By Tom Winnifrith | Friday 16 June 2017
In this week's podcast from Palisade Capital Frank Holmes discusses how the GDXJ became just a buying index with no separation of value and little understanding of who was doing well fundamentally. The re-balancing has created a large uncertainty with five billion dollars initially moving into the space and now three billion dollars leaving it. This will affect many of the small and mid cap producers. The investment money is being reallocated to the big names like the Barricks, the Newmonts, and the Goldcorps of the world. Holmes argues that you should use this as an opportunity, as some of these stocks have been sold down indiscriminately even though they are reporting phenomenal fundamentals.
June 16th is the last drop date for names that will be sold, look for opportunities to buy in afterwards and towards the end of the month. You want to be selective and look for those stocks with higher profit margins and high returns on invested capital. His analysis shows that a lot of shareholder value has been destroyed by companies increasing their shares. Only a few companies protected their shareholders wealth, and the large capital flows into GDXJ has tended to cover for those that did not.
Frank discusses the valuations and pricing methodologies for gold royalty and streaming companies and why these companies have high efficiency ratios. Silver Wheaton for example has one of the highest profit margins per employee. Holnes thinks streaming companies know how to properly ebb and flow within the capital markets.
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