When looking at a stock, one of the first things I look at is the amount of stock out and the stock price, to figure out a company’s valuation. How they manage their money is reflected in the amount of stock out, if they have a lot out, they spend a lot. One of my mentor’s that had a couple multi-million dollars take overs told me he pays close attention to his cost of discovery. Investors should as well.
Size of the share count on a fully diluted basis and size of the target matter as well, if a company has found something but have a mountain of stock out, the chances of a big home run are reduced. I’m the president/CEO of two public companies, I think a lot about doing the most I can without blowing up the shares outstanding.
I always try to avoid stocks that have a bunch of shares out. Once they get up into the hundreds of millions of shares they are susceptible to everhang. Overhang in a stock can be eaten up by strong buying, but everhang can’t.
I wrote a post last year about what I call everhang, read it here, I made the name up by accident but it is something every investor should be aware of. Looking at companies based on valuation over what the stock price is doing will make your stock picking more successful.
I always ask myself the question when looking at a new or current stock pick. If I could buy the whole company for its current valuation, would I? I use stock charts to evaluate timing, but picking stocks still comes down to that question.
Another thing we hear all the time when talking about stocks is you shouldn’t be a market timer. But a funny thing happens in the stock market, when a lot of companies in a sector are trading at cheap valuations relative to the quality of their projects, you should be buying.
It is precisely then that most investors aren’t interested in buying, they are more apt to lament the inferior performance of this or that stock. For a reporter on the stock market that wants people to read my stuff and watch my shows it is disheartening that the fewest amount of people are looking to read bullish reports at bottoms. When it is the most profitable.
Since the gold bear market of 2011-2015 ended and the new gold bull market started in January 2016, gold stocks have been climbing a big wall of worry. Much more worry than climbing. We are nowhere near any kind of top when you see everybody and their dog owning gold stocks. These days valuations are still being priced as if we are in a gold bear market still which means cheap valuations.
This new gold bull market is in its infancy still, we have had a couple serious corrections since it started, and are in the midst of one now. The worst is over and it is time for things to turn the corner soon.
There is still time to catch things on the cheap, I have a new addition to the roster of stocks I follow.
A New Stock Pick
K2 Gold Corp. (KTO.V) is a John Robins company, John has had plenty of success in the mining sector with his most recent being Kaminak Gold which was bought out by Goldcorp. This is a true exploration stock here, with a couple interesting projects, not much stock out, some dough in the treasury and a team that have driven the grassroots exploration to success road before.
It always starts with the projects for me, they have two, one is their Flume property, the other the Wels property. When I did my homework on their projects the Flume property caught my eye but it looks like their focus is on drilling the Wels property.
The Flume property has seen a fair amount of work, including surface sampling, which makes sense with their structural story and geophysical anomalies. It all sort of makes sense, I like it when these things come together, especially if there hasn’t been a lot of drilling. I like there was sniffs of success with the limited drilling.
Their Wels property is no slouch either and I can see why they like it a lot, they have some nice trenching results with high-grade gold. The limited drilling, 442 metres in 5 drill holes, had some sniffs but not like the trenching results. The trenching has come up with a 1,000 metre X 350 metres soil anomaly so they have only scratched the surface with the drilling relative to the size of the soil anomaly.
They did get some promising results with the limited drilling, including nice high-grade gold to follow up on and see if they can tie it together with some size potential. It is wide open with multiple targets to drill. I really like finding these kind of exploration stories when they don’t have much stock out and projects with potential, and some money in the bank so they can get the truth machine going and drill some holes.
The company has around $1.5 million in the bank and drilling season just around the corner with exciting high-grade gold exploration targets. One of the reasons I like them is because they don’t have much stock out.
Having a little amount of stock out could cause you to pay up with market orders as there is little stock on the offers. If you are trying to pick some up I would be mindful to use market orders setting the price and wait to see if sellers show up.