Times are good for gold and gold miners, and there’s potential for uranium miners, says investor educator Jason Burack. He names some picks from those areas, as well as the agricultural sector, in today’s interview.
Kate Stalter: Today, I’m speaking with Jason Burack from Wall St. for Main St.
Jason, we talked back in October. At the time, you were invested in a number of commodity and agricultural plays. Many of these were lower-priced, perhaps somewhat speculative, and that’s an area that you specialize in. How has your portfolio changed since then, and what names do you like these days?
Jason Burack: Well, for these types of stocks, they’re smaller growth stocks. They’re undervalued growth stocks, so investors really need to be patient if they’re going to buy these shares, and they need to let things play out for at least two to three years while the company and management executes the growth strategy.
So for people who are going to buy these, you need to have at least a two- to three-year timeframe. If you get a 20% to 40% dip on some of these shares, this is why you don’t buy all of your positions at once.
So in terms of actual names, though, for additional ag and other stocks, for people who don’t want to go and buy like an Allana Potash (Toronto: AAA), which I think is the top fertilizer stock, they can just buy the Global X Fertilizer/Potash Miner ETF (SOIL). You get Allana and some of the other juniors in there, too, plus you get exposure to the larger potash and fertilizer companies that pay a dividend like Potash (POT) and Mosaic (MOS).
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Kate Stalter: OK, so those are a couple. Any other ideas? You had been talking about some of the junior miners previously.
Jason Burack: Yeah, well, I still think gold and silver are going to outperform all the other commodities as a whole in the next three to five years. There will be some smaller patches within that timeframe where some of the other commodities will outperform gold and silver, but it’s just going to be for a short amount of time. So I think people need to keep adding to positions in the gold and silver sector.
Some of the names that people need to look at for gold: I prefer to buy the value plays. I look for where the assets of the gold company are selling for pennies, and some of those companies that people should look at are Brigus Gold (BRD).
I like Jaguar Mining (JAG) a lot. It’s a pretty good arbitrage play, because I think there was a takeover bid already from a Chinese firm for Jaguar that’s above its current price, and I think there will be other bidders. Their assets are worth quite a lot more than the current market price.
I think you can’t go wrong with some other plays including Gold Resource Corporation (GORO), and that pays a monthly dividend. They have a really good organic growth profile for production growth. So I think that’s a good company.
AuRico (AUQ) is another one. AuRico has good gold and silver production. That’s what we call a hybrid company, so you’re getting gold and silver production and not really that much base-metal production.
Kate Stalter: You’re pretty bullish on the gold space, it sounds like. I know you’ve written some reports on this particular sector. Any forecasts for what we might be seeing in 2012, with regard to gold and then the gold miners?
Jason Burack: Well, at the beginning of 2011, I made a prediction when gold, I think, was around $1,200. I said gold would actually go above the $1,600 to $1,650 level, and it would go to $1,800 to $1,900, and then it would correct back down to around these levels by the end of the year. So I nailed that on gold. I nailed the gold price pretty accurately.
I was definitely not as accurate on the silver price with the volatility, but gold, I’m comfortable for 2012 saying that gold is definitely going to test the $2,000 to $2,500 range by the end of 2012.
Now, will it stay in those levels on the first try? I don’t know about that. So I think what could happen for 2012 is that gold could test around the $2,500 level, and then correct back down to around the $1,850 to $1,900 level again before it starts moving higher, unless there are more things that come out in the macro stuff.
The reason people should have a gold position—either physical gold bullion as wealth and insurance preservation and/or some exposure to some of the better gold producers—is because the gold stocks are just really good insurance outside of the system in general.
A lot of these gold stocks have never been in better financial shape in their entire history. These guys are literally minting money right now.
A lot of the producers have tremendous free cash flow, their profit margins are expanding very, very rapidly and there’s a good possibility going forward here now of increasing dividends. The larger companies are already implementing share buybacks, and you’re starting to see the Goldcorps (GG), the Newmonts (NEM) and the Barricks (ABX) start going out and doing acquisitions now every few months.
