Editor's note: Last evening, "Doubling Stocks" editor Michael Cohen gave his subscribers a heads-up regarding what he called a "hot topic" stock pick that deserved attention, and promised he'd provide full details first thing this morning. Here's what he divulged just after today's markets opened [04/10/2008]. Per usual, his timely, ever-candid and irreverent advice -- mined from "Marl," "Doubling Stocks"' automated stock trading robot -- holds appeal to savvy and contrarian traders and investors, and more than fulfills the overnight anticipation...By Michael Cohen
Editor, "Doubling Stocks"
Company: Vanguard Minerals Corporation [VNGM.OB]
Yahoo Finance: http://finance.yahoo.com/q?s=VNGM.OB
Company Website: http://www.vanguardminerals.com/
Last night, I told you I had found a "hot topic" stock that was flying under the radar of most investors...
And, for those who didn't read that e-mail, I mean... Marl found a stock that is massively undervalued... even though it trades in an industry where companies usually have extremely high stock prices.
And there is usually just one reason companies are undervalued. And that is... They have poor growth prospects, and so Wall Street investors forget about them like an unwanted stepson.
On the other hand, when these Wall Street types find an exciting company -- usually, in the hot topic of the moment -- it will be bought up and up, until the price bears little resemblance to the company's real value.
A great example of this is Apple and Google, both of which are companies that are massively overvalued by investors. This is mainly because of the perceived worth of their brand, and the high profile these companies have.
So, it goes hand in hand... that the price of a stock is often dependent, not on the company's performance, but, mainly, on whether the company operates in an industry that is a "cocktail party topic"... at that point.
Can you remember when Google floated not so long ago? It was featured on the news, and everyone [not just investors] was talking about it...
That kind of high-profile coverage took the stock from its floated level of $30 per share to the crazily high $747.24 per share.
Whereas, companies that operate in "boring" industries, such as funeral services, are often priced at such low levels, an investor could buy over 50%, simply liquidate all assets, and make a profit.
And what does this have to do with VNGM? Glad you asked...
You see, VNGM.OB is a uranium mining company -- or a stock that operates in one of the hot industries that everyone seems to be talking about.
Almost every day, we seem to hear about global warming, and newfangled forms of green energy.
And, so, it goes without saying that stock prices in this industry are usually extremely high...
And I often won't even analyze companies in this industry, as 99% of them are already valued based on their growth prospects...
And that's an unfair method of valuation... it wipes out potential profit, as the investor has already paid too high a price.
So, when I found a company [in this industry] that, based on analysis, shows to be extremely undervalued... I began to get very excited.
VNGM.OB is priced at a level that represents true value -- and this is attached to a company that has growth prospects usually only associated with stocks of much higher prices.
Let me tell you a little about the "hot" area this company operates in...
Over 50% of the uranium produced from mines comes from Canada [28% of world supply] and Australia [23%]. Other major producing countries include Kazakhstan, Russia and Namibia.
The world's largest undeveloped, high-grade uranium deposit today is Cigar Lake, in Saskatchewan. Cigar Lake, operated by Cameco Corp., holds 232 million pounds of uranium at a grade of 19%.
Production from Cigar Lake was scheduled to begin in early 2008. At its peak, Cigar Lake was supposed to provide 17% of world's uranium supply. But now, the future of the mine is in doubt.
In October 2006, Cameco announced that Cigar Lake had sprung a leak, and the underground workings are now completely flooded. From what I hear, the mine may be lost completely. At any rate, Cameco recently reported that production won't start back up for another three years.
News of the flood pushed uranium prices 6.6% higher in October -- from $56 a pound to $60. The increase was the largest weekly gain in 20 years. But since then, the energy metal has already doubled to over $120 per pound!
About 16% of the world's electricity came from 440 nuclear reactors last year. This figure is constantly growing. Right now, there are 29 reactors under construction around the world, and another 66 being planned. Japan, alone, intends to add 11 more by the year 2010, and China hopes to add 24 to 30 by 2020.
So, right off the bat, we know that demand for the radioactive metal is set to increase, just because of the growth in nuclear power generation. The more nuclear power stations are built, the more uranium they demand.
... And demand for uranium is very easy to accurately forecast.
The cost structure of a nuclear power plant means that the main cost is that of building the plant. Operating the plant is relatively cheap, and so...
It is very cost-effective for a plant to keep running at high capacity all the time. And, in fact, it is rare that you'll be able to find a nuclear power plant [in operation] that is not operating at the time of your visit.
And, so, the demand forecast for uranium largely depends on the number of plants over the country... Regardless of economic conditions.
So, the more plants that are being built, means there is more demand for uranium... And, consequently, it will rise to a higher price.
Now, get this...
Production from the world's uranium mines now supplies only about 60% of the requirements of the world's nuclear power utilities -- leaving a wide gap between production and demand.
