Today's investors must recognize that we no longer havethe comprehensive brokerage house research support for stocks as in the past;research has declined for over twenty years and that lack of analysis willcontinue. Why? Because the spreads between stocks' bid and offer prices havebecome so narrow that the brokerage houses' and banks' market makers' profitsare minimal if not non-existent. The profitable wide spreads in the past paidfor research and provided capital for brokerage market makers to support theirstocks and trading. Gone! Thus computerized trading coupled with today's tinyspreads between the bids and offers shattered the profitability of "makingmarkets" by market makers. Those "now lost profits" did support research and providedtrading capital for years.
The key to understanding the present situation is this:In the past, we saw market makers often holding 200,000 to more than 500,000shares and often more of the small caps and junior mining stocks that they mademarkets in. It was normal to keep $20,000-$50,000 worth of stocks individually and often more ininventory. Brokerage research reports would at the same time be recommendingthe stocks for investors and inventory in the shares often had shares beingbought by investors.
Today our research finds many precious metals andresource stocks that are at prices that may be exceptionally undervalued. Investors can take advantage by accumulating stocksthat research indicates as undervalued. Lack of market maker buying supportcoupled with the fact that research coverage is almost non-existent for small capscreates extraordinary opportunities. Many stocks drop to price levels that are farbelow their bottoming price areas of the past. The lack of market maker buying supportmakes declines even larger.
Since there is very limited research coverage for mostcompanies, investors are generally unaware of many undervalued stocks. Atpresent, investors typically see the narrow universe of stocks that the brokeragehouses recommend. Few are undervalued...very few! That is not going to change. Investors mustlook for other sources of investment information and research. There arenumerous research sites available covering the metals and mining industry andmost are free.
Two companies,among the many we follow that we are monitoring now may have dropped to pricesthat merit attention.
Imperial Mining "IPG" on the TSXV, .06 cents is a newly created Qu?(C)bec?EUR?based exploration and developer of base metal, gold and technology metals deposits and rare earth metals. Yes, the same rare earth metals primarily controlled by China that are the subject of the recent news.
Imperial was originally a private corporation and acquired assets oftwo exploration companies in exchange for common shares of Imperial Mining. Itrolled its' Qu?(C)bec technology metals project (scandium-niobium-tantalum-rareearths) into Imperial Mining as well.
We believe that theirScandium project offers exceptional potential as results in our opinionindicate that Imperial's scandium project is not only substantial but containssufficient resources to supply North American Scandium demand for twentyyears...at least. The previous belief that any North American supply wasinsufficient has been the overriding fear. We believe that will not be the caseas further drill results and confirmations become available.
Cartier Resources, ECR, .15 cents is a Val D'or, Quebec based mineral exploration company that trades on the TSX Venture Exchange. Its three main projects are located in the mineral-rich Abitibi Greenstone Belt in Quebec. Cartier's strategy has been to focus their exploration in areas where gold has been found and mined before and where the required infrastructure to bring a mine into production cost efficiently is already in place. Management's primary focus has been to enhance the value of Cartier Resources.
Cartier Resources hasshown consistent heavy insider buying by its president Philippe Cloutier overthe last ten years. We noted that he purchased Cartier shares at prices from ashigh as one .90 cents all the way down to .05 cents per share. He now owns3,353,000 shares of Cartier at an average of .17 cents. It is among the highestamounts of purchases by a CEO in the junior sector. While the market may be overlookinga potentially undervalued situation, NYSE and TSX listed Agnico Eagle purchased19% of the Cartier two years ago. Evidently someone saw potential value there;that someone was a billion dollar capitalization Toronto Stock Exchange andYork Stock Exchange listed mining company.
Insider analysis isnot a perfect method of analysis but it is a valuable tool that used incombination with other fundamental indicators can result in accumulating stocksat or near their price bottoms. There isno perfect method of stock analysis but there are specific "tools" that in our view demand their use.