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Kate Stalter: Any other sectors, Jason, that you’re looking at these days?
Jason Burack: Well, I actually think if people are patient over the next three years, people should start looking at dipping a toe into the uranium-mine sector because this is after Fukushima, so the sector got cut in half in terms of valuations. It just got absolutely decimated.
I was looking at Cameco (CCJ) yesterday, and you get a 2% dividend yield on that stock. It’s close to a 52-week low. The company is making a ton of money, they have a really high-grade product, they have low-cost production, they’re nicely diversified all around the world, and they do a vertical integration strategy where they also make the nuclear power.
So I think Cameco is a really good longer-term play. I think you’re going to do superbly and you get paid a dividend while you wait for the stock to go up in the next couple of years.
In terms of the supply-demand fundamentals for the uranium market, the uranium market got a little bit ahead of itself before the Fukushima disaster, but the real thing that’s going to move the needle in the uranium market—the price of uranium, and what’s going to drive the stocks higher—is the end of the megatons-to-megawatts program, which ends in 2013. This is where the Russian government was selling decommissioned nuclear warheads and re-blending them into below-market nuclear fuel rods.
After that program ends in 2013, the uranium market is going to be relying more on actual production from the miners instead, and uranium will be going into a permanent supply deficit then. Even some of these newer nuclear reactors: I’m not a big fan of the older nuclear plant designs, and I’ve taken a good amount of time to study them. The light-water reactors and the pebble-bed reactors are not the best designs in the world.
There are a lot more cheaper and more efficient designs that are out there, including Bill Gates’ TerraPower Company that he’s working on, the new design. Then there’s the liquid fluoride-molten salt thorium reactor design, which also needs a certain amount of uranium to get to work. Those I think are going to be better solutions for nuclear power longer-term.
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You know, in terms of actual cheap electricity, we have to have nuclear power plants, because you’re hearing Japan and Germany and Switzerland, I believe, after the Fukushima thing talk about abandoning nuclear power entirely. I just don’t see an environment where everyone can completely abandon it.
We still have, I believe, over 400 nuclear power plants running in the world right now. They didn’t shut down all these nuclear power plants after Fukushima. I mean, we can run them a lot safer and smarter. We should go back and make sure all the safety stuff is in place.
Kate Stalter: Let me just wrap up today, Jason, with a question just about trading or investing style. As I started out mentioning today, there are some of your picks—not all of them, but some—that are on the lower-priced side.
I did find it a little bit surprising upfront that you tend to suggest more of a long-term style, rather than a trading style. Would you suggest that your approach is good for investors, or traders, or maybe both?
Jason Burack: Well, in a two- to-three-year timeframe…for some of these Warren Buffett types, that’s not long-term investing.
In this macroeconomic situation, I think that most people should have a two- to three-year trading/investing plan where they look at their portfolio, max all their positions in their portfolio for at most two to three years, and then re-assess.
So I think this macroeconomic environment has really muddled the waters, where you can’t do a Warren Buffet-type of buy-and-hold for ten years or 15 years down the road.
You can’t do that in this macroeconomic environment because currencies are too unstable. It’s really hurting the ability for a lot of these larger companies to run good project economics and get financing, in some of the cases, to make larger-scale investments, because they don’t know the returns they’re going to get on the investments if they’re making a large amount of capital. Because the currencies are fluctuating so much, and there’s a lot of complicated taxing and regulations and other red tape that’s changing so rapidly.
So I think if people take at most, a two- to three-view on a lot of their positions and then continually reassess things, I think they’re going to be in a lot better shape.
Because of the macroeconomic situation and all these current events that are making the markets really unsure of what’s going forward—all the uncertainty—I think people are going to have to pay a lot more attention to their portfolios and all the positions in them than they would in the past.
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