Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
The past 18 months has been very tough on penny stock investors but the brunt of the force has been taken in 2012. This summer I heard from many veteran speculators who said this was one of the toughest markets they had experienced in decades – and I couldn’t agree more. Trying to determine fair value on the majority of these stocks (even the best ones), has proven extremely difficult.
The TSX Venture represents a broad range of industries but is heavily weighted to resource exploration and development. Pinetree Capital (TSX: T.PNP, Stock Forum; 96 cents) I have used for years as a benchmark as they hold a large portfolio of significantly “higher risk” junior resource stocks. I find PNP useful for gauging overall market sentiment and risk. Below you will see where the two track very closely.
Where the TSX Composite represents what large institutional investors may be buying, Pinetree would be more representative of the average retail investor.
You can also see where junior resource stock portfolios (for the average retail investor) would be down 20% since the first of October and 40% from the start of 2012.
This would compare to the best of the TSX Venture down 7% since October 1st and approx. 17% from the start of 2012.
As you can see, we started a recovery from summer lows in early September but the window of opportunity this year was very small. Resource stocks stalled out a month later, stabilized, and then took another hard hit a week ago – with many falling 10 to 20%.
Junior gold stocks
For the popular junior gold stocks, the story was no different. Gold as a commodity continues to do very well but the junior exploration stocks refuse to cooperate.
Each month through the Ticker Trax newsletter I update a valuation table of 60 juniors with a minimum of one million ounces gold (43-101 compliant). We have used this table since 2011 to benchmark fair value for these small companies and it has worked extremely well.
A month ago I discussed in our weekend report where the takeover of Prodigy Gold was right in line with valuations we were seeing (this had also happened several months earlier).
Higher priced takeovers have occurred this past year but those only happen when a larger company is a regional neighbor or the project economics are very attractive – low capital cost and higher/shallow grades.
The current average I am seeing is $41 per gold ounce.
Between now and Christmas don’t look for any market miracles. Tax loss planning and selling will be the core theme and this will make it hard for prices to move higher. For the most part, it is the same every year – at least for the small stocks. Late November and December it is a buyer’s market.
In addition to this weekend column and the bottom fishing research sent to paid Ticker Trax subscribers on Monday, I also provide free MicroCap alerts throughout the week. These are based upon News or Abnormal Price/Volume Activity on the several hundred stocks we track from our own research, brokerage analysts, or third-party newsletter writers.