The editor of the Hi-Tech Strategist, Fred Hickey, made his stock picks in Barrons today.
Hickey really hasn’t changed his tune in the last two years. He still doesn’t see an end to the tech bear market and he’s weary of moneyprinting and has subsequently shuffled a huge portion of his assets into gold.
First of all, Hickey recommended data storage provider EMC.
“It is trading for $24, and the range has been $22 to $30. The company has a market cap of about $50 billion, and a price/earnings ratio of 12.6 times this year’s expected earnings of $1.91 a share. [Earnings estimates have since fallen to $1.87.] That is well below its average P/E of about 16 in recent years.”
With a decent economy, Hickey sees EMC shares rising to $30 over the course of the next year.
Interestingly, this tech pick is not part of Hickey’s portfolio that he shares with readers of his newsletter. Thus, it is probably not a stock pick that he holds with a lot of conviction.
However, one of Fred Hickey’s conviction picks is gold which he has held for about a decade. Right now Hickey is pounding the table for investors to own gold and some select gold stocks.
“The Hulbert Gold Newsletter Sentiment Index went deeply negative last week, indicating that gold-newsletter writers are recommending net short positions. When that happens, gold almost always rallies. The daily sentiment index for gold is at a 12-year low. Short positions by large speculators have doubled in the past few months. Sales of American Eagle coins hit a five-year low in 2012. Yet, the environment for gold couldn’t be better. We talked today about massive money-printing by all the major central banks. Real interest rates are negative. These are the best possible conditions for a gold rally.
Felix said gold could rally to the $1,800-an-ounce level, and I agree. If it breaks that, it will go to $2,000 or more. As long as we have unlimited quantitative easing, we have the potential for unlimited gains in the gold price. Gold could go to $5,000 or even $10,000. You can buy gold through the GLD or IAU, as we discussed. This year I recommend physical gold. You can buy American Eagle coins, or gold bars. Everyone should have some physical gold, and almost no one in the U.S. does.”
Hickey also likes a collection of gold stocks, two of which he mentioned at the Barrons Roundtable.
“AuRico trades for $8 a share on the New York Stock Exchange. It has a market capitalization of $2.2 billion. It changed its name in 2011 from Gammon Gold, divested assets and brought in new management. Yet, there is still the sour taste of past difficulties and earnings misses. AuRico is one of the cheapest gold stocks you can find. It sells at book value.
The company has two main mines. El Chanate, is an open-pit mine in Mexico. Underground mines are much more difficult to operate. Management has cast off all the high-cost mines and retained lower-cost mines. This mine has had steady production for several years, and that will continue. The other mine, Young-Davidson, is where the growth is. It is mostly underground. It has a high level of gold grams per ton. It is hard to find mega mines with such good grades of gold. Young-Davidson started producing in 2012, and everything seems to be going well. AuRico also has some development assets in Mexico and Canada. It has sold off assets for about $1 billion.”
The other gold stock that Hickey recommended was NewGold.
“My second stock is New Gold [NGD], another Canadian miner. It sells for $10.95 a share and has a market cap of $5 billion. It has four major mines, located in Canada, the U.S., Australia, and Mexico. It also has a joint venture with Goldcorp [GG] in Chile called El Morro. New Gold sells for two times book value and 20 times 2012 expected earnings, but earnings are expected to rise by almost 70% this year, to 74 cents a share, putting the P/E at 14.8. Most of this growth will come from the New Afton mine in British Columbia, where commercial production began last July, ahead of schedule.
New Gold is well managed, and has been able to achieve production and cost targets for three consecutive years. It expects to double its gold production by 2017 from 400,000 ounces to 800,000 ounces a year. There is no growth elsewhere in the industry, and some forecasters expect mining production to fall in 2013. Many mining companies are canceling or delaying projects. New Gold has a world-class project called Blackwater in Canada, which could come online around 2017. It has at least 10 million ounces of gold and 65.2 million ounces of silver, and a 15-year life. Margin per ounce has been growing yearly, and rose from $297 in 2008 to $1,014 in 2011. Also, the company currently has the highest cash balance in its history. New Gold deserves a significant premium to other gold miners.”
Hickey’s final pick was the Vietnam ETF (VNM) which he has held for a few years in his own portfolio.