Fundamentally speaking

Posted by Rick Bekkering

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by Rick Bekkering Investment Advisor

The tax loss season is behind us and the resource sector hasn’t seen a beat down like the past couple years since the “Rumble in the Jungle” in 1974 Zaire between Foreman and Ali. Within the resource sector there are many sub sectors and market capitalized companies. You have the Large capitalized companies over 10 billion, Mid Cap. at 2-10 billion, Small Cap. at less than 2 billion and finally Micro-cap. Then you have different types of commodities ranging from precious metals (Platinum, Gold, and Silver) to the base metals complex (iron, nickel, lead, copper). There are Energy stocks (Oil, Gas, and Uranium) to name a few and lumber stocks…the list goes on.

Within the different resource groups there are also various business sectors that are affected directly from production. Needless to say Cyclical investing in the resource sector is anything but easy. And it has a lot less to do with the commodity price then it would appear on the service. The perfect example is what we are seeing today with high Gold prices and gold stocks skipping off major if not all time lows.

So how to help “invest” in the resource sector when considering all the choices most I.A’s and portfolio managers will perform stock valuations. In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the expectation that undervalued stocks will, on the whole, rise in value, while overvalued stocks will, on the whole, fall.

In the view of fundamental analysis, stock valuation based on fundamentals aims to give an estimate of their intrinsic value of the stock, based on predictions of the future cash flows and profitability of the business. Fundamental analysis may be replaced or augmented by market criteria – what the market will pay for the stock, without any necessary notion of intrinsic value. These can be combined as “predictions of future cash flows/profits (fundamental)”, together with “what will the market pay for these profits?” These can be seen as “supply and demand” sides – what underlies the supply (of stock), and what drives the (market) demand for stock?

Some of the ratio’s to compare from company to company are redily available from your broker or advisor and are Price/Book Value Ratio, Price/Cash Flow Ratio, Price/Earnings Ratio/Price/Sales Ratio and Dividend Yield. I like Debt/Equity as well.

Rick Bekkering is an Investment Advisor in Kelowna BC and can be reached at

1 855 478 1590 or at www.Rickbekkering.com