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Published: June 30, 2010
"Do more of what's working, and less of
what's not." That's what supertrader Dennis Gartman regularly
writes.
This is the right advice. As Dennis has explained over the
years, you'll get half of the gain of a bull market in the last
10% of its duration (i.e. in the last year of a 10-year rally).
Whether it's dot-com stocks or commodities, you never know what
is heading straight up. But if you do more of what is working -
if you buy into the uptrend - you have a chance at capturing big
gains.
The problem is, it seems like nothing is working right now. For
example, I wrote about big drug companies on Friday. The sector
is cheap and ignored - two of the things I look for. Drug giant
Pfizer is trading at just six times this year's estimated
earnings.
But the problem with Pfizer (and the drug companies) is
there's no uptrend yet. I'm buying at record cheap prices. But I
know I'm swimming upstream to start... and that's not where I
really want to be. We can do better...
So where's an uptrend now? What's working today?
Gold stocks are working.
While everything else fell yesterday, gold stocks held on. The
biggest names in gold stocks... Barrick (NYSE: ABX), Goldcorp (NYSE: GG),
and Newmont (NYSE: NEM), are all trading very close to new highs for
2010. The uptrend is in place here.
Also, relative to the price of gold, gold stocks are still cheap
right now...
When gold rises, the profits of gold mining companies rise even
more. So when gold goes up, gold stocks should soar.
But get this... Gold is up +30% in the last two years. Based on
the tried-and-true rules, gold stocks should be up +60% or more.
But gold stocks are only up +10% in the last year.
Gold has soared. But gold stocks haven't. They're cheap relative
to the price of gold... and need to catch up.
Gold stocks are ignored too... While there's plenty of talk
about gold out there, the average man on the street doesn't own
a gold stock. Heck, the average investor probably doesn't own a
gold stock.
We have what I like to see... Gold stocks are cheap relative to
gold. Most people don't own them. And, importantly, gold stocks
are working right now. Remember, you want to own more of what is
working and less of what is not. Gold stocks fit that bill.
An excellent way to get exposure to a handful of the top gold
mining stocks is through shares of the Market Vectors gold
mining (NYSE: GDX) fund . The three gold stocks I mentioned above make
up over a third of the holdings in GDX.
True Wealth subscribers are already up nicely on this one... but
gold stocks still meet our criteria... If you're not in gold
stocks yet, get in now. GDX is a great place to start.
-- Dr. Steve Sjuggerud
Editor
Daily
Wealth
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