This Week’s Commentary – June 23, 2007 – Let The Buying Begin

Last week I asked for your suggestions on what to buy; thanks to all who presented their thoughts on what stocks to buy on the Buy High Sell Higher Forum.

Based on your thoughts, and my research, here are my thoughts:

First, I believe we have reached the bottom, so now is the time to move towards a fully invested position. Not immediately, but over the next few weeks, since I believe we will look back on early July as a great buying opportunity. This means that for stocks I want to buy, or increase my holdings, I will be putting in below market orders and hope they get filled on dips.

Second, I believe that the best uranium stocks in the near term will be producers, or companies that are close to production. Why? Because a company that will have production 10 years from now, once the price of uranium has backed off from $150 per pound to $50 per pound, is probably not a great long term investment. The companies I want to own are the companies that will be able to take advantage of high prices in the near future (one to three years).

To that end, I took a list of companies that are close to production, which I found at U3O8.biz, and then looked for the companies with the most attractive charts. (Note that U3O8.biz shows PDN.TO – Paladin Resources Limited as not yet being in production, but it is, so we all have to do our own research). In other words, I’m using both fundamental and technical analysis. In addition to wanting a good chart, I also wanted good fundamentals, so some companies near production were knocked off my list. For example, AXU.TO – Aurora Energy Resources, Inc. is a great company, but since it’s largest shareholder is FRG.TO – Fronteer Development Group Inc., which I own, and I see no reason to own both companies.

Third, as pointed out by davidslane in the Buy High Sell Higher Forum, uranium stocks have a small degree of seasonality, tending to peak in late August, late November, mid February and a smaller peak in mid April. They then have bottoms around mid June, mid October, early January, and then the end of February or early March. Obviously these dates are not specific, and the past is no guarantee of the future, so they may not happen. However, that’s why I want to be buying now.

It therefore also seems logical to me to start taking some profits on the big up days in August. If by mid August I am up 30%, I will take 30% of my cash off the table, and look to reinvest it gradually in October and November.

So, what am I holding, or planning to buy? Here’s the list:

