Fidelity Focused Stock (FTQGX) has been a very strong performer. Stephen DuFour has managed Fidelity...
A Golden Opportunity
03/02/2009 10:18 am EST
Mark Skousen, editor of Skousen High-Income Alert, says a fund of gold-mining company stocks offers a fat dividend and good potential gains.
The stock market is on the defensive again. [We recently fell below] November's lows.
And I have a new recommendation: ASA Ltd. (NYSE: ASA).
ASA has been around for more than 50 years. It is a closed-end fund specializing in gold, silver and platinum mining companies around the world.
There are a number of reasons why I favor this fund right now. For starters, precious metals are on the rise again. [Recently], gold has moved close to $1,000 an ounce again. And I think it's going to go higher still. Gold is the asset of first resort when paper assets begin losing their luster.
With both stocks and bonds taking it on the chin, gold is a natural haven for nervous investors.
Another reason to buy gold is the new $787-billion stimulus package that President Obama signed into law [a couple of weeks ago]. Ultimately, its effect will be inflationary.
The banking problems in Eastern Europe appear to be spreading, too. Yet another round of banking problems could push even more investors into gold.
The World Gold Council says global demand has risen 26% over the past year. (This demand is coming from investors, not consumers.)
A rising spot price of gold, of course, is a windfall to gold producers. However, some investors are concerned about ASA's exposure to South Africa—13% of its holdings—because of the country's weak currency, the rand. But in this case, a weak currency is a plus, not a minus.
South African miners pay labor, transportation, and other costs in a weak currency. Gold, silver, and platinum, however, are universally priced in dollars, giving these producers yet another windfall on the currency exchange.
ASA is well diversified globally. It owns many of the world's leading gold companies, including Newcrest Mining, Barrick Gold, Goldcorp, Kinross Gold, Agnico-Eagle Mines, AngloGold Ashanti, Goldfield, Harmony Gold Mining, and Newmont Mining. It also owns leading silver and platinum producers.
And the fund currently is trading at [more than] a 10% discount to its net asset value and yielding 6.9%. (It closed just above $49 Friday—Editor.)
This is a fund with a whole lot of capital gains potential-and an attractive dividend, to boot.
So, buy ASA Ltd. (NYSE: ASA) at market. And place a protective stop at $40. If you prefer to play this one more aggressively, try the May $60 calls (ASA—EL).
Related Articles on FUNDS
I think we’re finally seeing the bottom forming in MLPs, which is good news for JPMorgan Aleri...
When we recommended large-blend Parnassus Core Equity Fund (PRBLX) a year ago, what stood out most w...
On November 1, we featured Doug Hughes' recommendation for investment banking firm Oppenheimer Holdi...