TPS Trade Alert – January 24, 2014
January 24, 2014
Recommendation:
Buy Asanko Gold (AMEX: AKG) up to $1.85 per share.
Trade Rationale:
2013 was a rough year for gold. The widely popular precious metal was down nearly 30% for the year. And no wonder, stocks were up 30% on average… who’d want to miss out on that rally?
But 2014 is here and times are changing.
So far in January, gold futures are up over 5%. And while the yellow metal has a long way to go to return to its glory days of 2011/2012, gold seems to have bottomed out around $1,200 an ounce and reversed higher.
As of this writing, the price of gold is sitting at roughly $1,264 with positive momentum on its side. The next stop higher could very well be $1,400.
Here’s the deal…
Several factors are coming together which could put gold back on the radar for investors.
First off, China’s economy is in trouble. With China being such a huge consumer of international goods, problems with the massive country’s economy implies bad news for the US.
So far, the stock market is reacting very negatively to China’s slowdown. The drag on stocks could very well continue into the year. As such, investors will start seeking safer investments, with gold at the top of the list.
What’s more, the Fed may reverse its decision to taper its bond buying program if the US economy/stock market look to be in trouble. Traditionally, the central bank’s monetary program has been bearish for the US dollar – which means it’s bullish for gold. If the Fed decides to slow down or eliminate its tapering, gold could see a big influx of investment dollars.
So with gold on the cusp of becoming relevant again, what’s the best way to go long the precious metal using micro-cap stocks?
Our recommendation is to buy Asanko Gold (AMEX: AKG).
AKG is a gold exploration and production company located in Ghana, West Africa. Ghana is the second largest gold producer in Africa and has a stable and functioning democracy. In other words, it’s a good place to own a gold mine.
Asanko is about to become a major player in West Africa with its proposed acquisition of PMI Gold. Together the two companies will have a whopping 4.8 million ounces of proven and probable gold reserves.
By 2017, the combined companies are expected to produce 400,000 ounces of gold per year. That would make AKG a mid-tier gold producer.
In the meantime, AKG’s existing gold mine project is fully funded and slated to begin construction this quarter. That means cash flow from gold production could commence as early as 2015. And, at gold’s current price, the company will be looking at roughly $75 million per year in free cash flow from their gold holdings (not even including the PMI resources).
Finally, AKG has $185 million in cash and no debt. That means the company is worth $2.18 per share based on its cash holding alone. Nevertheless, the shares are trading at just $1.62, or a miniscule 0.61x book value.
To put it another way, the company’s current book value is over $0.50 higher than the current price! That’s absurd. The market price is suggesting AKG is worth less than its cash value and doesn’t take into account future gold production at all.
Asanka Gold is not only a great way to buy into the coming rally in gold, but it’s an absolute steal at the current price. Don’t waste any time – buy your shares of AKG now.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Asanko Gold |
| Ticker: | AKG |
| Recent Price: | $1.62 |
| Market Cap: | $137.8 million |
| Avg. Daily Volume: | 175,945 shares |
Chart:
Category: TPS Trade Alert
