StockBullz.com

Stockbullz.com Weekly Stock Newsletter #11

May 26, 2006

“It’s my opinion but it’s your money!”

Dear Canadian Stock Investor,

As I had predicted last week, we had a bit of a rebound this week. Now the key question is will the strength continue or will we drop off lower or at least trade sideways for a while.

In general, I believe a sideways pattern until somewhere around August could make sense. Volumes are usually lower during the summer because the big money managers are treating their families to holidays in Europe and on the Beaches.

There could be a lot of choppy pricing and short term up and down moves because of this low volume. One trade could move the stock up 5% and the next would bring it down back 5%. And that could be as little as one or two thousand dollars moving a small stock’s price 10%!

So when buying during the summer perhaps it would be smart to use limit orders because if you but it a market order with very low volume, who knows what price you could get!

Capstone finally made a move to the upside that has been, in my opinion, overdue. Looking back at my cash flow analysis of about a week ago, I see that the commodity prices are slightly higher than they are now, but according to the latest news release, all the costs of construction will be taken care of so I can add an extra $10 million to earnings. This brings up the projected earnings per share to about $0.54 per share. That is a forward P/E of 3.39. That might not mean much to you but if I give the stock a very conservative P/E of 10, it should be worth $5.40. So I am making that my first price target for this stock. I think that management is excellent in having led them to production this quickly and I think they will continue to do very well. It’s hard to believe with the rotten timing I’ve had with this stock so far but I can double digits for the price within 2 years just because they are as close to a cash cow as you can get! Plus they still have $20 million in the bank and no debt. We’ll see what kind of surprises they can conjure up with that kind of money for us. Lastly, they stated in their last news release that an updated resource estimate should be released within 30 days. This could be yet another catalyst for market awareness of this under the radar stock.

Curiously Nova finally released their first drill results for the B property and they seemed to be OK considering anything they find at B is totally bonus to A because it has never been drilled before. The stock was up 20% the day before this announcement yet it dropped all these gains the very next day. I hear some rumors that these B drill test might be encouraging to boost Nova’s so called Uranium reserves to 90 million lbs from the current 77 they are using in all their documents and promotion. As you can see, this is a very volatile stock because of its very tight share structure. I still believe it will do well, we just have to be patient for the drill results to prove what was proven in the last uranium bull market 30 years ago. Of course it is still pure speculation so if volatility like this keeps you from sleeping at night perhaps you should think about lightening up your portfolio but still keeping an amount that if in the very worst case you lose it, it doesn’t wipe you out. If you look at the Nova chart, you can see that the price has been slashed in half since the peak of $4.55. In my opinion, Nova is actually in a better situation since then because they at least have one set of drill results back from the lab. So why is it down? I say psychology. People were getting greedy as those prices (perhaps us included) and they thought this would go straight up forever. Now at these prices, people are probably getting scared that it’s the end of the world and the stock is going down the toilet. Valid emotions but you have a better chance of making money if you buy when others are scared like this. So I’d say that Nova is a better buy at these levels that at over $4.

Somebody posted a comment today saying that someone is predicting a market bottom on June 3. The source was unavailable but perhaps taken off a message board. Just knowing that piece of information makes me doubt that is the date. The “public masses” are well represented on message boards and judging by history they are always wrong about the direction of the market and predicting important market turning points. So just on this little piece of info, I would rather go the complete opposite direction and say that will be a short term top in the market. Of course nobody can guess the market right all the time but that is just a loose prediction of mine.

Just to elaborate further on that point, I recently completed reading James Dines’ book Mass Psychology. It is a very good read and one of his investing rules that have been proven over and over in history is that everything takes longer than expected. So my theory that we will trade sideways until the end of summer could make sense if others are predicting a turn around shortly because my idea takes 2 or 3 months longer. Same with long term predictions by newsletter writers of this bull market for commodities lasting another 10 years. If Dines’ rule works out again, maybe we’re in for an even longer ride.

I threw out a lot of ideas and predictions this week and we’ll see what happens with them. They are just my opinions of course so how you decide to act on them is up to you. Overall though, I’m bearish short term and but extremely bullish long term. I am hoping that I will be able to pick up shares in my favorite companies at prices another 10-20% discount in a couple months. I know it is very difficult to time short term down times during bull markets because there are so few of them. However, we had a rocking first 4 months of this year so a breather for the summer doesn’t sound too out of this world to me right now!

That’s about it for this week. Thank you for taking the time to read this and I wish you luck in your investing decisions,

Mike 

 *Note: Many of these picks were recommended on my old blog first.

Disclaimer: This letter is merely someone’s opinion. It should not be taken as investment advice. Through viewing this publication or accessing our site, you agree to hold Stockbullz.com, its operators, owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. It’s your money, so you are ultimately responsible for any gains/losses you may incur. Do your own due diligence! Writer may own positions in some of the mentioned stocks.