[Note from Daily Trade Alert: the Market Vectors Gold Miners Fund (AMEX: GDX) is one of our “9 Best Stocks to Own Right Now.”]
I don’t read many investment newsletters, but I do read John Doody’s Gold Stock Analyst.
John’s monthly “Top 10” list has performed fantastically. According to his website, a portfolio of his Top Ten picks gained 1,360% from 2001 through 2010.
So John’s typical reader is probably just interested in that Top 10 list. But me? I’m more interested in another feature of his letter…
[ad#Google Adsense 336×280-IA]I’m most interested in an indicator John developed that shows whether gold stocks as a whole are undervalued or overvalued, relative to the price of gold.
When gold stocks in general get cheap according to John’s indicator, triple-digit percentage gains have followed. It’s like shooting fish in a barrel.
Specifically, since 2003, gold stocks have bottomed out at a double-digit discount to John’s fair value four times. The first three times, gold stocks soared more than 100% in roughly a year.
The fourth time is right now…
For his indicator, John looks at both 1) gold production and 2) ounces in the ground, relative to the price of gold. I think this is the right approach… I size up any investment looking at 1) the income and 2) the value of the assets. It doesn’t matter if it’s real estate or gold stocks. And that’s what John’s doing here.
As of his latest issue, out September 1, John’s indicator is in buy mode: “Gold stocks are now very undervalued, with their ounces selling for 17.1% less than where they should at $1,789 Gold…”
Why are gold stocks cheap now? John explains it…
Investor enthusiasm (and pessimism) always runs to extremes. In this bull market, the Gold stocks have soared three times from double-digit undervaluations (as now) to double-digit overvaluations.
We expect this time will NOT be different. We don’t know when or what will finally light a fire under all Gold stocks, but history proves it will come.
John concludes by saying, “Be sure to be on board for maximum gains!”
I can’t give away John’s favorite gold stocks (those are for his subscribers). But I can tell you the underlying index of the Market Vectors Gold Miners Fund (GDX) rose over 100% each of the last three times John’s indicator said “buy.”
As I mentioned, most people probably read John’s newsletter for his Top Ten list. But I’m interested in his valuation indicator.
When his valuation indicator says gold stocks are this cheap, I buy. You should, too… And shares of GDX are a good start.
Good investing,
— Steve Sjuggerud
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Source: Daily Wealth