Liquid Gold

More Room to Run for Goldcorp

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Investors, stock gains are all about earnings and Goldcorp has a lock on them for a while. Let's examine some of the reasons why this stock will perform well over the long term. By long term I'm talking about the next six to forty months.

Goldcorp is a member of the basic materials sector. The 52 week stock price range is between 21.00 and 46.30. At this writing Goldcorp is about ten dollars a share below its 52 week high. This is the slow quarter for gold companies and that makes it a buying opportunity for you, the investor. Demand from Asia picks up in the third and fourth quarters as buyers place their orders for wedding season.

There are 708 million shares outstanding with 55% of them held by institutions. Management is repurchasing stock.

Book value (18.17) is bullish. Book value reflects the value at which assets are carried on the balance sheet.

Relative performance of stocks versus bonds is a favorable influence for Goldcorp. When the total return for stocks has outperformed bonds, that makes a bullish case for Goldcorp.

The long-term debt/capital ratio is 7.16%. This reflects well on the company's financial stability. The average ratio for gold companies is 9.5%.

2008 earnings were higher than expected and 2009 earnings projections are 25% higher yet. Look at the current price of gold and realize that Goldcorp's cost of removing the metal from the ground is around 200 dollars per ounce. There's a huge percentage between the production cost and the sales price. If gold goes up higher in price, then Goldcorp's profits will also rise even higher.

Finally examine your personal beliefs about inflation. Gold has always been a hedge in that area. If you have noticed higher prices in your life, methinks you might consider purchasing a little insurance to tide you over. Think about the financial debt that the USA has accumulated, the credit problems on Wall Street, and the rising price of crude oil. Know that the war in Iraq is a huge and continuing expense.

If the current crop of politicians remain in power, it will be more of the same. If we elect to change horses and try to balance the budget, think about rising interest rates and inflation until things stabilize. It won't be a wand that can be waived overnight.

It took years for the last gold runup to go from 200 dollars per ounce to over 800 dollars per ounce. When Paul Volker finally got inflation under control by raising interest rates, I was getting 15% interest on my certificates of deposit at the bank. Personally I'm putting my money where my mouth is. I feel so strongly about the upcoming inflationary environment that I've got over ten per cent of my total assets in the shiny stuff and the companies that mine it. A large portion of my funds are in Goldcorp.

Time to Address Alternative Energy ?

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Oil and gas costs are rising as I type. Peak oil is predicted to occur between now and 2012 depending on who is doing the forecasting. What is a prudent investor to do? Well, for one, stay invested in the market.

Alternative energy has etched a hope in the psyche of the nation. We can improve the technology to lower energy costs; right now though most of the improvements available are cost prohibitive. Someday they won't be. I don't know about individual companies but I do know about hope. Rather than focus on one or two stocks in the alternative energy area, I would suggest one focus on an ETF that specializes in that arena. There are too many horses with too broad a spectrum to distinguish an obvious winner yet. With diversification one can profit until a clearer picture forms.

GOLD IS HEADED HIGHER

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Sometimes I feel like the priestress of Troy, Cassandra, who urged it's citizens to "Beware of Greeks bearing gifts."

Folks, the Fed are the Greeks and the gifts they are offering will stress our financial system.

All of the "smart" traders baled out of gold the past two days and booked profits. I suffered a 7 percent decline in my portfolio, but I'm holding on. Why? Because a new twist can arrive at any moment and gold will resume it's climb upwards. If you question this, read up on financial history and technical patterns for the answers.

I urge you to add some gold mining stocks to your portfolio while the shiny metal is down. TV ads are running, begging citizens to sell their gold for extra money. It happened in the seventies and it is happening now. The purchasers know that gold is going much higher and they see an opportunity to make a profit.

Like Troy, we need to keep our defenses up in this economic climate. So far the Fed has taken the tax money of the poor and middle class to bail out the very rich on Wall Street. The Fed will have to address continued problems until the decling home values and the credit mess the housing bubble created subsides.

Let's talk about The Bear

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How many of you think we're in a bear market? And speaking of bears, how many of you noticed that one of Wall Street's premier firms, Bear Sterns, just got swallowed up in this mess overnight? Gone in one weekend after seventy four years in business. Gone.

Tomorrow is Fed rate cut day. Another debasement to our dollar. Ordinarily I like rate cuts because it makes my gold stocks shine. But, folks, this is serious. These "Wizards" who are leading us down the yellow brick road don't have a clue as to what they are doing to our markets. If you think this market is bleak, you ain't seen nothing yet. This credit mess is international ---spread by hedge funds, investment banks, and all of the darlings down on Wall Street. Markets will be headed in a southerly direction for a long while but hopefully there will be some bubble like cushions tossed out to smooth the ride.

Load up on gold. It was the only asset class to remain positive during the depression. Oil stocks are also good, but make sure they pay dividends. We may get another bubble first, but the seeds have been sown, the path is obvious. We're in for a year or more of misery. If we're lucky enough to see the S&P rise to 1350 or 1400 in the stimulus package quarter, SELL and pocket some money. You'll need it to pay the extra bills caused by rising inflation. Unfortunately, house prices, financial investments, and wages will not be participating.

Pay NO Attention to the Man Behind the Curtain

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We've been having some horrible times in the market for the past few days. The credit crisis keeps expanding and pundits are calling for all sorts of horrible earnings and events. Downgrades are appearing left and right and the general message is doom and gloom; pensions are disappearing, banks may fail, and boomers may never be able to retire.

