Gold Stocks Are Incredibly Cheap Now

Porter comment: As you know, I like to dedicate Friday Digests to teaching you something new about investing. What I'm about to show you won't be new (at least for many of you). But it's the most compelling investment in the market today...

Right now, you can buy high-quality gold-mining stocks at huge discounts to the price of the physical metal. And Gold Stock Analyst editor John Doody, the man whose gold-stock recommendations we hold above all others, says it's time to buy...

In the past, when gold stocks have gotten as cheap as they are today compared with the price of gold itself, investors have made triple-digit returns. Add to that the flood of cash we'll soon see to save Europe, and these stocks will soar. Below, you'll find an essay my colleague Steve Sjuggerud wrote about John Doody. If you have ever bought – or ever plan to buy – gold stocks, you should be reading Doody's letter.

Gold Stocks Are Incredibly Cheap Now

By Dr. Steve Sjuggerud

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 10 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...

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...

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 10 list. But I'm interested in his valuation indicator.

If you'd like to access John's favorite gold stocks today, click here...

 New 52-week highs (as of 9/15/11): V.F. Corp (VFC), Westport Innovations (WPRT), Hershey (HSY), EV Energy Partners (EVEP).

 The mailbag was sadly light today... Have we not offended anyone lately? We must be off our game. Take your shots here: feedback@stansberryresearch.com.

Regards,

Sean Goldsmith

Baltimore, Maryland

September 16, 2011