eResearch Blog: Natural Gas

Opportunities in Natural Gas Stocks

We have featured natural gas as our Topic in two recent issues of our newsletter, the Clarion. Contact me directly at bweir@eresearch.ca and I will send you those commentaries. For other information on our website, go to: www.eresearch.ca

We believe that the price of natural gas, Henry Hub, could reach US$10.00/mmbtu during the current heating season. Since the beginning of February, the spot price has risen from US$7.89/mmbtu to the current US$8.73/mmbtu.

"Gassy" stocks have been rising lately. Perhaps the bellweather is Encana Corp.

Check out the new Canadian ETF: Claymore Natural Gas Commodity E, and quoted on the TSX, symbol "GAS". This ETF spiked almost 7% today and most certainly will head higher if our $10 scenario proves correct.

Bob Weir, B.Sc., B.Comm., CFA
Director of Research

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eResearch Blog: Is It Over?

"It ain't over 'till it's over."

We expect the markets will continue their volatility. So beware and be aware.

Both Canada and the U.S. central bankers lowered interest rates yesterday, Canada 25 bp, and the U.S. a record 75 bp. Falling interest rates are traditionally good for stock markets, given that the advantage of higher returns on debt relative to equities is narrowed.

However, just because world stock markets rallied yesterday, other than the U.S. which is out-of-step because of the Monday holiday, we don't think the good times are back just yet. But it is a time to up-grade your portfolio.

We mentioned yesterday that many bear markets end with a one-day crash on big volume. After a sharp, but short, recovery, markets either tend to go back and revisit the panic lows or they bounce along within a rather narrow upward-sloping range over an extended time.

We hold to our advice yesterday to seek wrung-out, significantly over-sold quality stocks of companies with demonstrated management acumen.

Now is the opportunity to sell your losers and add to your winners. You have time.

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Bob Weir, B.Sc., B.Comm., CFA
Director of Research

eResearch Blog: Bargain-Hunting

Bargain-Hunting Amongst the Panic

Stock markets around the world sold off sharply on Monday, January 21, 2008. The U.S. markets didn't; they were closed. Asian and European markets continued the rout on Tuesday. The U.S. markets, when they open, are expected to play catch-up.

Folks, this is world-wide investor panic and a much-needed criterion to end this rather short, but sharp, bear market and set the stage for a recovery which, most likely, will be slow. That certainly is the historic pattern.

A bear market is generally defined as a drop of 20% from the high. Most markets around the world are currently in the 15%-18% range, although Tokyo is down 27%.

The fear is the probability of a U.S. recession. At first, with global markets showing strength, it was thought that the BRIC countries and the strong Asian economies could pick up any U.S. slack. Now the fear is that China and others will also falter. Certainly the Chinese stock market is wildly over-heated.

When we all look back in a few months time, we will recognize that there were some outstanding bargains available in a plethora of blue-chip stocks that had not traded at those seemedly down-and-out levels in quite some time.

It will be the astute investor who ditched his speculative stocks, now substantial losers, and traded up to quality. Those will be the stocks that will come back first. It always works out that way.

All eResearch reports are available FREE at www.eresearch.ca.

Bob Weir, CFA
Director of Research

eResearch Blog: Gold

Whither Gold

We wrote in our latest Clarion that we considered this to be a good time to sell the senior gold stocks. They continued to go up on Monday, but they fell in lock-step with the whole market on Tuesday and are down again today.

We are looking for gold to trade in the $830-$890 range over the next few months. But its inexorable march to $1,000 is inevitable.

Bob Weir, CFA
Director of Research
FREE research reports on www.eresearch.ca

eResearch Blog: Market Opportunity

Heads Up

Carnage like that which occurred on the markets yesterday usually provide great buying opportunities. Many very good stocks with solid credentials got hammered. There was nothing different about those companies from the time of the close on Monday night to the opening bell on Tuesday. But investor sentiment was particularly negative and everything suffered.

Don't catch the falling knife! But do investigate opportunities to benefit from buying those stocks that have been way over-sold solely because of a total market sell-off.

Bob Weir, CFA
Director of Research
FREE research reports at www.eresearch.ca

eResearch Blog: Musings

Near the Bottom?

Yes Camp:
(1) The FED is likely to lower interest rates, an action that is always good for stocks.
(2) Market indexes are down substantially and are now near former turn-around points.
(3) There are a lot of stocks badly beaten up, financial and retail particularly.
(4) Bond yields are low, which makes equities more attractive.
(5) Bank of America is going to bail out Countrywide Financial.(I am not sure I get this: B of A is going to pay about $4 billion in stock to buy a company that was about to declare bankruptcy!)

No Camp:
(1) The housing sector woes are not over.
(2) The sub-prime mess still exists.
(3) The U.S. consumer, the driver of the economy, is suspect.
(4) Retail sales have fallen off a cliff.
(5) Unemployment is rising.
(6) A U.S. recession is inevitable.

My Opinion:
(1) I'm am a realist, leaning on the side of optimism. I think stocks are going up.
(2) Buy solid companies, now, that have a demonstrated history of strong earnings performance and management excellence.
(3) If there is a recession, I think it will be shallow and brief. Like the last one.

Bob Weir, CFA
Director of Research
Our research is FREE: go to www.eresearch.ca

Gold

We have been bullish on gold and gold stocks since we first recommended the sector in our Weekly Newsletter on October 31, 2005. At the time, when gold was trading at $471.50/oz., we said, "The above factors all point to substantial increases in gold prices in the near term. In fact, since many of the factors will be difficult to reverse, gold prices are expected to remain high and, indeed, move upward for some time to come. In this context, forecasts of gold prices exceeding $800 an ounce by the end of this decade, or even sooner, do not appear unreasonable."

Well, exactly two years later, gold pushed through $800 in late October 2007 and, today, is pushing $900. Psychologically, round numbers are often emotional resistance levels.

Thus, given the very rapid run-up in the price of gold since mid-December, we would not be surprised if there is continued resistance at the $900 pivotal point.

Gold stocks do not usually move in lock-step with the gold price. They are normally laggards.

In the market, recently, the senior gold stocks have been on a tear, while the juniors have not moved up nearly as much.

It might be prudent to take some profit now on these senior gold stocks. With the jewellery season now behind us, there may be some shine come off the lustre for the sector. Thus, we are looking for gold to consolidate in the $830-$890 range for the next few months. If so, the senior gold stocks will likely be moribund.

However, if gold convincingly breaks through $900, all bets are off.

For FREE access to our research material, go to www.eresearch.ca.

Bob Weir, CFA
Director of Research

eResearch Blog: Inca Pacific Resources

One Milestone Reached

The recently-released Final Feasibility Study confirmed the technical and economic viability of Inca Pacific Resources’ 100%-owned Magistral copper-molybdenum project in Peru. This is a vital step forward, but giant strides still need to be taken.

In our opinion, the shares of Inca Pacific Resources represent an interesting speculation based on the Company: (1) obtaining a “Bankable” Feasibility Study; (2) achieving a successful debt-equity capital raise totaling about US$400 million to bring the project into production; and (3) continuing to be an attractive acquisition candidate, which increases as each of the foregoing milestones is achieved.

We are maintaining our Recommendation of Speculative Buy for the shares of Inca Pacific Resources Inc. as set out in our Initiating Report of November 9, 2007. Our one-year and four-year price objectives are unchanged at $3.40 and $9.65 respectively.

To read this report and/or that of November 9, go to www.eresearch.ca

Bob Weir, B.SC., B.Comm., CFA
Director of Research