For months, my colleague Porter Stansberry has predicted that we’re on the precipice of a huge new bull market in gold.
Thus far, he has been right.
[ad#Google Adsense 336×280-IA]Gold is up around 20% since bottoming at $1,050 per ounce in mid-December – a huge move in such a short period of time.
And the gains in gold stocks have been even more incredible. Gold producer Barrick Gold (ABX) is up 135%… gold explorer NovaGold Resources (NG) is up 53%… royalty company Franco-Nevada (FNV) is up 51%… and the Market Vectors Junior Gold Miners Fund (GDXJ) is up 73%.
But right now, I’m keeping my eye on one group of gold stocks that should really take off if gold continues to climb higher…
Longtime readers know we’re big fans of “picks and shovels.” As my colleague Matt Badiali explained in a classic Growth Stock Wire essay from 2011, the idea of “picks and shovels” comes from a German immigrant during the California Gold Rush in the 1850s…
Rather than the “all or nothing” route of looking for a big gold strike, this guy sold basic goods to the miners. He eventually started producing a new type of durable pants. They became a huge hit… and he got rich.
His name was Levi Strauss. Levi didn’t risk it all on trying to find the big strike, he just sold the stuff everyone else needed to try to find the next big strike themselves.
The idea of owning “picks and shovels” has become an investment cliché for good reason. It can be an incredibly profitable, diversified way to profit from rising commodity prices.
As you can see, owning “picks and shovels” can be extremely profitable… and far safer than owning gold explorers, whose success rides on finding the next big gold discovery.
If gold prices continue to rise, more money will move into the industry… and the demand for these companies will soar.
In the world of precious metals mining, three of the top “picks and shovels” companies are Caterpillar (CAT), Joy Global (JOY), and Major Drilling (MDI.TO). Of the three, Major Drilling is the biggest “pure play” provider to the mining industry. It had fallen the most prior to gold’s rally… and its shares have risen the most of the three companies since then, up 60%…
As you can see, Major Drilling is both the smallest company and the closest to a pure play on mining.
Caterpillar is by far the largest of the three stocks. It makes money from selling and financing equipment that touches the ground. In addition to serving the resource industry, 73% of its sales are to the energy and construction industries. Its mining-related sales may not sound like a lot, but consider that in 2012, one-third of its sales – $14 billion – were to the mining industry.
If gold continues its uptrend, these three “picks and shovels” companies are a good way to profit. And they haven’t moved up as much as the producers they serve… yet.
Good investing,
Brian Weepie
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Source: Growth Stock Wire