Once again it's ugly out there today. The Dow Jones Industrial Average dropped below 11,000 for the first time in two years, plunging over 2%. The rest of the U.S. stocks are not far behind with both the Nasdaq composite and the S&P 500 down over 2% as well. It's depressing. But you don't have to look far to see a nicer picture, you just have to look up: up north that is.
The Toronto Stock Exchange has fared much better in what has officially become a U.S. bear market. Over the past year, while the S&P 500 sank over 19%, the S&P/TSX Composite index dropped only 3.4%. Year-to-date, while the S&P 500 declined over 16%, the TSX was barely down 1%. And if you stay away from financials on the TSX, you'd fare even better.
How so, you ask, doesn't the Canadian economy closely follows the U.S.'s? It's mostly true as the U.S. is Canada's biggest trading partner and the Canadian economy is intertwined with that of the U.S. For example, some of the layoffs at GM and Ford plants have occurred in Ontario plants, and Canada's unemployment rate edged up to 6.2% in June due to a drop in full-time jobs.
The thing is, though, that the TSX is heavily weighted in mining and oil & gas companies, sectors that have fared better than techs and financials the past year or so. Getting exposure to the Canadian market is very easy since many stocks also trade on U.S. exchanges, the famous of all may be Research in Motion (NASDAQ: RIMM). But there are others, and some of them, the U.S. investor may want to consider.
In a market dancing in bear market territory and with elevated inflation, it certainly doesn't hurt to own a defensive stock or two. And one that fits the bill, with an inflation hedge as a bonus, is Barrick Gold (NYSE: ABX).
Barrick Gold is the world's number one gold producer, with a 2007 production capacity of 8.1 million ounces, and 124.6 million ounces in proved/probable reserves. Analysts see a 20-30% revenue gain in 2008 for ABX, following a solid performance in 2007, due to a higher average gold price and increased production.
What's behind the gold bull market? Three factors: 1) increased use of gold in industrial and commercial applications, 2) rising demand for gold jewelry, and 3) increased reliance on gold and gold shares as an alternative investment. All three trends show only modest signs of abating in 2008. Asia-based jewelry demand looks especially promising in the immediate years ahead. The Reuters F2008/F2009 EPS consensus estimates for ABX are $2.43/$2.60.
Barrick Gold (NYSE: ABX) shares are trading higher today as gold futures have advanced by almost 2%. Gold is being propped up by yet another record high for crude, which investors expect to drive inflation. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ABX.
After hitting a one-year low of $28.89 in August, the stock hit a one-year high of $54.74 in March. ABX opened this morning at $46.42. So far today the stock has hit a low of $46.00 and a high of $47.00. As of 12:05, ABX is trading at $46.55, up $1.05 (2.3%). The chart for ABX looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $37.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just seven weeks as long as ABX is above $37.50 at August expiration. Barrick would have to fall by more than 19% before we would start to lose money. Learn more about this type of trade here.
Barrick Gold (NYSE: ABX) shares are trading higher today as gold futures are on the move higher. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ABX.
After hitting a one-year low of $27.79 last June, the stock hit a one-year high of $54.74 in March. ABX opened this morning at $41.06. So far today the stock has hit a low of $40.70 and a high of $41.50. As of 12:10, ABX is trading at $40.73, up 0.29 (0.7%). The chart for ABX looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $32.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 16.3% return in just four months as long as ABX is above $32.50 at October expiration. Barrick would have to fall by more than 20% before we would start to lose money.
ABX hasn't been below $35 at all since August and has shown support around $38 recently. This trade could be risky if the dollar recovers and gold futures fall, but even if that happens, this position could be protected by the support the stock might find around $37 where it has formed a bottom over the past seven months.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in ABX.
With gold trading down sharply from its highs, Keith-Fitzerald offers a special report on gold stocks in Money Morning, highlighting three companies that he consider to be the "very best of the best."
"Gold remains a key profit opportunity -- especially if inflation, or even stagflation, is taking hold. It should also help that economic uncertainty is escalating. However, since the economic outlook has grown more uncertain, we've decided to our recommended list down to just three picks:
"The StreetTracks Gold Trust (NYSE: GLD) is an ETF that tracks the price of gold directly, making it the simplest way to invest in the yellow metal via an ETF. And with a market cap approaching $17 billion, this fund has ample liquidity.
"Barrick Gold Corp. (NYSE: ABX) is a Toronto-based company with mostly North American production, as well as properties in South America and Africa, and some copper and zinc add-ons. It has a $38 billion market capitalization, so there's plenty of liquidity.
MOST NOTEWORTHY: Barrick Gold, Bank of Nova Scotia and Wal-Mart were today's noteworthy upgrades:
CIBC upgraded Barrick Gold (NYSE: ABX) to Sector Outperformer from Sector Performer based on stronger 2H08 production.
RBC Capital upgraded Bank of Nova Scotia (NYSE: BNS) to Sector Perform from Underperform citing expectations for benign credit deterioration near-term, retail momentum, and asset growth in international banking.
