Masters Series: The Incredible 'Bad to Less Bad' Rally in Resource Stocks
Editor's note: The natural resource sector was left for dead.
After falling 90% from peak to trough, the Dow Jones of small natural resource stocks is finally ticking higher.
Today's Masters Series essay features the final part of an exclusive interview with Stansberry Research Resource Report editor Matt Badiali. In it, he explains how you can make a fortune in resources as things go from "bad to less bad"...
The Incredible 'Bad to Less Bad' Rally in Resource Stocks
Sam Latter: In general, across most commodities, it seems like – to borrow a phrase from our colleague Steve Sjuggerud – things are going from "bad to less bad." Would you agree?
Matt Badiali: Yes, absolutely. As I mentioned earlier, the resource market goes through huge booms and busts. And right now, you can make a lot of money as things get "less bad." Things don't even have to go from bad to good for these stocks to pop higher.
A great example of this is in the coal sector. Since 2011, almost 50 coal miners have gone belly-up. That includes some of the biggest names in the industry: Peabody Energy, Arch Coal, and Alpha Natural Resources, to name a few. I told Growth Stock Wire readers recently that's like if ExxonMobil (XOM) and Chevron (CVX) filed for bankruptcy. It's unbelievable.
But not all coal companies disappeared. Things slowly got "less bad" in the coal sector, as you can see...
Teck Resources (TCK) is North America's largest producer of metallurgical coal – a specialty coal used to make steel. So Teck isn't some microcap company. But in January, when the sector had essentially been left for dead, Teck shares fell to as low as $2.65. Today, they trade for more than $20. That's a 650%-plus gain in nine months. If you had put $5,000 into Teck back in January, it would be worth $37,700 today...
Those are the types of gains you can see in the early stages of a bull market in natural resources. Remember, I said that the Dow Jones of small natural resource stocks had fallen 90% from 2011 through this past January.
Sam: I can't imagine what would happen if the Nasdaq fell 90%...
Matt: Exactly. Imagine if you could go out there and buy Apple (AAPL) for $12 a share or Intel (INTC) for $3.50 a share. It's just ridiculous.
You know, if a stock falls 90% and then doubles, it's still down 80%. Of course, I'm not saying the TSX Venture Exchange will return to its pre-bear market levels any time soon. Given the right market conditions, it could. But even if the index doesn't make up all of those losses, huge gains are possible.
And as the entire resource industry recovers, we're going to see some unbelievable gains in some of the companies that survived the bear market. It's not limited to coal.
Oil, silver, copper... even corn and wheat prices have gotten decimated in the bear market in commodities. All five are down around 50% since March 2011. But things are starting to turn around...
Crude oil prices have just about doubled since their February lows, and some of the biggest oil-services companies are hitting new highs. Halliburton (HAL) is up almost 70% since mid-February. That's an incredible move for a blue-chip company with a $42 billion market cap.
We've seen tremendous moves in precious metals this year, too. Remember, silver prices were trading close to $50 an ounce back in 2011. Then they fell all the way to less than $14 an ounce this past January. Today, silver is trading around $17.65 – a rise of nearly 30%. That's a huge move, but it's still down almost 65% from its 2011 highs. Things have just gotten "less bad" in silver. Producers like Fortuna Silver Mines (FSM), First Majestic Silver (AG), and Pan American Silver (PAAS) are all up at least 150% this year.
Sam: How are you taking advantage of these price moves in your Stansberry Research Resource Report newsletter?
Matt: My senior analyst Brian Weepie and I have been loading the portfolio with trophy assets like the ones you and I talked about earlier. One company still in "buy" range in our portfolio just became a trophy asset via a recent acquisition.
We're also bullish on several oil and gold royalty companies, like I said. And in the October issue, we added a pair of coal stocks that should do well as prices in the sector continue to recover.
All in all, we're optimistic that the bear market is behind us... which means the big gains are just getting started.
Sam: Thanks for sitting down with us, Matt.
Matt: Of course, it's my pleasure. Any time.
Editor's note: Things are going from "bad to less bad" in the resource sector. And nobody is set to profit more than Matt's Stansberry Research Resource Report subscribers. Matt just put together a recent presentation detailing an investment opportunity in the sector that could make you 500% over the next few years. Get the details here.