Silver Stocks on the Buy Screen
The Four Types of Traders
If you never traded before, don't worry.
Like anything that is worth doing, all it takes a little work, a little knowledge, and a bit of practice. In the beginning, you will lose more than you win. So keep your bets small, or set up a proxy trading account.
Here's some advice I give to junior traders when they first start out...
I use the basic real estate analogy. Most people have been house hunting in the past.
When looking for real estate, people base how much they are willing to pay on a variety of factors. No two houses are the same, but every house has similar features. A four bedroom with a view of the park is worth more than a three bedroom next to the highway.
So too it is with equities — the only difference is that instead of living rooms and three-car garages, you are buying known reserves and cash flow. Instead of half an acre in a great school district, you are buying low valuations and revenue growth.
Let's break this down a little more...
Four Types of Investors
There are four basic types of traders.
The Momentum Trader buys what is hot and hopes he can jump out before the crash. This is difficult because you have to make to correct calls, both the buy and the sell. But the returns can be quick.
The Technical Trader is the guy who sits with his charts or fires up his robot. He has back-tested years of data and trades on historical trends. This is a valid approach, and there is plenty of software out there to help you get started. If you are interested in this approach, I recommend reading Thomas N. Bulkowski's Trading Classic Chart Patterns.
The Value Investor is the trader who subscribes to your basic Graham-Dodd/Warren Buffett style of investing: Buy low and sell high. It requires study, nerves, and patience, but it is by far the most lucrative method of investing (and perhaps the most boring). The downside is you still have to figure out what is low and what is high, and the difficulty lies in trusting your research. The market can be wrong a lot longer than you can be liquid...
And last, but not least, we have The Insider.
This is the guy who has a hot tip (or thinks he does). He trades the news before it is out and profits from the change in the market. The true insider can make a fortune. The downside is that it is illegal and can land you in jail (see: Martha Stewart).
Of course, there are those who aren't true believers in any one method. Most brokers and hedge fund managers I know will trumpet the fundamentals, tell you a rumor, and top it off with, “The chart looks great.”
Whether you are just starting out or have been investing for a number of years, one of the best ways to find quality investments is through the use of a stock screener.
These are available in most brokerage websites like TDAmeritrade or Scottrade. There are various metrics you can plug in: P/E ratio, PEG ratio, debt to equity, share price, etc.
Back in 2002 after the dot-com bust, I was running screens using high revenue growth, low P/E, low debt, low share price, lots of cash, and insider buying.
And for months, I got nothing but coal companies and steel mills...
It is little wonder, as these same companies had been through a brutal 30-year investment grinder. These industries had been written off to the point that they had become cliches on TV and in the movies.
No one wanted to own coal.
United States Steel Corp (NYSE: X) was trading well below book value at little more than $1 a share.
But if you had trusted your research, you would have made a killing.
Consol Energy (NYSE: CNX), a coal miner, was one of these companies. The share price went from $9.50 in 2002 to $115 in 2008 — the elusive stock market beast otherwise known as a tenbagger. U.S. Steel went from a split adjusted $13 to $175.
Dirty Coal Tenbagger: Consol Energy
So, what are some of the stocks that come up using these same types of metrics today?
- Sappi Limited (NYSE: SPP), a company that sells paper and wood pulp
- Endeavour Silver Corp. (TSX: EDR), a silver miner with holdings in Chile and Mexico
- Dundee Precious Metals, Inc. (TSX: DPM), a gold mining company
- Silvercorp Metals, Inc. (TSX: SVM), a silver miner and explorer
- GrocoLand Limited (SES: F17.SI), a real estate investment company with properties in Singapore, China, Malaysia, and Vietnam
- GSE Systems, Inc. (NYSE:GVP), a company that makes simulation software for nuclear power plants
Now, I'm not saying you should run out and buy these companies...
This is merely a cursory first step in your due diligence. It's a way of narrowing the field when looking for a prospective buy.
What's fascinating is the large number of silver miners that pop up on the screen.
You can understand why paper and pulp companies, Chinese real estate, and nuclear software companies are inexpensive. It's because those sectors could be down for a long time.
But with the strong physical demand for gold and silver, you'd think precious metal miners would be expensive. They are not.
In fact, junior mining stocks have been falling for more than two years.
Judging by the share prices, junior silver miners have bounced off the bottom.
If you are putting together a potential buy and freeing up some cash for the next dip, this is a good place to start looking.
The Best Free Investment You'll Ever Make
After getting your report, you’ll begin receiving the Wealth Daily e-Letter, delivered to your inbox daily.