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My Best Trade Ever Is an Even Better Deal TodayBy
Tuesday, February 22, 2011
In mid-2005, I recommended shares of Seabridge Gold to a few thousand subscribers. We sold a couple years later, up 995%.
Today, it's a better deal than when I originally recommended it...
Seabridge is one of the world's largest undeveloped gold deposits, with $90 billion worth of gold in the ground in Canada.
When we bought it in 2005, it offered fantastic upside potential: If the price of gold went up, Seabridge would soar. But our downside risk was limited: Seabridge's stock was so cheap compared to the amount of gold it owned, it could hardly go lower.
That's the way I want to invest.
You want to buy Seabridge (NYSE: SA) when you're getting a LOT of gold for a low price. After we made nearly 10 times our money on Seabridge, I never thought I'd get a chance like that again... But Seabridge is a better deal today than it was back then.
Since 2005, shares of Seabridge have climbed from $2.64 when I originally recommended it to over $30 today. So how can it be a value today when it's up so much?
Three reasons:
1) The price of gold has soared, increasing Seabridge's value.
2) Seabridge's shares have done nothing since mid-2007.
3) Seabridge has massively increased its gold resources.
The chart below from my January 2010 issue of True Wealth tells the story... It compares the market value of Seabridge shares to the value of its gold resources in the ground.
 Back in 2005, Seabridge didn't have a lot of gold value in the ground compared to today. But it didn't have a big stock market value, either. So it was cheap. You can see what I mean in the bottom left of the chart.
By mid-2007, Seabridge was expensive relative to the gold it had. And we sold. But since then, the price of gold has doubled. The dollar value of Seabridge's gold in the ground has soared. But the stock is similar to the price we sold it at in 2007, at around $30 a share.
Even though Seabridge is cheap, it has a lot more going for it today than it did back in 2005... With the price of gold so high, it's "economic" to pull the gold out of the ground. And in recent years, Seabridge has done the drilling necessary to reclassify much of those gold "resources" into gold "reserves." This dramatically increases Seabridge's buyout value.
Seabridge's flagship asset – Kerr-Sulphurets-Mitchell (or KSM) – likely has around 35 million ounces of gold reserves. In March 2010, gold giant Barrick Gold bought into a project like Seabridge for $82 per ounce of gold reserves.
Valuing KSM at $82 per ounce, that's a buyout price of $2.87 billion... over twice Seabridge's current market value (around $1.3 billion).
If gold keeps going up as it has, the ultimate buyout price could go much higher. And I'm not counting Seabridge's other assets, either. The bullish case is as high as $200 a share.
On the downside, if gold falls dramatically, Seabridge will get hurt. But as the chart above shows, Seabridge is so cheap, shares should have a floor to their price. The other downside risk is that the universe of potential buyers is small. But this is a motherlode asset, in a safe jurisdiction (Canada), so it will happen someday.
The price of gold has doubled since 2007. And Seabridge has dramatically increased its own value. Yet the stock price of Seabridge has been stuck around $30. (I told my paid subscribers to buy shares of Seabridge Gold under $29. That advice still stands... Don't chase it.)
Readers once rode Seabridge for a 995% gain. It's a much better deal today than it was back then. It will be a mine some day. It will be bought out some day... And shareholders will make triple-digit returns from current prices.
Good investing,
Steve
Further Reading:
Read more about Seabridge's incredible story here: Seabridge Gold: One Great Stock Idea.
Steve uses a simple strategy to let his winners run and cut his losers early. That strategy turned Seabridge into a 995% winner. Learn more here: Avoiding the Biggest Mistake Investors Make.
Market NotesTHE XLF BATTLE IS OVER. THE BULLS WON. The breakout is official: It's a bull market in financial stocks.
For over a year, we've monitored the long "bulls vs. bears" struggle in the big financial investment fund (NYSE: XLF). It's been one of the most important battles in the entire stock market... or it was, anyway.
With large weightings in giants like JPMorgan, Wells Fargo, American Express, and Bank of America, XLF rises and falls with America's ability to earn money, service debts, launch new businesses, and generally just "get along." For 18 months, this fund was locked in a huge sideways trading pattern. Several weeks ago, we noted how this fund was "one small step" from taking out its April 2010 closing high of $17.05.
On Friday, February 11, that step happened. XLF built on its bullish series of "higher highs and higher lows" to close at $17.08... Then inched higher to close at $17.16 last Wednesday.
We once again remind readers there are many things worth worrying about out there (government debt and government debt being the two biggest), but since money talks and you-know-what walks, we have to look at this bull move in America's financial backbone and say, "For now, things ain't all bad."
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