Morgan Keegan upgraded Wal-Mart (NYSE: WMT) to Outperform from Market Perform based on improving productivity and earnings outlook.
Barrick Gold Corp. (NYSE: ABX) shares are rising today, helped by higher gold futures. Gold futures are not back up to their record $1,000+ prices, but are recovering after a dip down below $900 in late March. The front-month contract is up almost 2% today, nearing $950 possibly due to investor worries about inflation as the dollar continues to struggle against foreign currencies. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ABX.
After hitting a one-year low of $27.71 in May, the stock hit a one-year high of $54.74 in March, ABX opened this morning at $44.77. So far today the stock has hit a low of $44.75 and a high of $46.20. As of 12:40, ABX is trading at $45.63, up $2.16 (4.9%). The chart for ABX looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $37.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just one month as long as ABX is above $37.50 at May expiration. Barrick would have to fall by more than 18% before we would start to lose money. Learn more about this type of trade here.
"The recent decline in gold from above $1,000 is prompting gold bears to say that the great gold bull market has reversed itself," says Martin Hutchinson who states, "Let me say right now: They're wrong."
In his Money Map Reporter, he explains, "Thanks to three key catalysts, we may well see gold at $1,500 an ounce this year, if not higher." Here's his outlook and a trio of ways to play this trend.
"These three catalysts – worldwide monetary policy, global supply-and-demand for gold, and gold's past performance – have already ignited a powerful rally that's virtually certain to carry gold to much higher price points, despite the breather the rally appears to be taking right now.
"Don't be fooled. Every rally needs a catalyst – something that ignites and then fuels the bullish trend. As noted above, gold has three. Let's take a look at each of them:
1. Monetary policy: More than for any other investment, gold's price depends primarily on the world's monetary policy. When monetary policy is loose, as it was in the 1970s, gold prices soar. When it is tight, as in the 1980s, prices decline sharply.
Technician Yola Edwards had forecast a rise in gold to $1032; it rose to $1034, before correcting. In her Edwards Charts she offers a technical outlook for gold, Goldcorp (NYSE: GG) and Barrick Gold (NYSE: ABX).
"Gold exceeded my $1032.50 level by posting an intraday high just shy of $1034 but it turned on a dime and plunged over a US$100. The daily chart now indicates prices are oversold according to the MACD and RSI as the price bounces off support at the lower Bollinger band.
"However, a negative bias remains. A corrective wave four will retrace to the top of wave 1 at about US$865 if the decline holds true to theory, which should be viewed as a buying opportunity as the fifth advancing wave should see gold rally to about $1145 over the next four months.
"Goldcorp has traced out a 'U' shaped bottom over the past two years and is now in a consolidation phase. Since pulling back from its high two weeks ago the month ended with a type of spinning top which halted the previous decline.
If you thought holding a rally after a huge day was too much, you weren't too far off the mark. Many people ask over and over if this is a real bear market or not. By a classic definition that may still be up in the air, but this is what every bear market feels like. It also goes to show that you almost want to sell every time you feel good about things and then buy when you feel like everything couldn't get any worse. Hearing traders and market technicians say, "Sell the rallies" is becoming quite commonplace. Visa Inc. (NYSE: V) was the largest US IPO ever with its shares soaring after their unprecedented debut yesterday at $44 per share. Investors see promise in electronic payments as shares rose 33% on its IPO debut. Here's the drop for the major averages:
DJIA 12,099.66 (-293.00; -2.36%)
S&P 500 1,298.42 (-32.32; -2.43%)
NASDAQ 2,209.96 (-58.30; -2.57%)
10YR-TBond 3.362% (-0.089)
There were many names on the 52-week lows, but many formerly hot names you wouldn't have guessed. If you look at the major collapse that was seen in the commodity stocks (and commodity prices) that have been major leaders, you'd think they were almost exposed to CDO's too. Oil fell $6.02 to $102.48 per barrel, and that took down Exxon Mobil Corp. (NYSE: XOM) by more than 4% to $84.43; Gold fell down over $59.00 to $944.70 per ounce late in the day and that took Barrick Gold (NYSE: ABX) down 8.7% to $45.25. The Mosaic Co. (NYSE: MOS) was also a huge loser as traders took off more of their agriculture trades with a drop of 11% to $97.25
In her Edwards Charts, technical expert Yola Edwards reviews the outlook for gold, as well as her latest new buy recommendation, Barrick Gold (NYSE: ABX).
"Gold rallied faster than anticipated reaching my suggested lower target price of US$978.50 on February 29. The daily candlestick ended in a doji star and it could be setting up an evening star pattern suggesting lower prices ahead if gold cannot close above US$978.50. H
"However, there is a good possibility that the level will be exceeded as both the daily and weekly MACD are on buy signals. Additionally we have two long white advancing candles and a third if formed the first week of March would form a three advancing white soldiers pattern signifying strength ahead and i would then look for a rally to about US $1032.50.
