My articles focus mostly on market timing, which is valuable if employed correctly.
In July, market timing (technicals and sentiment) suggested the precious metals sector was headed for a peak and probably a sustained correction. The same market timing tools argued in November that the correction would end soon and a buying opportunity was approaching.
Technicals tell you when to buy, while fundamentals tell you what to buy.
If you want to find the big winners, you better employ in-depth fundamental analysis.
When it comes to finding stocks with 10-bagger potential, most focus on small exploration companies or optionality plays.
Few focus on the junior developers. These are the companies that are building a mine or laying the groundwork to build the mine.
There are two best points to buy a junior company, and one of those points is during the development stage. The middle to the end of the development stage is a real sweet spot.
To spot developers with the most potential, we need to follow specific criteria.
Here are some of my criteria.
First, the company has to be able to finance and build the project.
Companies that make the transition from developer to producer successfully tend to get a big valuation bump. So I look for companies that can finance and build the project without destroying their capital structure. This generally eliminates projects with capital costs of over $300 Million.
Second, the project has upside potential beyond its initial build.
For example, a mine that would start production at 100,000 ounces of Gold per year but could ramp up to 150,000 ounces of Gold per year is much more appealing to the market. Growth potential always gains a premium valuation.
Third, focus on projects that will produce 100,000 ounces of Gold per year or more.
The best scenario for a development project is a phased approach. The company can develop and build the mine and then use the existing cash flow to expand it.
Another best scenario, but difficult to foresee, is if a company builds the mine but continues exploration concurrently, which can lead to organic production growth if successful.
Finally, I avoid small projects and massive projects that are essentially optionality plays.
There aren’t many companies that meet these criteria, but there are a handful out there, and should they execute and Gold breaks above $2,100/oz, then these stocks have 7-bagger to 10-bagger potential over the next few years.
To learn about some of these stocks and the others we own and intend to buy, consider learning more about our premium service. We look for companies that have a minimum of 3x upside over the next 18 to 24 months.