TORONTO () -- With gold looking extremely firm over the $700 mark and oil prices engaging in heavy petting with the $80 level, some of our favourite names in these sectors remain grossly undervalued.
Furthermore, both gold and oil seem to have very little reason to retreat. We think that despite the overall commercial paper related carnage and associated feelings of fear about another brutal correction, which the underlying names levered to these commodities are bound to have their turn soon.
We are pleased to see that since its low of 285, the HUI has rebounded to 366 or a 28% gain in just 17 trading sessions. Ditto for the TSX Capped Energy Index, which is up about 10% in the same time frame.
But the left behinds here are the small caps and micro caps that continue to languish showing little sign of coming to life. We are convinced that this is going to change.
We look at some of our favourite names, previously reported on in these pages, and see screaming value.
In no particular order, here is a recap of some of these stories and why we like them at these levels:
European Minerals [TSX:EPM] is a that is going to be in production next month and throwing off well north of 50 cents per share of cash flow - shares are trading at C$1.15! Producing peers trade at a multiple of 10X cash flow at least, and we can only assume that once production commences the analyst and institutional community will finally be forced to take notice, making a re-rating imminent.
Southern Pacific [TSX-V:STP] is a that we first profiled in the C$1.20 area which got as high as C$4.46 and is now sitting at C$2.73 despite oil making new highs. Orion has just come out with a C$7 target which is highly positive for this situation and the company will be making the institutional rounds this month.
We are told that some of the recent weakness came from a fund that had to leak some out for whatever reason. We still think this stock is huge buy.
Vitality Products [TSX-V:VPI] is a new story that we are investigating, which to our knowledge is the only pure play ethanol name listed in Canada. Rising oil and gas prices will be a boon for ethanol plays and Lehman Brothers recently issued a piece of research with significant upgrades to all of the stories in its ethanol universe.
Shares of Vitality have been beaten up recently because the exchange was seeking confirmation over a number of things, all of which came to naught. VPI has a great structure and we hope to be talking more about it in the near future as we develop a more fulsome grasp of the story.
The Uraniums
We have profiled a number of uranium names all of which have been badly beaten by the sell-off in the commodity and the developers and juniors. We believe that this is a time to be buying quality uranium names and that there will most certainly be another kick at the can.
Whether it be next month or in 6 months we can't be sure, but we doubt it will be much longer than that, and buyers at these levels will show handsome returns for their perspicacity, in our opinion.
Starcore [TSX:SAM] is a that has been slaughtered despite solid intrinsic value because company communication and promotion has been lacking. Nevertheless the mine is very real and the ex-manager of Pierina and Alumbrera hired to run it will no doubt make something happen in terms of expanding output. If gold runs to $800, we expect SAM to lead the pack higher. At these levels, it is a no brainer.
Pershimco [TSX-V:PRO] acquired what appears to be a major silver resource in Las Minitas. That coupled with their other quality projects, on the strength of which we originally the company, suggest that PRO, which should be viewed as a proxy for silver, is cheap here.
Pending results from Las Minitas will be the decider. Stay tuned.
Gold-Ore [TSX-V:GOZ] continues to move towards production in Sweden with a very low CAPEX, and the valuation is simply right . Myopic investors in the junior market tend to get ADD after holding a stock for 2 weeks, but those who stay the course here will no doubt be rewarded and the commencement of production could come at a perfect time if bullion prices continue to ascend.
Conclusion
Your correspondent has been somewhat brutalized recently by readers who see that some of the names that we have profiled have come under pressure. The reality is that the entire junior market has suffered in recent months.
One should recall that none of the targets that we generate are less than 12 months, and those who have a time horizon of 2 months should not be playing if they are not prepared to be right and sit tight.
On the whole all of these stories have fundamentally improved as they continue along the path set out in their respective business plans.