HOGWASH to all of the above. Does anyone remember the Wizard of OZ? The "Wizard" was calling all the shots and when questioned, his classic line was "Pay NO Attention to the Man Behind the Curtain." That very advice holds true in today's market climate. Here's why.

Do you believe that our whole financial system is at risk and will fall apart? If so, take a look at the financial history of this country, beginning in the 1800"s with the tulip bulb bubble. That bubble pricked and moved on to railroads, steel, and other bubbles. Review the depression and the lead up to that decade. Other items of interest are the savings and loan debaucle of the Bush One presidency, the irrational exhuberance in tech stocks of the 90's, and the market reactions to 9-11-01.

Many of you may not recall these items, especially if you weren't investing during those years. Well, let me be a calming influence to you, because I'm old and I've been investing since the early sixties. I've also got the experience and the profits to back up my words. No, I wasn't around for the great depression of the thirties, but my parents were so I feel well schooled in that era, too.

Stop listening to the entertainment talking heads and start your own thinking. Look for p/e's. Look at dividend yields. If you don't know what either of those items are, then you're not investing. When you buy a company, you're purchasing it with the expectation that it has a future going forward and that you will participate in it's profits. You want earnings growth potential and a dividend to cushion you in the worst of markets. Remember that earnings drive the market and will push up the price of your stock.

Take your age and timeframe into consideration. It doesn't make too much sense for me to invest in something that may payoff in five to ten years, but it may make sense for you. Want an example? Then look at the demographics. They baby boomers are not going to live forever. They will need new joints, lots of medicine, medical facilities, senior housing, dental care, pet care for their animals, financial management, and eventually cremation and burial. There's a slew of companies providing these services to pick from in virtually all of these areas. Check them out yourself. Look at their history, their p/e's and their guidance going forward. Avoid any who are heavily in debt as their future prospects could be impaired. If you find one that looks good to you, then purchase some shares when the talking heads are spouting gloom and doom. Sure, your stock could go down a little, but if the p/e is low and the fundamentals are sound, then you're in it for the long term and you'll be rewarded over the years.

These words are from an investor that bought APPL under 10, PEP at 29, and COP (when it was the old Phillips Petroleum) at 16. Yes, I picked them up in the 70's. 80's and 90's and used the same method outlined above. I also bought utilities in the 1960's and retired almost two decades ago because their dividends were paying me more than my employer.

If you don't like the boomer play, then watch the commodities. They are more immediate, but once again, I urge you to do your own research. The gold mining companies are paying anywhere from 190 dollars to 390 dollars to get an ounce of gold out of the ground. Find a company with large reserves, a low cost and good earnings going forward. (Since gold is going for over 950 dollars an ounce at this writing, the earnings picture looks pretty bright for the shiny metal.) This country's failure to provide a strong dollar policy portends an even brighter picture for the future.

Learn economics, do your own thinking and research, remember no one will take care of your assets like you will, and most of all pay NO attention to the man behind the curtain.

The Trend is Your Friend

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Today's trend seems to be a pickup in inflation. A quick way to make a few dollars is to invest in commodity related stocks in energy, materials, precious metals and agriculture. As the dollar drops and inflation increases these investments rise. This strategy will work wonderfully until the Fed begins raising rates. Since that won't be for awhile, lets look at some possible movers in the commodity related areas.

Afraid to go all out on one stock and want some exposure to the area? Then try RJA and GSG. RJA is Rogers Elements, an agricultural index started by Jimmy Rogers, the investment biker, no less. He's sitting over in China in the land of opportunity now and is a huge bull on agriculture. The index features about 20 various ag commodities from wheat and corn at a high per cent of the index down to greasy beans at the lower per cent end. It's new and up over 10% since I bought and unfortunately not available in SLO. (It must be too thinly traded) I mention it in hopes it can eventually be traded here as it is a sure winner.

GSG is easily available and it is the symbol for the S&P commodities index. You get exposure to a broad area that should trend upward for some time.

Gold is best played by owning the mining companies now rather than the metal itself. The metal has seen a considerable runup and will go higher. How high? Who knows? This I do know: the mining companies are just beginning to see their profits accelerate and they have miles to go. The major players are Newmont, Barrick, Goldcorp, Kinross and Yamana. There are others and the gold industry is ripe for consolidation. Too nervous to pick one? Try a fund or purchase the options when they become available in the not too distant future.

The energy world is confusing. There's oil, natural gas, drillers, refiners, etc. Which one gives you the most bang for the buck? All that is driven by demand and depends on weather, time of year, world tensions, etc. It's a tough call to decide what's going to happen. One thing I do know. S. America is have some natural gas problems and Cuba may also open up some in the future. PZE (Petrobras) is inexpensive, pays a nice dividend and is a safe way to play this.

The African continent is an increasing player on the oil stage. SSL (Sassol) is a large cap global company that has a patented process of making oil from coal. It is a huge industry in S. Africa and is sharing its technology worldwide for a price. Barrons wrote a piece on it not long ago and gave it high marks.

Want some good old American company? Take a look at CHK (Cheasapeke) They are sitting on the Barnett Shale project in Ft Worth Texas and a boatload of natural gas. They also own several of their rigs and property in the Applachians. Natural gas is plentiful, clean burning, and is produced in our own country. .