Saturday, June 23, 2007

Resource Investment Is Direction To Go

I believe natural resource investment is the direction to go to make big money in the next few years. We are only at the starting stage of the next round of commodity bull market. This current round of commodity is different from all previous ones in that some of the natural resources are really hitting the natural limit of how much nature can provide us. For starter, do a web search of "Peak Oil", or "Natural Gas Crisis".

To find the best resource player you concentrate on two things:

1.The best resource that will see incredible growth in the next few years. I believe my choice would be natural gas, palladium, silver, in that order. Nickel and copper would have been a better choice about two years ago. I owned PCU for more than a year but have sold it recently.

2.The current price/sales ratio, and the amount of underground reserves. Price/sales is a much more important indicator than price/earnings. That's because when the commodity price goes up, the gain in the sales revenue will be the gain in gross profit: You produce the same quantity of your product, at same cost, but they sell for more in the market. My favorite stocks with an amazing price/sales ratio, are SWC, NGAS and CHK. All of them have a price/sales ratio at 2.0 or below.

With a price/sales of only 2.0, any push up of the commodity price will further reduce the price/sales ratio, as well as boost the profit margin towards the theoretical limit of 100% of sales revenue. So as long as the commodity is bullish, the company stock would be incredibly bullish.

Is palladium bullish? Absolutely. I think I have made my case here. For further reading check out For natural gas, I will explain why it is bullish later.

I recently noticed how some internet scams can boost a stock price multiple fold. One example is TRCR. See my comment section to see how it works. I have nothing for or against TRCR but just single it out for a good example. Do NOT touch such stocks with no real fundamentals.


JJ2000426 said...

A Yahoo Finance message board search of the keyword TRCR and the user ID cmaye35, for the period between January, 2007 and now, turns up at least 233 entries. Most of the posts are in other unrelated stock message boards. For a small cap stock like TRCR that is enough to boost the stock price multiple folds. It's a Pyramid Scheme. I would not touch a stock like that either long or short.

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Nice post on commodities stocks.