The shortfall has been made up largely from government stockpiles and recycled nuclear weapons. But these supplies are currently running thin and certainly won't last very much longer.
The supply-demand balance for uranium is tighter than any other major commodity. And the flooding at Cigar Lake didn't help.
With a global building boom for nuclear power plants underway, demand for uranium is only going to rise. With rising demand, will come increased prices.
Simply put, investing in uranium is a "no-brainer." Uranium prices are almost guaranteed to continue increasing in value.
...In fact, industry experts strongly agree on this, as it is one of the easiest commodities to forecast, price-wise.
But, I also told you in yesterday's e-mail that I don't think investing in uranium [as a commodity] is a good idea.
You see, over the years, stocks have provided [on average] far better returns than any commodity.
And smart investors realize that the best way to invest in a commodity is to do it indirectly -- i.e., by investing in a company that is directly affected by the price of that commodity.
This is because you can give yourself an extra edge over most investors. By pairing up a strong company with a direct link to a strong commodity, investors can give themselves a very low downside risk with huge upside potential: The business could be sold at the height of the uranium bull market, and the full and total profit would be realized.
So, why is this company so undervalued?
VNGM is a very new stock... And new stocks are where the best opportunities to get in early come from.
VNGM is a uranium exploration firm whom base their operations in Saskatchewan, where high-grade ore can be extracted. But, most importantly [and here's the reason I chose this company]...
... Unlike other uranium exploration companies, this one can extract the valuable mineral at extremely low production costs -- primarily, because of where they are located.
You see, the company owns several large claim blocks in a place called Athabasca Basin [see accompanying map]. This place is renowned for its low cost of production... and this affords the company a vital competitive advantage...
Because uranium is purchased solely on the price [apart from if the quality is inferior]...
Profit Margins are Slim...
... And, therefore, the ability for one company to have a lower cost base means they can charge less, and make more. In addition, they'll have more profits to invest in exploration, and they'll be able to continue operation even when times are hard.
Plus, this company has its own "secret weapon": One of its staff is a maverick of the mining industry...
His name is John Maddry, and he has been in the mining industry for 18 years. During this time, he was instrumental in the discovery of million-dollar gold deposits in Nevada and South Carolina. He has helped find mines that have taken companies to millions of dollars in annual profits. This guy is also an authority on professional geology, and is the author of numerous acclaimed publications.
In last night's e-mail, I also told you that VNGM.OB had been flying...
Under the Radar"
And this is absolutely true...
You see, VNGM has a management team that's more focused on growing and creating shareholder value, than jumping up and down for attention...
It's no surprise that the best opportunities are often the ones that go unnoticed. And finding an undervalued company like this is like striking pure gold... They are as rare as hen's teeth and, by the very point that they are undervalued, means their true worth is often hidden and hard to find in a quick analysis.
But is there anything better than an undervalued company?
Yep.
You see, I have one problem with investing in undervalued stocks. The market can often require up to five years until it finally revalues the stock at the correct market price... where profit can be taken.
But, if you can find an undervalued company that's operating in a hot investing area [e.g., technology, biotech, alternative energy, etc.]....
... Then you have a distinct advantage. Because these companies operate in a hot area -- with a very active investor base -- they are often revalued by the markets much quicker.
And VNGM is even helping this process to go even faster...
You see, only recently, has Vanguard's management started to "shout" about what they do, by releasing news and creating a corporate website.
... And, so, the only reason I chose this stock as a value play, was because... it is in a "hot topic" area... And, so, I believe the process of the market re-evaluating it could take...
Just Two or Three Weeks!
...At which point, I believe, the stock price could appreciate over 200% from current levels.
This type of stock pick is just about my all-time favorite. Investing, based on value, is like betting at cards when the dealer tips his hand.
Why? Because the markets always, always, correct themselves. If a company is truly undervalued, it could take months or even years. But, eventually, the stock price will reflect the company's true value.
And, so, I think you're really just waiting for the inevitable to happen. Like I said, it's just like betting at cards, when the dealer is tipping his hand your way.
One last thing I think you should know before researching VNGM.OB is that, I nearly didn't send this pick out...
That's right. Even though this is almost definitely one of the best opportunities I have seen this year, I almost skipped it. Why? Because it requires something most stock traders don't have...
... Discipline.
Value investing requires the discipline to find a good opportunity, bet big, and hold onto that position until the market has fully revalued it.
If you "chicken" out, you could still end up with, I believe, a 30% gain... But I strongly believe this stock will peak at a 200%+ gain within two or three weeks.
Best Regards,
Michael Cohen
P.S.: With a stock that is this promising, in my opinion, you are looking for a 200% gain minimum... Any less, and I'd be bitterly disappointed, because this sort of opportunity doesn't come along often... But, when it does, it's where all the biggest gainers come from.
Full disclosure: Kari Larson doesn't own any shares of the companies mentioned in this article.
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