StockBullz.com

Stockbullz.com Weekly Stock Newsletter #9

May 12, 2006

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

Dear Canadian Stock Investor,

The markets overall and my picks have been trading in somewhat of a 10-20% range for the past couple weeks. They go up a little, then they take back the gains.

You can’t expect everything to go straight up but even so it is always disappointing when your portfolio either moves sideways or moves down in value.

I share the same emotions as I’m sure most of you do and I think the best remedy is to watch the market less often and remain patient.

We are in the midst of what some people are predicting to be the “biggest bull market of our lifetime,” so I recommend you stay on your positions but still keep your eyes out for emerging opportunities to make more money.

I think that as with all bull markets, the most successful investors will be able to stay patient, limit their losses and let their winners fly.

Even though choosing the right stocks will be vital, picking the right entry points will be even more important. Bob Bishop joked that he would buy any stock on the entire market as long as it had the right price. But he wouldn’t buy his favourite stock pick if it wasn’t the right price.

The best way that I have used so far for entry points was recommended and explained most clearly to me by Jim Letourneau of the Big Picture Speculator newsletter.

He suggests investors chart the upper and lower trend lines of a particular stock. When the share price approaches the upper trend line, you can look at taking some profits. And when the share price approaches the lower trend line, you should look at buying.

It is so easy to do this in theory but much harder in practise. Why? Because the theory tells you to buy shares when it they have fallen in value and sell when they have risen in value. This seems to be contrary to human nature which would dictate us to buy when it’s going up and sell when it’s down.

I guess the saying is true that says that we must master ourselves and our emotions before we can become successful investors.

I revised my Capstone future P/E estimates this week because I forgot to take into consideration taxes, transportation costs etc. The number is still very low and I expect the market to push Capstone’s share price up over time. They seem too darn cheap to me!

Because I enjoyed evaluating Capstone’s future earnings, I decided to do as well for my favourite company right now: Silvercorp.

Revenues:

2,754,950 ounces Silver x $10.68 (US$, net of smelter charges and value added tax)

            =$29,422,866

48,532,880 lbs Lead x $0.40 (US$, net of smelter charges and value added tax)

            =$19,413,152

9,526,440 lbs Zinc x $1.15 (US$, net of smelter charges and value added tax)

            =$10,955,406

Total Revenue=$59,791,424

Expenses:

Total Production Cost: $5,732,900 (US$)

Resource Tax: $880,578 (US$)

Income Tax Rate: 0% (very good)

Net Profit after income tax (US$)=$53,177,946

Less: Capital Expenditure for Future Development (US$)=$11,669,113

Silvercorp Profit (US$, 77.5% of Cash Flow)=$32,169,346

In CDN$=$35,663,483

35,663,483/47,066,532 shares=$0.76 profit per share

$17.00/$0.76= 22.4 times forward P/E ratio

I hope that makes sense to everyone. With a forward P/E like this, Silvercorp is still a good deal, especially if you are willing to hold for several years. Soon I will try to calculate earnings for future years and those look even better because there will be higher production totals and possibly higher metal prices as well.

Silver Wheaton’s P/E is currently listed as being 50. If Silvercorp commanded the same valuation, it should be worth around $38 per share or slightly more than a double from our current levels.

Perhaps the easy money has been made with Silvercorp but I still feel they are going to do very well over the coming years and could be a good addition to any portfolio.

On the other hand, it is unbelievable to see how cheap Capstone is compared to Silvercorp. Perhaps we will be able to make some easy money on them like we did with Silvercorp. I think it is only a matter of time before the share price starts rolling up with them. If you were able to buy in time for Silverstone shares and warrants that might turn out to be a solid investment. (For your info, if Capstone had a 22.4 future P/E like Silvercorp, they would be valued at $10.98/share. That’s why I feel there is still much upside on this stock.)

I will add Capstone to the list at the end of this newsletter once Silverstone is trading so I can calculate total return because right now I have no idea what the market will value them at.

I am not currently holding Minco Silver but I did phone Investor Relations and Byron there told me that there should be a very good news release coming out in a week or so that will outline the president’s plans to put the Fuwan silver project into production. They stated in their recent news release that they are planning a feasibility study. Production may take up to 2 years to begin but it is a good sign anyways. If they do things right they could be jr. Silvercorp because they are 2 years behind and priced at about 1/8 Silvercorp’s market cap. I am very interested to see how this story plays out.     

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

P.S. Please feel free to forward this to all your investor friends. I don’t advertise but I think I provide a lot of content and research you won’t find anywhere else on the web so I need you to do me a favour and spread the word!

Stock	Date Recommended*	Price Then ($)	Price Now ($)	Return (%)
Top 2 Picks
SVM	Jan. 26, 2006	5.82	17.00	+192
NUC	Dec. 23, 2005	1.60	3.25	+109
Solid Growth
SLW	Jan. 3, 2006	6.85	11.03	+61
Speculation
MSV	Mar. 5, 2006	3.84	4.02	+5
SQI	Apr. 14, 2006	0.59	0.60	+2
WEE	May 10, 2006	2.60	2.79	+7
Ideas
PDN	Dec. 8, 2005	1.70	4.19	+146
UUU	Dec. 22, 2005	1.93	3.38	+75
ABG	Jan. 4, 2006	1.73	2.95	+71
POE	Dec. 17, 2005	2.22	3.95	+78
American Ideas
USGL	Apr. 14, 2006	8.19	8.77	+7

*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.