Low priced stocks…article for Junior Mines to follow

The vast majority of the Canadian Junior mining stocks are presently selling at their most undervalued price levels in history. All historical gauges used for determining value (such as reserves, resources, cash positions, insider ownership et al) indicate that many companies, with sound fundamentals and exceptional potential today merit thorough investor attention.

Insight into the “LOW PRICED STOCKS” and how we analyze them…..(This article from the MontrealAnalyst.com is very reflective of how investors might analyze junior mining stocks.)

People constantly inquire about low-priced stocks on the Canadian and American stock exchanges. Do the low-priced stocks outperform the Dow Jones and other major indices? The answer is yes in most cases, but the risk can be greater since we are not investing in Blue Chips. Now let’s go back about twelve years ago when the esteemed US brokerage houses were recommending for clients their favorite “blue chips”. You remember don’t you? Citicorp is down over 90% since it was being touted at over $500 per share if we take into account the recent “reverse split.” Let’s not forget Wall Streets’ foremost recommendation in General Electric. It was selling in the $58 range; today it is at slightly over $20 per share.

And remember Nortel then near $100 a share, now it is gone! We can go on and on with the list of their pathetic performances in stocks that were supposedly safe and secure since they were their well analyzed and scrutinized “blue chips” by the investment professionals. But who are we to question the so called analysts? The fact is that most analysts, but not all are little more than incompetent clowns.

Now that we have cleared the air on the dismal performance of their prime picks, we will begin with what we are here for. To inform investors of helpful information and hopefully get thoughts and the ideas of our readers.

Let’s discuss some factors(too many to list here) that one should keep in mind for low priced stocks.

1-The first investor to buy the stock at its yearly price low is obviously in the best position. He (or she) has established a position at or near the stock’s price low and the total capitalization of the stock, being small, demands less than large cap stock buying volume to drive the price up. (Naturally buying volume pushes a stock’s price up)

2-Generally, it is much easier to have $2 to $3 stock move to $6 than it is for a $20 to $30 stock to move to $60. Less investment cash and far fewer investors are required to amke it move or “push it up” in a sense!

3-Just as with any large cap stock, the investor must do the in-depth research. A stock is down for a reason(s) so do the positives outweigh the negatives to take the risk? So let’s say that the stock must have sales, earnings potential, be at a cyclical price low and not be a company with a debt problem. A debt problem is a “wolf that you don’t want at a company’s door.”

4-Gold, Silver and other mining stocks often are excellent low-priced stock situations when bought at or near their price lows. We all have seen multiple price moves of eight, ten and twenty times price moves in some of our mining stocks in the past. However, there are other factors in gold, silver and other mining stocks that are not required such as sales. Instead, you want to see exploration projects and prospects, drill results, cash positions and several other factors. We will have an article soon about investing in the low priced junior mining stocks. Each and every stock and sector is different.

5-After the stock has made its expected move for at least half your position-maybe a double, one should consider selling some of the position. Do not try to remain for that “last move up.” Sell into strength or wait for another day, a day that may or may not come.

6-One of the best insights into undervaluation is to note if the officers and directors of a company are buying the shares, particularly if the stock is languishing in price at or near a low. Exceptionally heavy buying can be a superb indication of undervaluation.It is not a perfect indicator, but what is? But it sure can help.

We will continue imparting insight into how we examine and choose stocks; we would like to know what you think and your ideas as we have received our best performing recommendations from the private investors.