QE3 has arrived.
With the Feds rolling out their latest batch of printed money, investors are once again turning to the safety net of precious metals to shield their wealth from the decaying dollar – and gold prices are back on the rise.
But it’s not just bullion that I’m most excited about today.
Since July, junior gold stocks have been steadily ticking back up just as talks of QE3 were reaching a fever pitch.
Now with the official announcement to purchase $40 billion dollars’ worth of mortgage backed securities every month for the foreseeable future – the Feds have all but guaranteed to keep that momentum going.
Make no mistake. Juniors gold stocks are a good buy right now. They’re still cheap relative to the price of gold and could slingshot higher as the market continues to heat up.
But although you may be tempted to snatch up shares of any small-cap miner that’s currently riding the QE wave, it may be wise to do your due diligence just as you would with any other investment.
Simply loading up on any company who happens to be in the news or is seeing their share prices rising alongside the herd can easily put you at risk should there be a sudden change in the market.
Instead, the companies that you want to zero in on are those with strong fundamentals who stand the best chance of weathering any unexpected storms with their assets intact.
These stocks would have the potential to double, triple or even quadruple their share prices as they move closer towards production or become prime takeover targets for larger miners.
So that leaves the most obvious question: how do you spot them?
Here’s a handy checklist to get you started:
- Management: Management helps to gauge a company’s potential for success. If there’s a front office team with a strong track record of success with previous companies, it’s likely they will work to make the new company successful. Bonus: If management also owns a high percentage of shares, that usually gives them even more incentive.
- Financials: Look to see if the company has the financial means to advance the very projects they say they have planned. It’s easy for companies to say that they are sitting on a priceless plot of land with unimaginable resources. But without the financial backing to actually explore, test and prove it, the company is at risk of failing.
- Share Structure: Most juniors generate financing by issuing new shares. But it’s important to note how many shares are outstanding and how the dilution will affect share prices. Knowing who owns the shares and how many they own is also important, since an investor with a large position can easily swing prices with any move they make.
- Property & Geography: While sound financing is critical to a company’s ability to move towards production, 9 out of 10 times, they never get to that point. But often times, the quality and credibility of the deposits alone are the catalysts that will propel share prices higher. So if the company is parked in the right spot, that’s an excellent step in the right direction.
- Marketing & Promotion: Simply put, a great company is nothing if nobody knows about it. Ideally, a well-run miner can sell both the sizzle and the steak. By the same token, identifying companies which are flying under the radar will allow you to get in on the cheap and give you greater returns once everyone else catches wind of it. Timing is important here.
- Resource Price: A company is only as valuable as the resources that it sits on. If a certain mineral has fallen out of favor in the markets, you’ll need to reassess the potential upside for buying into the company if no one’s buying what they’re producing.
- Politics: The political climate of a certain region could singlehandedly determine the fate of a junior miner. From corruption to conflict, legislation to sustainability, doing a thorough background check on the surrounding political environment is invaluable.
- News & Activity: Take note of any critical developments (good or bad) that impacts the company, industry, or marketplace – both internally and externally. These could be anything from project updates and feasibility studies to market supply/demand and government regulation. Typically the news releases will have something to do with the other factors above.
While the guidelines above can help you identify the good, the bad, and the ugly, it’s important to be aware that miners that embody both strong fundamentals and are undervalued are few and far between.
That being said, if and when you do find the winners – I would suggest you buy in before the rest of the herd rushes in.
for Top Stock Millionaire