Every few years, you seem to get a great buying opportunity in something.
Right now, I think one of the cheapest sectors out there is the junior mining-stock sector.
People may look at oil at $95 a barrel or gold at $1,600 an ounce and say, “Dave, these things are trading at historical high levels how can mining stocks be cheap?”
You see, the junior market is a bit different from the senior markets in these resources. Most of the senior markets can be affected by financial-market trading with the prices of the underlying commodities.
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However, the junior market really needs liquidity.
Most junior stocks don’t have cash flow or production. They rely on financial markets to raise money to drill their properties. In a good mining market, these stocks tend to perform well as there is a demand for economic projects when resource prices are high.
However, the euro crisis in the past year has led to a drying up in liquidity and hit many of these stocks prices. Some small-cap resource stocks are at their cheapest since 2008.
The Canadian Venture Index, which has many of these stocks listed on it, has fallen about 40 percent from its high in early 2011.
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This is giving investors a rare opportunity: to buy these stocks cheap at bear market valuations, while the underlying commodities are in bull markets.
At some point, all the money they are printing in Europe will bail out the banks much like they bailed out the banks in the U.S.
This will allow liquidity to re-enter the market and the junior market to resume its bull market.
In a correction like the one we have seen, you want to buy the sector that has been the most beaten-up, yet possesses the best fundamentals. I feel that the junior mining sector, and especially the junior gold sector, is one of these sectors.
About the Author: David Skarica
David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.
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