A Gold Stock That’s Getting Attention

07/23/2007 12:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo, editor of Jack Adamo’s Insiders Plus, says an underperforming gold mining stock is starting to attract more interest from some big buyers.

I’m not a big fan of Newmont Mining Corp. (NYSE: NEM). Over the last few years, it seems to have found one thing after another to stumble over. In the last year and a half, the stock has lost a third of its value. The company has made a few strategic moves lately, but frankly, I’m not certain whether or not they are of any lasting value. In fact, my buy recommendation here is not based on anything the company is doing.

Periodically, I make a recommendation based solely on technical grounds. It goes against my analytical nature, since I believe in value, not investor fads. Nonetheless, occasionally there are situations that strongly argue for a technical buy. Coupled with the strength I see in bullion, I think [Newmont is] a reasonable speculation. If it goes against us, we can cut our loss quickly without any regrets about letting go of a company I feel strongly about.

The technical reason for buying Newmont involves something called "On Balance Volume" (OBV). Basically, it is a measure of a stock’s price multiplied by its volume. If a stock rises on high volume and falls only on low volume, the overall accumulation of the stock is occurring at higher prices. That’s what On Balance Volume measures.

Since early this year, [although] Newmont’s stock has remained weak, the OBV has been progressively stronger, indicating that there is big money out there accumulating the shares in the low forties where the stock is now. (It closed Friday at $43.)

This type of technical data may signal that that there are reasons, yet unseen by the public, that the stock’s prospects may be improving. Alternately, it may just indicate that this is the level at which big money considers the stock a good buy. In either case, it is worth listening to, as long as you don’t become wedded to the idea. As I said, if this goes against us, I won’t have any second thoughts about admitting a mistake and letting it go.

If you’d rather not trust this indicator, but wouldn’t mind increasing your exposure to gold, Barrick Gold Corp. (NYSE: ABX) has been on the move lately after a long rest. You could substitute a position in Barrick for the Newmont holding. It would be less speculative, and might do just as well as Newmont if I’m right about the direction of gold over the next few months. Right now Barrick is above our buy range (It closed Friday at $34.50—Editor.) Barrick Gold is a buy on pullbacks to $32. Newmont Mining is a Speculative Buy up to $45.

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