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November 6, 2008 Editor’s Note: As long term-readers know, I’ve been working with Roger Conrad for more than a year on a vital resources financial advisory newsletter, Vital Resource Investor (www.vitalresourceinvestor.com). Because the economic development of the emerging markets is the catalyst for the great commodities cycle, particularly in Asia, it’s important to know where we stand on this subject so you can add another dimension to your investment plans. Commodities and Agriculture: Buy While They're CheapVital resource stocks have been pounded during the financial crisis. Some of the losses have come from the liquidation of positions investors piled into—including hedge funds—on the way up. Some have been a result of the current surge of the US dollar, which--in turn--has been due in part to the so-called flight to quality and unwinding of the “carry trade” by large institutions. And some of the losses have been due simply to worries that the liquidity crisis would trigger a steep global recession.As we pointed out two weeks ago, a sustained recovery in vital resource stocks won’t happen until there’s real visibility on how low--and for how long--the global economy can go. See our premium service, Vital Resource Investor, Oct. 16, 2008, Five to Buy Now. What’s happened thus far in the current rally can basically be explained as an inevitable reaction to the total sector washout—severely oversold conditions that attract bargain hunters and encourage short sellers to take profits. Many stocks are now well off their lows. But the gains we’ve seen in recent days can just as easily reverse with the next piece of negative news on the economy, either here in the US or overseas. The bad news from Asia is that the source of demand growth in resources during the past few years has the potential to impact negatively. The fact that these stocks are historically cheap is indisputable. Goldcorp, for example, is now trading where it did when gold was selling for less than USD400 an ounce, barely half its current price. Giant miner Rio Tinto sells for just five times trailing 12 month earnings, while iron ore mega company Vale trades at even lower valuations. Smaller plays sell for barely the value of their cash in the bank. Click here to continue reading |
| Growth Engines is a bi-weekly e-zine written by Yiannis G. Mostrous and published by KCI Communications, Inc. Mr. Mostrous is also the author of The Silk Road To Riches: How You Can Profit By Investing In Asia's Newfound Prosperity. |
Growth Engines - Commodities and Agriculture: Buy While They're Cheap
