At www.BullMarketRun.com, we are big believers in technical analysis. In fact, we spend considerable time each day pouring over charts of different stocks and the major Indexes. But we also place equal or even greater importance on the fundamentals of a particular company – the quality of its management and its projects, the health of its balance sheet, and the ability of that company’s “story” to excite investors. To make buy, sell and hold decisions on a stock based entirely on just technical analysis, or entirely on just fundamental analysis, is a grave mistake in our opinion and a recipe for disaster. Today we had two excellent examples of that.
Just prior to 8 o’clock Pacific time this morning, all subscribers of Clive Maund received an email recommending that investors “take profits” in Kent Exploration (KEX, TSX-V) “with the sector (technically) looking to react”. In our view Clive is one of the best technical analysts in the precious metals and energy markets. We are a long-time subscriber of his service and we recommend him to others. But as we have stated here before, his track record on individual stocks is not nearly as good as his gold, silver, and oil forecasts. And, one must always keep in mind that he hardly ever considers the fundamentals of a company before writing it up – that’s not his job. He’s a technical analyst – he’s focused on the charts and that’s it.
Investors can often act like sheep. So within 15 minutes of the “sky is falling” warning, Team Clive went into action and started “taking profits” and dumping Kent stock this morning, sending it as low as 19 cents (we managed to pick some up at .195 and again later at .21). It was rather incredible watching this unfold, especially considering the fact we had just returned from the Vancouver Resource Conference where we spoke with Kent President/CEO Graeme O’Neill for nearly half an hour yesterday regarding the prospects for his company.
What happened today with Kent clearly illustrates the mistakes investors can make when they act on emotion and don’t fully understand the fundamentals of the company they have invested in.
We will be going into more detail on Kent in the near future, but for now it’s important to state the following (we first initiated coverage on Kent last fall at 16 cents and we have been extremely bullish on this stock ever since).
1. Kent is one of the best managed junior exploration companies we have ever come across. Graeme O’Neill is a sharp businessman who knows how to run a company. He is focused and results driven and a man of integrity. He has the respect of his entire staff and has surrounded himself with outstanding talent, from geologists to IR, to move this company forward. For someone who doesn’t have a geological background, he has an amazingly strong grasp of this industry;
2. In the midst of the 2008-2009 financial crisis, O’Neill made some very bold and smart decisions – he scooped up some high quality properties in New Zealand and Australia for minimal cost, recruited some key personnel, and refused to do a dilutive financing unlike so many other companies. He very carefully managed Kent’s cash flow and guarded the share structure. His actions during that time have laid the foundation for Kent to become an extremely successful junior exploration company with a share price far exceeding where it is today;
3. O’Neill’s team of geologists have done an immense amount of work on the company’s New Zealand and Australian properties which are going to be drilled starting in March. Kent’s partner in Australia is Teck, and the Gnaweeda Project there is going to become a dividend for Kent shareholders who will be receiving one share in Archean Star Resources for every four shares held in Kent (check out www.archeanstar.com);
4. Kent’s Flagstaff Property in Washington state makes Kent the only publicly traded company we’re aware of with a production-ready barite deposit. Flagstaff also has a potential gold resource. Results are expected very soon from last October’s drill program that attempted to confirm some impressive historical gold drill results (high grade and shallow). It would certainly be a shame for those who sold today if Kent reports favorable results from Flagstaff this week or next (just our speculation, but the delay in assays could be due to re-checking high grades).
Kent closed today at .205, giving it a market capitalization of only $7 million with just 33.5 million shares outstanding. The Alexander River Project alone has an historical (non-compliant) gold resource of 643,000 ounces. A doubling of that resource is very realistic. Kent’s market cap has only one way to go and that’s up – perhaps way up.
With all due respect to Clive Maund, this is no time to be “taking profits” on Kent. In fact, just the opposite – this is the perfect opportunity, especially given the “on sale” sign that was posted today, to accumulate as much of this stock as possible in advance of what we believe will be a massive move in Kent anytime over the next few months.
Some strange selling hit Gold Bullion Development Corporation (GBB, TSX-V) today, too, driving it as low at .095. Gold Bullion finished the day down 1.5 cents to .10, its lowest close since Jan. 5. The selling appeared technical in nature, again ignoring the fundamentals. As soon as the stock fell below support at .105 (the 20-day moving average), a wave of selling came in and drove it down further. This company is exploring a property (a former producer) with tremendous potential along the “Cadillac Fault” where so many major discoveries have been made. Rest assured, we’ve done our homework on this one and we believe there’s a great chance Gold Bullion is going to make a significant exploration breakthrough at Granada (the very short term technicals may have weakened today but the longer term technicals and fundamentals with GBB are rock solid).
