Although we tend to talk a lot about metals and mining stocks here at MetalsNews, it`s always nice to have input from a well-known expert who brings a slightly different perspective to our site.
At the recent Cambridge House Vancouver Resource Investment Conference, we spoke with Louis Paquette, the publisher of the Emerging Growth Stocks newsletter. His focus isn`t just on the metals industry, but on microcap stocks in general. His expertise helps to bring a fresh perspective to metals investors.
" Emerging Growth Stocks specializes in microcap stocks, including mining stocks, energy stocks, high-tech stocks… wherever we can find big up-side potential for our readers. I look for new companies that no one knows about yet. They haven't been promoted so they're cheap. They're low-priced. I tend to focus on individual companies, but I do focus on a few sectors right now. I watch gold and silver with the emphasis on silver lately. I've been in agriculture stocks for years. I like China and Emerging Markets."
Since gold is such a hot topic right now, we naturally spoke about gold. "I hesitate to use the term "gold" and "bubble" in the same sentence. If we compare other bubbles to what happens on gold, this one would be the most boring, miniature bubble ever seen. I won't use the term "gold bubble" but when you see a lot of people at the conferences, you have to wonder if everybody is in. If gold even corrected to $1100, a lot of companies are still going to make a lot of money because they're producing for $400 or $500 an ounce. This sector has a long way to go." But then Mr. Paquette provided an interesting piece of gold market insight that investors will consider "outside of the box".
"I talk a lot about the gold cycle. There are many factors that impact gold price," Mr. Paquette said, "but the biggest factor is the East Indian wedding season. September is the month that people purchase jewellery for the East Indian wedding season. Buyers take the summer off and the price of gold drifts down in the summertime. And if you look back at the chart of gold, you will notice that around July or August, gold tends to hit a low and so do stocks."
So, how can investors use Mr. Paquette's advice for their benefit? "If you just discipline yourself, and if all you did is buy gold in July or August and then sell gold in February, you'd make a lot of money. It's an easy-to-do tool." But Mr. Paquette cautions about a recent shift in the trend: "In the last couple of years, the trend has shifted forward. The low, instead of being in August, is in July. The high, instead of being in February, is January or December. The reason is that people are becoming aware of the cycle and are taking advantage of it. I think we have hit the high for gold. I suggest that the next time to buy gold stocks will be in July."
Next, we spoke about the long-term outlook and what Mr. Paquette believes that investors will be facing in the future: "I'm a disciple of Dan Arnold. He wrote a book called The Great Bust Ahead. [The book talks about] a demographic trend that should reverse in 2012. It won't be the end of the world like the Mayan calendar says, but it is going to be the end of the economic recovery. That's because the number of people in the 45-54 years old age group will start to shrink. That group is the big spenders who drive the economy. That number will start to go down and will go down to 2025. During that time, the economy will start to shrink. It's happened every other time we've seen this [situation] in history. We should prepare for a slow-down starting next year."
With gloomy news like that, we are forced to ask, what can investors do to prepare for this economic slowdown? Mr. Paquette answered: "All I can do is tell you what I’m doing: I'm living below my means. [My family] is not materialistic, spending everything we have. By comparison, we see others here In Vancouver who are mortgaged to the hilt. They're driving brand new SUVs. The banks own their homes and cars. We're living far below our means and we're saving for a rainy day. I know that sounds 'as boring as hell' but that's what we're doing to prepare."
In addition to diligent saving, Mr. Paquette is also investing in precious metals: "I own quite a bit of silver and quite a bit of gold coins. I own gold stocks. I'm no longer buying gold stocks right now, I'm going to let them drift down before I buy them again. And I have a lot of cash. It is bad [in one respect] because inflation is higher than the money you earn by holding gold coins or cash. I'm searching around for other things to do with my money, but I'm heavy into cash."
So, is this the time for investors to get out of the market? Mr. Paquette doesn't think so: There are still opportunities for investors and Mr. Paquette listed three companies that he's watching closely. For investors who are focused in the metals industry, these investing ideas might add some variety to your portfolio: "Cadman Resources (TSX-V: CUZ.H) is a former silver and zinc producing mine in China and their mine is close to Silvercorp Metals' silver mine. It's in a very prolific area. We know they have some silver there and the mine has produced before. That stock is trading around twenty cents right now. And another pick would be Sunshine Agri-Tech (SAI), which produces feedstock for poultry and pigs. They're located in China and their stock price is about twenty cents. They're supposed to go from $0 revenue to $10 million revenue this year. Another company I really like is a technology company called VentriPoint (TSX-V: VPT). Their stock price is about twenty cents. They're producing a machine that replaces the MRI machine, mainly for the heart. It's a lot cheaper to produce and operate than an MRI machine, so it's going to save money for hospitals. They're approved in Canada and Europe and they're waiting for FDA approval in the US. That would be a big milestone for the company."
Some investors will prefer to continue investing only in the metals and mining industry. But all investors should keep an eye on the economy as a whole and on other industries as well, to inform their investing… no matter where their focus is.
REFERENCES
Louis Paquette
Emerging Growth Stocks
http://www.emerginggrowthstocks.ca/
Cambridge House's Vancouver Resource Investment Conference
http://cambridgehouse.com/conference-details/vancouver-resource-investment-conference-2011/15
Silvercorp Metals
http://www.silvercorpmetals.com
The Great Bust Ahead
http://www.thegreatbustahead.com/