A Mutual Fund to "Grow" With
07/28/2006 12:00 am EST
Investing in commodities can be a hair-raising—and volatile experience. But veteran mutual fund guru Tony Sagami finds much to like about a commodity-oriented global fund that is bringing home large profits to its shareholders…
“I think commodity prices—such as oil, gold, aluminum, copper, natural gas, coal—are headed higher. And if they are, U.S. Global Investors (GROW NASDAQ) is a stock that you definitely want to own. GROW is a mutual fund firm specializing in natural resource and precious metal investing. It manages 13 no-load mutual funds and had $5 billion of assets under management as of June.
“Mutual funds are great businesses to invest in as long as assets under management are growing. Costs at fund companies are largely fixed—so once you have an investment team and customer service support personnel in place, the cost of serving additional investors is almost nothing. Once a fund company reaches a break-even level, any additional revenues turn into buckets of profits. U.S. Global was making money when it had $2 billion in assets, so it's just gushing profits now that assets have risen significantly higher.
“In Q1, U.S. Global reported $2.55 million or profits of 34 cents per share, up more than 400% from the $449,000, or six cents per share, it made in the same period in 2005. Profits are exploding. The reason is simple: Assets under management jumped from $2.23 billion on March 31, 2005 to $4.37 billion on March 31 of this year. And with assets pushing $5 billion, now that extra $700 million is going to result in more impressive quarterly profits.
“The future looks even better because I expect assets and profits at U.S. Global to continue to explode. I say that because:
"Its funds are on fire. In the five years ended June 30, 2006, U.S. Global had the #1 (U.S. Global World Precious Minerals), #3 (U.S. Global Gold Shares Fund), #4 (U.S. Global Eastern European), and #5 (U.S. Global Resources) performing mutual funds out of the entire 7,300 fund universe. When your performance is that hot, money comes gushing in. It's about to be discovered. Not one analyst follows this company. Investing in under-the-radar stocks is how you find diamonds in the rough, but GROW’s anonymity is about to change. The reason: GROW was added to the Russell Microcap Index on July 21, the first time GROW has been added to any index. I expect that move to be the catalyst that puts it in front of the Wall Street crowd. It's got a pristine balance sheet, with ZERO debt and $11.7 million of cash in the bank, which translates into $1.55 per share of cash.
“U.S. Global will report its Q2 results in mid-August and I expect it to deliver blockbuster results. After all, assets have been pouring in the door.”