The Commodity Investor Q&A
With Matt Badiali
May 6, 2009
Q: Gold stocks have had quite a run in the past few months. Do you think I should sell now and take profits? – H.B.
A: I think you're nuts if you take profits here.
I see gold stocks as a bet on robust gold prices. And robust gold prices are a result of the debasement of paper currencies happening all over the world.
In a mad dash to "save" everyone who can't balance a checkbook, nearly every federal government in the world is printing money like crazy... That should delay pain for a while, but the effort will eventually fall victim to the law that "there's no such thing as a free lunch."
At some point, paper currencies will head lower because of money printing. To show you how the market agrees with me, take a look at this one-year chart of one of my favorite gold companies, Goldcorp:
After reaching a bottom in November, Goldcorp is enjoying classic bull market action of "higher highs and higher lows."
And don't forget the "small guys," the constituents of the Toronto Venture Exchange. As I've written in the past, the Venture is the "Dow Industrials of junior resource companies." It is also showing classic bull-market behavior...
Bottom line: You have a bull market on your hands... which will only end if world governments all of a sudden get honest and stop dumping money into the rat hole of wars, bailouts, and social programs that reward laziness. In other words, it should last a heck of a long time... So don't sell yet.
Q: PEO trades at a 15% discount to its net assets right now, is it a good buy? – G.Y.
A: Petroleum & Resources Corp (PEO) is a closed-end fund.
Unlike a mutual fund, a closed-end fund has a fixed number of shares. The share value is set by the market, which allows for the difference between its net asset value (NAV) – the actual value of the securities the fund holds – and its share price.
Sometimes investors can use those differences to generate an extra return on their investment, buying funds at extreme discounts and waiting for the price to rise back up to the NAV.
But that's not going to be a great strategy with PEO.
From 1999 to today, PEO's shares have traded at an average 12% discount to net asset value... and have never traded at a premium.
This could be the market's commentary on PEO's managers or simply a lack of interest in the fund... PEO has a quarter of its assets split between Chevron and ExxonMobil. In all, the company has 80% of its assets in energy and 18% in utilities.
Over the last 10 years, PEO has underperformed ExxonMobil, Transocean, and Schlumberger. Over the last year, investors in ExxonMobil did 23% better than those in PEO. And PEO investors paid managers 20¢ per share, about 1%, for the privilege.
If you're interested in a general exposure to the oil industry, you're better off putting your money in ExxonMobil and keeping the fees.
Good investing,
Matt
P.S. If you've got a question about commodities or commodity producers, send an e-mail to the Commodity Q&A. I answer reader questions every Wednesday in Growth Stock Wire. Keep in mind, I can't provide individual investment advice. |
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| • |
Pipelines rise... NuStar and Williams at 52-week highs. |
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Casinos continue climb... Isle of Capri doubles in one month, Ameristar hits a new high. |
| • |
Tech stocks lead the race... up 19% this year, more than any other sector. |
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Earnings today... Anadarko, Cisco, Devon, News Corp, Prudential. |
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Last |
Change |
52-Wk |
| S&P 500 |
907.24 |
+3.39% |
-35.83% |
| Oil (USO) |
30.56 |
+3.17% |
-67.28% |
| Gold (GLD) |
88.64 |
+1.94% |
+4.80% |
| Silver (SLV) |
12.83 |
+4.23% |
-21.08% |
| U.S. Dollar |
87.95 |
+0.24% |
+19.30% |
| Euro |
1.34 |
-0.22% |
-13.63% |
| VIX |
34.53 |
-2.18% |
+89.93% |
| HUI |
320.85 |
+6.47% |
-19.70% |
| 10-Year Yield |
3.16% |
-0.01 |
-0.57 |
|
| Company |
Sym |
Industry |
Capitol Acquisition |
CLA |
acquisitions |
Macrovision |
MVSN |
digital distribution |
Richmont Mines |
RIC |
mining |
Cerner |
CERN |
healthcare |
KBL Healthcare |
KHA |
acquisitions |
The Pantry |
PTRY |
quicki mart |
Ameristar Casinos |
ASCA |
casinos |
Isle of Capri |
ISLE |
casinos |
Pegasystems |
PEGA |
software |
Williams Pipeline |
WMZ |
pipelines |
ArcSight |
ARST |
security service |
Iconix Brand |
ICON |
brand licensing |
Orion Marine |
OMGI |
construction |
Starent Networks |
STAR |
mobile networks |
Aaron's |
AAN |
rent-to-own |
Hansen Natural |
HANS |
soft drinks |
NuStar Energy |
NS |
pipelines |
Suburban Propane |
SPH |
oil & gas |
AirTran |
AAI |
airline |
Great Southern |
GSBC |
bank |
National Presto |
NPK |
consumer prod |
Seneca Foods |
SENEA |
fruit processing |
Critical Therapeutics |
CRTX |
pharma |
Nordic American |
NAT |
shipping |
RRSat Global |
RRST |
broadcasting |
|
| Company |
Sym |
Industry |
ManTech |
MANT |
network security |
|
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