Barrick Gold (NYSE: ABX) shares are rising today as front-month gold futures are making a charge at $1000. Gold is rising in part due to the weakening US dollar, as it is seen as a hedge against such movement. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ABX.
After hitting a one-year low of $26.94 last March, the stock has risen steadily all year to hit a one-year high of $54.00 in January. ABX opened this morning at $51.98. So far today the stock has hit a low of $51.61 and a high of $53.39. As of 12:55, ABX is trading at $53.10, up 1.92 (3.8%). The chart for ABX looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $42.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just one and a half months as long as ABX is above $42.50 at April expiration. Barrick would have to fall by more than 19% before we would start to lose money. Learn more about this type of trade here.
Rio Tinto's above-consensus sale price for its gold mine to Barrick Gold almost certainly increases Rio's negotiating stance vis-a-vis takeover bids from BHP Billiton or from other potential suitors, an analyst told BloggingStocks Friday.
"Rio's sale of its gold mine to Barrick for $1.7 billion when the market was expecting something like $570-$700 million is a fundamental data point the market cannot ignore," independent stock analyst C. Leonard Bauer said Friday. "It will force BHP Billiton and others receptive to a deal to redo their fair-value projections for Rio."
Rio (NYSE: RTP) has twice rejected hostile buyout offers from BHP Billiton (NYSE: BHP), the last for $147.4 billion, involving at least 3.4 BHP shares for each Rio share, arguing that the bids substantially undervalue Rio. Rio gained 64 cents to $452.89 while BHP gained $1.01 to $72.89 in Friday afternoon trading.
At first glance, the idea of bidding wars for targets appears to be a paradox in the current economic environment. After all, the U.S. economy is barely inching along, and the credit markets can be described, at best, as being cautious regarding potential deals. But the mining sector is another story, Bauer said. Strong economic growth in emerging markets has created surging demand for raw materials, minerals, and commodities. Further, the sector is in the midst of mergers and expansions that will produce miners with global market capabilities.
Iron ore war?
The above demand, particularly from Asia, Bauer said, has offset recent, modest quarterly earnings performance from some miners, and has driven up the value of miners like Rio and Freeport McMoRan (NYSE: FC).
In addition, China's size and its economic development plan has further increased miners' value. China, which with Alcoa (NYSE: AA) earlier this year jointly purchased a 9% stake in Rio Tinto through its Chinalco aluminum company, has said it will continue to seek acquisitions of foreign companies, including mining companies, Bauer said. Bauer added that he does not have a rating on any mining company nor own their shares.
"China may ultimately try to outbid BHP because a BHP / Rio union would unite two of the three largest suppliers of iron ore, which China needs for its economy," Bauer said. "A BHP / Rio union would likely leave China in a weaker negotiating position regarding iron ore prices. So you can see why Rio feels BHP's offers so far have not valued the company fairly. Rio knows that as long as China grows, it has a commodity likely to increase in value substantially for years to come. And that's a good place to be in, from a corporate standpoint."
Freddie Mac (NYSE: FRE) was downgraded to Sell by Merrill Lynch due to the credit crisis.
More analyst calls from Briefing.com:
Arcelor Mittal (NYSE: MT) was upgraded by Deutsche Securities from Holdto Buy. MT shares are up 3.75% in premarket trading.
Imclone (NASDAQ: IMCL) was upgraded at Cowen & Co from Neutralto Outperform.
Barrick Gold (NYSE: ABX) was downgraded by UBS from Buyto Neutral , and the target price lowered from $55 to $56
Gilead Sciences (NASDAQ: GILD) was downgraded by Bernstein from Outperformto Mkt Perform
Amazon.com, Inc. (NASDAQ: AMZN) shares took quite a hit Thursday, finishing the session down just over 5% "after founder and CEO Jeff Bezos sold more than $135 million worth of shares in his first insider sale in more than three years."
'Natural male enhancement' founder gets enhanced prison sentence
Mobile Telesystems (MBT) soars on $452M buyback plan
Could Sprint dump Nextel to join with T-Mobile?
Ford (F) desperately needs more dealers to consolidate
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Oil broke $120 again as Gustav eyes the Gulf of Mexico
Toyota (TM) takes its 2009 forecasts down
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Starbucks (SBUX) management: No raises next year
Before the bell: Stocks flat; TIF, FNM, TIVO, AAPL, GILD, JAS ...
Has housing bottomed? Mortgage data lifts Toll Brothers (TOL), others
Google unveils Ad Manager system for use by anyone
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Mattel to get up to $100 million in Bratz case
Alabama county mulls bankruptcy; could be largest failure in history
Once again it's ugly out there today. The Dow Jones Industrial Average dropped below 11,000 for the first time in two years, plunging over 2%. The rest of the U.S. stocks are not far behind with both the Nasdaq composite and the S&P 500 down over 2% as well. It's depressing. But you don't have to look far to see a nicer picture, you just have to look up: up north that is.
With gold trading down sharply from its highs, .gif){kind=logo}
Barrick Gold
Freddie Mac (NYSE: 