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Saturday, March 01, 2008

Stock Picks for this Major Bear Market

MrKen has recently returned to trading stocks, as he has recently retired (62) and now has the free time to study and trade the market. Happily, I am showing @ a 15% profit for the January/February period in a most challenging investment environment. Here are the 3 long positions I currently have:

Coeur dAlene Mines Corporation (NYSE:CDE) -- silver, gold, lead & zinc
Hecla Mining Company (NYSE: HL) -- silver, gold, lead & zinc
Stillwater Mining Company (NYSE: SWC) -- palladium, platinum & other metals

Almost all of the profit has been from HL; SWC was only purchased on 2/29. CDE has risen modestly in the Jan/Feb period.

My short pick is: (but do not have an actual position at present)

Citigroup Inc (
NYSE:C) -- financial products & services


The rationale for these positions are both technical & fundamental:

TECHNICAL: The long positions have very high relative strength rankings (RS) as indicated in IBD (Investors Business Daily). The short pick has an extremely weak RS ranking. As discovered years ago by Edward O. Thorp (The Relative Strength Concept of Common Stock Forecasting--now out of print), stocks that are sharply above their 200-day moving average (MA) tend to outperform other stocks that have weaker rankings, with the converse being true for issues sharply below their 200 day MA.

FUNDAMENTAL: Silver, gold, platinum & palladium are soaring due partially to the decline in the dollar to record lows against the euro, yen & basket of 16 currences--and partially to favorable demand-supply considerations.

The greenback's slide is being caused mainly by the weak U.S. economy and the Fed's decision to "reflate" (print lots & lots of money) in order to avoid a sharp economic contraction (the dreaded 'R' word).- {More on this in a later post}-

Silver is beginning to outperform gold and most likely will actually benefit from the recently announced contemplated sales of gold by the IMF. Silver may be thought of as the "poor man's gold". Platinum, palladium & rhodium are also benefiting from power outages in South Africa (78% of world platinum productioncomes from South Africa) due to electrical infrastructure problems. These are not expected to be rectified until 2012!

And now on to my specific picks:

In 2007, Hecla Mining produced
5.6 million ounces of silver at an average total cash cost of negative $2.81 per ounce, after by-product credits. The company also has significant tax credits at its disposal.

Coeur dAlene Mines had 2007 cash costs of $3.97 per ounce of silver. Coeur has no silver or gold production hedged.

Stillwater Mining- The precious-metals miner reported a $14 million loss for 2007 on essentially flat revenue and experienced labor problems. But 'The Motley Fool' notes that--

"How many of the companies you own have roughly doubled in 2008? None? You must not be on board the Stillwater Mining (NYSE: SWC) express. Homegrown Stillwater, which is going into 2008 with a minimal amount of hedges remaining on its platinum output. Although the company is predicting a roughly 10% rise in per-ounce cash costs, its margins ought to be magnificent."

Citigroup Inc. - Commodities, with their transparent pricing and liquidity, are the exact opposite of the toxic products that Citigroup and its ilk have produced. CDO's, sub-prime mortgages & tens of millions in trading losses are what you get if you try to 'bottom fish' this dog. OPCO analyst Meredith Whitney, who correctly predicted a cut in Citigroup's dividend back in October, last week indicated that C could fall to 16 or lower on more writeoffs. A great short!


All ideas, opinions, and/or forecasts, expressed or implied, are for informational purposes only and should not be construed as a recommendations to invest, trade and/or speculate in the markets. Any investments, trades and/or speculations made in light of the ideas, opinions and/or forecasts expressed or implied herein, are committed at your own risk, financial or otherwise.

MrKen is NOT a registered Investment Advisor & therefore NONE of the above discussion should be taken as investment advice. It is the writer's personal opinion ONLY, except where specific cites from financial publications & professional analysts are given.

As indicated above, MrKen at the time of this posting has long positions in CDE, HL & SWC.

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