Erik Wetterling – Shifting Some Focus From Alpha To Beta Mining Stocks In This Low Sentiment Environment
Erik Wetterling, Founder and Editor of The Hedgeless Horseman website, joins us to review the recent shift in his focus from Alpha mining stocks with “probable growth” to the Beta mining stocks with more optionality when sentiment shifts back higher. As a value investor in junior gold and silver mining stocks, he has been comfortable the last 2 years patiently holding and adding to the Alpha companies with competent management teams and a defined strategy to grow value in their project, waiting for the investing thesis to play out. However, when investing in the Beta companies, Erik points out that it is more about market timing and getting them during bottoming period and sentiment lows, and getting back out of them at sentiment swings to the upside.
We discussed the recent change in market perception and doubling in valuation in Headwater Gold (CSE: HWG) (OTCQB: HWAUF) when news broke that the major producer Newcrest Mining (TSX: NCM) (OTC: NCMGF) had signed an earn-in agreement on 4 different projects. Erik pointed out that when these micro-cap beta stocks move, and even small amounts of capital rush in, that it can be sudden and substantial gains, as they are already so beaten down on very low volumes and minimal investor interest. Erik believes this is symptomatic of many of the very beat down earlier stage microcap beta stocks.
Next we discussed that really the whole sector is beaten down, so even quality alpha stocks he has been positioning in have pulled back substantially from where the valuation already seemed cheap. He discussed the example of I-80 Gold (TSX: IAU) (NYSE: IAUX), where the company has a solid growth plan, so he feels conviction it will move much higher with the sector bailing out positioning that is currently underwater. We wrap up discussing the optionality of some of the more advanced explorers and developers, with ounces already defined in the ground as other potential beta stocks, and that while their upside moves may not be as dramatic as the micro-cap stocks, in many cases the risk reward set up is more compelling when considering the time, money invested, and results already banked.