update on resources and an increase in metals prices.Yesa more conservative take on the resources yet still positive.

http://seekingalpha.com/instablog/485861-proactive-investor/194783-copper-fox-updates-resources-at-schaft-creek-higher-copper-grades

I went back and looked at many of the various comments on CPFXF from many of you including TMFSinchiruna, kdakota630, Gonzhouse.

I am still well in positive territory given a devote following of your work (Thank you Sinch!), but considering the sell off as a possible buying opportunity...

Anyone care to comment on the update?

Thanks.

Steve 

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#27) On August 06, 2011 at 8:16 AM, zamyat (< 20) wrote:

Jbay76...You're probably long gone from here, but you should be aware that Sandstorm's agreement with Brigus is for 12% of the "life of mine" gold at its Black Fox mine. Brigus does have the option of repurchasing 50% of the agreement before the end of 2012, as seems likely to happen. But Sandstorm still gets at least 6% of 10-20 years of gold production at Black Fox at $500/oz., hardly reason to worry about running out of income for awhile.

Sandstorm seeks to maximize return (by seeking deals with only the very best miners, and those with large upside exploration potential) while minimizing risk (with a very attractive gold purchase price and contractual failsafes). They don't need to keep seeking new deals in order to be highly profitable, as you imply. A rising gold price and discoveries of new gold deposits are more than sufficient for that, although growth through new streams is certainly part of the business plan.

SNDXF may ultimately not be quite as profitable as some of the miners they do deals with, but IMO the reward/risk ratio is considerably higher than buying the miner directly, for reasons stated above as well as the built-in diversification they add to a portfolio. (Especially important on a limited investment budget.) It's that reward/risk ratio, not the reward (or the risk) alone, that determines your ROI at the end of the day.

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