New trade for December 10th, 2010.
After two and a half years of utter carnage in the junior market, it is nice to see so much value once again. So continuing on the theme set forth in our 1st two weeks of Q3'10 report, we have found yet another junior resource name that looks to be trading at dirt cheap levels.
This brings us to CRI's latest acquisition: AGX.V (Amador Gold Corp.).
AGX.V 3 Months (chart 1)
AGX.V 2 years (chart 2)
Amador Gold (AGX.V) came to CRI's attention in the winter of 2010 when a friend bought some. The stock at the time was $.08 and we watched it drop to $.01 (boo). Once at $.01 there just wasn't anywhere else for this little one to go. The company could either de-list or roll the stock back (at the time there was over 200 million shares outstanding). While the company had an impressive array of gold/copper prospects (Rights and hard assets that total in the $100,000's if not millions) they had no cash to pay for exploration work and as a result, no future.
TSX-Venture Cap lesson for the day
The easy fix for this problem in the venture capital arena is to consolidate or 'roll-back' the company's stock. By doing this, a once un-finance-able company now becomes quite attractive to prospective investors as the per share value of a purchase can justify the risk. To this end, you will often hear of financing activities in and around a consolidation. As an additional sign of 'value', many indebted individuals will take shares in the consolidated company in forgiveness of their debt. Since the new stock is often trading at a substantial discount to cash, this action enriches the indebted while at the same time helping the balance sheet of the debtor. A final note here, many company's will re-instate stock-option plans or grant new options to directors at the rolled back price as again these levels represent a 'floor' on the stock.
(Back to the trade)
AGX announced in the middle of October that it was going to roll its stock back on a 17:1 basis (news link). At the time it was trading .01 bid / .02 offer. That meant that after the roll-back it would be .17 /.34. Additionally, the company did a financing upon the completion of the consolidation which gave them working capital. With a little over 15 million shares out and trading at a substantial discount to book value (even today at .245!) the stock was a buy, it was just a case of when the 'technical's' might come in.
So for that part of the equation we look at the charts.
Daily notes (chart 1 above)
1. Notice how on the daily chart above (chart 1) the low of $.17 (or $.01 on the old stock) has been tested on numerous occasions of late but not penetrated.
2. Notice the double bottom of late (through $.205). While the recent low did take out the Nov. low, it was on a momentum divergence and it did not break that .17 area.
3. Notice too that a 50% retracement of just this range brings prices back into the $.255 area.....where it seems to be headed in the near term.
Daily Summary
Ideally one would like to be long this stock at or near $.205 with stops just below the important $.17 level. Upside targets in the near term would be the 50% level at or near $.255, the gap at $.28, the October high at $.31, the roll-back high ($.02 on old stock) at $.34. This may take months, weeks, or days but there is something going on here and CRI wants to be long.
Weekly Notes (chart 2 above)
1. First and foremost, the 50% level is currently sitting at $.935!
2. The downtrend line and the significant lows of the summer of 2009 suggest there ought to be a lot of resistance at or near $.60
Weekly Summary
One can make an argument that this stock is still in its bottom forming stage. I has yet to break out in earnest but once it does there is a lot of upside potential. Indeed, from current levels there is a very high probability of doubling your money...
Summary.
AGX.V now represents what CRI would consider a rational investment idea. Fundamentally the company has a lot going for it. Technically the company has a lot going for it. CRI has stepped up to the plate and bought, as a subscriber maybe you should too...
Remember, make sure the system you are using is at least 66% accurate and for heavens' sake, don't put more than 5% of your risk capital into any one play.
That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com
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