• AXR.TO – Alexco Resources Corp. – 1% – MACD and RSI have declined to favorable levels; upturn appears to be happening; some exposure in the silver market is a good idea; I own it, and I’m holding.
• AQI.TO – Aquiline Resources, Inc.– 1.5% – The stock has fallen from around $12 to $10.26 in the last few weeks, and the RSI has fallen to $54.29; I don’t own it yet, but I plan to put in a buy order at $10 and start buying, since we are getting close to the time where some money needs to go into some precious metals plays.
• CCO.TO – Cameco Corp. – 0% – I know it’s a blue chip, and I know all of the analysts are raising their targets and recommending it, but I just can’t bring myself to buy a stock where the freakin’ mine is flooded!
• CHX.V – Cash Minerals Ltd. – 2% – it’s beaten down, but looks like a bottom has been reached, so I started nibbling this week.
• CXX.V – Crosshair Exploration & Mining Corp. – 2% – looks like it has finally broken out; I will start nibbling; see further comments in the Forum.
• DML.TO – Denison Mines Corp. – 9% – PRODUCER – sold uptrend, good RSI and MACD levels; this is a good, solid producer; I like it.
• EDR.TO – Endeavour Silver Corp. – 2% – silver producer; beaten down recently, but I’m still holding.
• FIU.TO – First Uranium Corp. – 2% – CLOSE TO PRODUCTION – Has pulled back from it’s high; I have been waiting to buy; $12 looks like a good buy point, so I will be putting in some buy orders this week
• FSY.TO – Forsys Metals Corp. – 4% – ADVANCED EXPLORATION – I do own it, and I like it; I may increase to a 6% weight as it moves up, primarily because I want higher weightings in stocks that are close to production, and therefore slightly less speculative
• FRG.TO – Fronteer Development Group Inc. – 8% – ADVANCED EXPLORATION (through it’s ownership of AXU.TO – Aurora Energy Resources, Inc.); solid near blue chip stock, also appears to be at a good buy point.
• GEM.V – Pele Mountain Resources Inc. – 4%– ADVANCED EXPLORATION – chart looks like a bottom has been reached; good things expected to happen in the future as they get closer to production, so I have started accumulating
• GBU.TO – Gabriel Resources Ltd. – 3% – Gold producer; you can read more details from my notes on June 1
• JNN.V – JNR Resources Inc. – 1% – It’s been beaten down recently, but appears to have made a bottom, so time to start accumulating; I will be buying more at the $2.60 to $2.70 level, but it’s a junior exploration company, so it won’t be a big component of my portfolio
• KRI.TO – Khan Resources Inc. – 2% – CLOSE TO PRODUCTION – I have been watching this one for a long time; it got ahead of itself, but has now pulled back to reasonable levels and has started to rise; they are close to production, which fits in with my revised approach; I don’t yet own it, but plan to put in buy orders around the $4.30 level.
• LAM.TO – Laramide Resources – 2%– ADVANCED EXPLORATION (which is why it’s in the portfolio), but it has been beaten down recently, so I have reduced it’s weighting; I will increase in the future once it’s clear that a bottom has been reached.
• MGA.TO – Mega Uranium Ltd. –2% – ADVANCED EXPLORATION (which is why it’s in the portfolio), but it has been beaten down recently, so I have reduced it’s weighting; I will increase in the future once it’s clear that a bottom has been reached (kind of sounds like my LAM.TO – Laramide Resources comments, doesn’t it)?
• PAA.TO – Pan American Silver Corp. – 8% – Bottom reached, silver stocks should move up from here, it’s a solid blue chip stock, so I’m holding
• PDN.TO – Paladin Resources Limited – 6% – PRODUCER (at its recently commissioned Langer Heinrich mine in the southern African state of Namibia) – production is not meeting expectations (see Forbes article); the $7.50 level is probably a bottom, so I’m keeping it in my portfolio, and I am only weighting it as high as I am due to it’s producer status.
• PNP.TO – Pinetree Capital Corp. – 4% – Chart looks terrible, although it’s possible that $10 could be a bottom; I have downgraded it to 4% of the portfolio, and will increase it’s allocation in my portfolio if circumstances warrant (ie. it starts to go up).
• PWE.V – Powertech Uranium Corp. – 4% – ADVANCED EXPLORATION Bottom reached around $2.50, so I have started accumulating. Due to it’s advanced exploration status, I will be buying until I get to around 4% of my portfolio (currently only 1%).
• PXP.V – Pitchstone Exploration Ltd. – 1.5% – Junior explorer, I’m holding; an entry point is probably around the $3 level.
• SMD.V – Strategic Metals Ltd. – 3% – This is one of my non-uranium holdings, but since it has broken downwards through support at 80 cents, I am reducing it’s weighting in my portfolio.
• SLW.TO – Silver Wheaton Corp. – 1.5% (but not yet) – Silver stock, obviously, with good financials; however, the stock is very volatile, so I plan to put in a buy order at $12; if it gets filled, great, if not, I wait
• SSO.TO – Silver Standard Resources, Inc. – 7% – Solid silver stock, long-term holding, has been beaten down but a bottom appears to have been reached, so I’m holding.
• SXR.TO – SXR Uranium One, Inc. – 4% – PRODUCER – They are a producer, but the stock has been declining, so I am under-weighting it until the situation resolves
• TVC.V – Tournigan Gold Corp. – 4% – ADVANCED EXPLORATION – This is a uranium stock, not a gold stock, and the chart looks good, so I’m beginning to accumulate
• UEX.TO – UEX Corp. – 4% – ADVANCED EXPLORATION – Chart looks good, and I want to own companies that are close to production.
• URZ – Uranerz Energy Corp. 2% – CLOSE TO PRODUCTION – Good looking chart, a virtual blue chip company, so I will start accumulating.

For those of you who like stats:

67.5% of the portfolio is in uranium, 22.5% is in gold and silver, and 3% is in base metals, and 5.5% is in cash.

Of the uranium portion, 13% is in producers, 12% are close to production, 32.8% are at the advanced exploration stage, and 9.7% are junior producers (so these numbers total 67.5%).

For those who are keeping score, 66.5% of the portfolio are in stocks that are recommended by Mr. Dines, and The Dines Letter, although some of them were being discussed here before they went on his recommended lists.

Does this allocation make sense?

Time will tell; I’m sure you will all give me your thoughts by posting a comment below, or on the Buy High Sell Higher Forum.

Thanks to all for reading and contributing, and have a profitable week.