Bargains Galore at the 5 and 10 Store: TSX
I'm sure many of our readers remember the 5¢ and 10¢ stores of the past. What a treat as a kid to browse through the merchandise looking for the chance to purchase some of our favorite items literally for pennies. Well, guess what? The 5¢ and 10¢ store is back and this time it is packed with many incredible values for us big boys and girls.
Those of us following the mining shares, particularly the juniors, are well aware of the carnage over the last several months. Many of the shares are down 70%, 80% or even 90% in value. Many that once were junior companies trading for a $1 or more are now available at the 5¢ and 10¢ store.
For U.S. investors, there is currently even a larger discount. Let me explain. Most of the junior mining companies are based in Canada and are traded and priced in Canadian dollars. As of today, with the Canadian dollar at around .81, this means a junior or perhaps a long-term warrant trading on a junior at say $0.10 in effect only costs the U.S. investor $0.081, just about a 20% discount.
We present you with this chart on the TSX Venture. Hardly a pretty chart at this point in time but look to the future when we anticipate selling our shares and warrants for dollars while currently buying them at the 5¢ and 10¢ store.
As you can readily see we recently became overbought on a short term basis and this current retracement is giving investors perhaps the 'last chance' to get into their favorite shares at bargain prices. On a positive note, the shares are now firmly above the 50 day moving average for the first time since June 2008.
Some of you may question whether the juniors, even at these ridiculous prices, are a bargain or even still too risky. True, each investor must make this decision for him/herself, but let's say you acquired the shares of a junior mining company six months ago and you paid $1.00 a share and the shares are currently at $.10. You still believe in the company and are reasonably confident management will be able to execute on its business plan in the coming months and years. You also know that the company has sufficient cash reserves to weather this financial storm.
To my way of thinking this is the easiest decision on the planet. Buy More Now!
Assume for the moment that you had preciously bought 5,000 shares at $1.00 for a total of $5,000. Why not consider buying 35,000 shares at $0.10 for $3,500? Your total cost now is $8,500 with your average cost down to $0.2125 for 40,000 shares. If the shares rebound to only $.50, you now have a profit of over 135%. I encourage readers to do the math on each of their current holdings.
This is the time, in my opinion, for investors to be aggressive buyers of these beaten down juniors. Don't just equal your previous number of shares purchased, but consider as in the example above 3, 4, 5 times or more your original purchase, thus greatly lowering your average cost per share and the opportunity for much greater gains in the coming months and years.
This same rational applies to the long-term warrants trading on the mining shares. The warrants have also been beaten down but many have remaining lives going out to 2011 and beyond allowing lots of time for a rebound and resumption of the bull market. We believe the stage is set as many of the companies with warrants trading will do great as the share prices increase in the coming months and years providing investors with the opportunity for outrageous returns on their investment dollars.
For those readers interested in learning more about warrants we encourage you to visit our website.