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Metals and Mining
08/08/2003 12:00 am EST
A number of leading advisors recommend positions in gold and other metals for several reasons, including a hedge against dollar weakness, a safe haven to protect against geopolitical risks, a play on favorable supply and demand fundamentals, and a speculation on rising metal prices. Here are some of their picks.
"It should come as no surprise to find that last week's sector mutual fund leaders were in commodity-related groups like gold and industrial materials," notes John Murphy, editor of stockharts.com. "Recently, we have seen a number of individual stocks in this area breaking out to new 52-week highs that included chemicals, copper, and gold. With both gold indexes that we follow -- the XAU Index and the HUI Index -- hitting 52-week highs, it's not surprise to see gold funds in the week's top spot. Fidelity Select Gold (FSAGX) moved up to challenge the highs of the past two years. The formation looks like an 'ascending triangle' which is a bullish pattern. On relative strength grounds, gold stocks are turning up as well. Gold remains our number one sector pick."
"Freeport McMoRan Copper & Gold 7 Percent Series A (FCX-A NYSE) is convertible into common shares of the parent company," notes Roger Conrad in Personal Finance . "As Freeport's CCC rating attests, its finances are hardly blue chip. Freeport is the world's lowest-cost copper producer. And though its primary operations are in Indonesia, a volatile place to do business, its fortunes are on the rise. The preferred is convertible into 0.835 shares of Freeport Common (FCX NYSE), a value of a little over 20 a share currently. Don't buy above the 25 call price until the conversion value rises to that level as well. But with a yield of over 7% and as a bet on gold and copper, the Freeport preferreds are a buy for aggressive investors up to 25."
"ASA Ltd. (ASA NYSE) is buy for those seeking to benefit from a gold bull market and rising earnings in the sector," says Richard Rhodes, editor of The Rhodes Report . "The recent pattern from the January 3 highs at $43 is now confirmed as a bullish 'consolidation' as the declining trendline was clearly broken. These levels were successfully tested, and we expect further gains in the weeks ahead. All in all, price action is quite positive, suggesting that the rally in the shares just may have long legs. We should allow this trade to develop towards the early-2003 highs at $45, and potentially upwards of trendline resistance at $49-$50 -- which is a very real possibility."
"Don't be afraid to hold plain-vanilla cash at times; cash can be comforting and reassuring," says Jim Dines, editor of The Dines Letter. "Since 2000, patience and cash have been repeatedly rewarded. In addition to our ongoing holdings in gold and silver stocks, we have added a position in the world's largest uranium producer, Cameco (CA:CCO Toronto). The company mines and sells uranium for the nuclear generation of electricity. We are not afraid to hold this stock over the long term, even if a bottom comes out of this market. The stock is a buy in our long-term growth portfolio, which is designed for large capital gains, moderate risk, with strong fundamentals."
"Newmont Mining (NEM NYSE) reported second quarter financial results; revenue for the quarter was $747 million, 16% higher than the year ago quarter," notes Ian Wyatt's Growth Report. "Net income was $90.8 million or 22 cents per share, an increase of 35% over the second quarter of 2002. At the end of the quarter, Newmont has cash and cash equivalents of $275 million. Newmont remains a long-term holding. We believe this company represents a long-term growth opportunity for investors who want some exposure to the gold market. As a result of the significant profit growth, we are raising our rating from a 'hold' to a 'buy', with a 12-month price target of $40."
"We strongly believe that the long-term fundamentals for gold are very positive," says Adrian Day, in his e-mail service, Global Analyst. " So this period will be a very opportune time to accumulate the gold stocks, but selectively, on weakness, picking spots. Other factors are positive for gold's longer term outlook. Most importantly, is the basic macro-economic environment: low interest rates and an expansionist monetary policy. Despite this positive long-term outlook, I suspect that over the next few weeks or months, we may see lower prices. Given our near-term caution, I currently have only one stock listed as a buy - Virginia Gold (CA:VIA Toronto), which is our favorite gold exploration company."
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