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The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.

The Bright Spot in the Resource Sector Today

By Justin Brill
Saturday, October 31, 2015

 This week, we received further confirmation that times are tough in the oil sector...
 
Blue-chip Big Oil firm Royal Dutch Shell reported third-quarter earnings – or rather, losses – of $7.4 billion before the U.S. markets opened on Thursday... its largest quarterly loss in at least 16 years. This compares to a third-quarter profit of $4.5 billion last year.
 
Along with "impairment" charges of $3.7 billion – where the company was forced to reassess the value of its oil and gas reserves based on lower price forecasts – Shell also wrote off more than $4 billion for scrapping several large projects.
 
It booked a loss of $2.6 billion after walking away from its Arctic exploration project in Alaska (where it spent billions to drill one "dry" well) and another $2 billion for giving up on a major oil sands project in Canada.
 
Even when adjusting for this $8.2 billion in impairments and write-offs, the quarter was terrible. In this case, Shell earned an adjusted profit of $1.8 billion... well below analyst expectations of $2.9 billion and an incredible 70% less than it earned in the same quarter of last year.
 
 But it's not all gloom in the resource sector... Gold-mining giant Barrick Gold (ABX) reported better-than-expected earnings this week.
 
It also reported a quarterly loss due to impairment charges. The world's largest gold producer lost $264 million, or $0.23 a share, compared with a profit of $125 million, or $0.11 a share, in the third quarter of last year.
 
But underneath the headlines were some encouraging signs...
 
 Adjusting for those charges, the company reported $0.11 earnings per share, beating analyst estimates of $0.07. The company also lowered its debt by $1.6 billion in latest quarter alone. And it plans to spend an additional $1 billion from its sale of a Chilean copper mine to help pay down a total of $3 billion of debt by the end of 2015.
 
Barrick also produced slightly more gold in the third quarter than it did in the previous quarter of last year.
 
But the most impressive number was that Barrick's all-in sustaining costs – that is, the total cost to produce each ounce of gold – were down to $771 an ounce in the third quarter, versus $834 an ounce in the same period of 2014.
 
 Like many companies recently, Barrick made some serious missteps and took on way too much debt. But despite another year of falling gold prices, the company is still profitable. It's making money at today's gold prices, and has been successfully paying down its debt.
 
If gold prices move higher from here – or even if they just stop falling – the company should do even better. In other words, if things go from "bad" to "less bad" for gold, shares of Barrick could soar. And high-quality companies with lower costs and less debt could do even better.
 
 Our colleague Steve Sjuggerud agrees... He summed up his bullish argument in the October 22 edition of our free DailyWealth e-letter, titled "Gold Stocks Have NEVER Been This Cheap"...
 
Most investors know that gold is far from its 2011 highs. But I don't think folks understand how far gold stocks have fallen.
 
The benchmark gold-stocks index – the NYSE Arca Gold Bugs Index (HUI) – is down 75% in four years. Meanwhile, the price of gold only fell 30% in four years. That's a big divergence. And it has led to a major extreme in the gold-to-gold-stocks ratio.

As Steve explained, the "gold-to-gold-stocks ratio" is simply the price of the HUI divided by the price of gold. When the ratio is low, gold stocks are cheap relative to the price of gold. Recently, the ratio hit an all-time low.
 
Of course, this isn't a perfect "value" measure for gold stocks. It doesn't take mining costs into account – or any other business costs, for that matter. But it does offer a simple, big-picture view of the industry.
 
Importantly, the two major bottoms in this ratio led to incredible returns... in 2000 and 2008. If you had bought gold stocks at each of those bottoms and held for three years, you would have made 418% and 226%, respectively.
 
We can't know exactly when we've hit bottom. But this shows how much gold stocks can soar when they get going. And after a 75% decline, these kinds of gains are absolutely possible when the next move higher begins.

 It's clear gold stocks are cheap today. Many investors have lost money on gold stocks and have given up on them completely, making them hated. And now, gold stocks – as measured by the Market Vectors Gold Miners Fund (GDX) – are up nearly 15% since early October. It looks like they are finally in an uptrend.
 
As you probably know, those are Steve's ingredients for a "perfect investment"... and it's why he recently invested $100,000 of his own money into gold stocks. He put together a presentation sharing the full details. You can view it by clicking here.
 
Regards,
 
Justin Brill




This Week's Winners
S&P 500 Symbol Change
Allergan AGN +20.3%
Mallinckrodt MNK +19.4%
Endo International ENDP +17.3%

Countries Symbol Change
Israel ISL +3.0%
U.S.A. SPY +1.7%
Germany EWG +1.1%

Sectors Symbol Change
Big Pharma PJP +7.8%
Biotech PBE +6.8%
Health Care IYH +5.8%

Commodities Change
Wheat +4.9%
Cocoa +3.3%
WTI Crude +1.5%
Date Range:10/22/2015 to 10/29/2015
From The Crux
This Week's Losers
S&P 500 Symbol Change
Consol Energy CNX -31.8%
Stericycle SRCL -17.8%
Akamai Technologies AKAM -15.8%

Countries Symbol Change
Malaysia EWM -5.4%
Turkey TKF -5.0%
South Africa EZA -4.8%

Sectors Symbol Change
Gold Mining GDX -6.2%
Oil Services PXJ -4.5%
Utilities XLU -4.1%

Commodities Change
Lean Hogs -9.9%
Tin -5.8%
Natural Gas -5.4%
Date Range:10/22/2015 to 10/29/2015
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