... and a Palladium Pick
10/01/2004 12:00 am EST
“Palladium remains the cheapest of the metals,” says Eric Roseman, editor of The Commodity Trend Alert. “North American Palladium, is a value and contrarian play. We consider it to be the cheapest palladium company on the planet.” Here’s his review.
“For our latest recommendation, we are visiting an old but very profitable friend in Canada. We recommended North American Palladium (PAL AMEX) in late September last year, and sold for a 124% total return in April 2004. We were lucky; as the stock then cratered along with the entire precious metals sector. But the technical and fundamental picture is now improving and the charts of North American Palladium look good following a severe 49% decline from its April high of $14.52. Palladium, I believe, remains the cheapest precious metal today. After hitting a peak of over $1,000 an ounce just three years ago, the spot price tanked to a low of just under $190 an ounce late last year. Currently, spot palladium trades at $222.
“Palladium is probably one of the greatest contrarian speculations in the commodities complex now. It has all the ingredients for a major secular rally later this decade because the big sellers of this white metal have already ‘dumped’ their share of the commodity. In other words, the big bulk of the selling is now behind us. It's been that way for almost a year, yet the spot price languishes for a song. Another bullish factor helping palladium is platinum's relatively expensive price at $850 an ounce. Both metals are used for automobile catalytic converters. But industry prefers platinum because it's a far more effective metal in converters and requires a much smaller application than palladium. As platinum eventually regains lost ground, palladium will be viewed as a cheaper alternative.
“North American Palladium is Canada's only primary producer of palladium with a stock market capitalization of $300 million dollars. The company also produces gold, platinum, copper and nickel. The stock offers a leveraged play primarily on palladium prices, like most gold and silver stocks provide a big bang to their underlying metal. Despite a modest 3% gain for palladium prices in 2004, North American Palladium's stock price has declined 8%. North American Palladium, however, is actually a value stock in a universe of generally very expensive mining companies. The stock trades at just 17.7 times trailing earnings, has a very attractive $1.12 per free-cash-flow per share in its coffers and sells at a low 1.62 times price-to-book-value ratio. This compares very favorably to the majority of mining concerns around the world which sport very high premiums to their underlying assets. But not PAL.
“The bull market in precious metals has yet to commence
its next leg. I think that next leg is only a few months away. If I was forced
to wager a bet, I'd say 2005 will blow away the precious metals bull market
of 2001-2003. The reason that precious metals will take off in the 2000s
is not because of rising inflation; rather, it'll be because of a major economic
or monetary event in the United States or abroad, spilling over to America and
the rest of the world. The dollar is the Achilles Heel of the global economy. I
can't tell you when this shock will occur or what will trigger the next economic
disaster. All I can say with 100% certainty is that most hard assets
(commodities), especially the precious metals, will benefit enormously from the
dollar's day of reckoning. Palladium is dirt cheap and should be accumulated now
at these low prices. We are riding North American Palladium for
maximum profits over the next 12-18 months. Buy at market up to